UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 3, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-14399
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 06-1104930
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
850 Third Avenue, New York, New York 10022
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(Address of principal executive offices) (Zip Code)
(212) 753-8500
(Registrant's telephone number, including area code)
------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common stock, par value $.01 per share: 25,339,743 shares
outstanding as of September 13, 1996.
1
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GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
TABLE OF CONTENTS
Page
Number
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets-- 3
August 3, 1996 (Unaudited) and
February 3, 1996
Condensed Consolidated Statements of Operations-- 5
Three months ended August 3, 1996 and
July 29, 1995 (Unaudited)
Condensed Consolidated Statements of Operations-- 6
Six months ended August 3, 1996 and
July 29, 1995 (Unaudited)
Condensed Consolidated Statements of Cash Flows-- 7
Six months ended August 3, 1996 and
July 29, 1995 (Unaudited)
Notes to Condensed Consolidated Financial 9
Statements (Unaudited)
Item 2. Management's Discussion and Analysis of 14
Financial Condition and Results of Operations
PART II OTHER INFORMATION
Item 4. Submission of matters to a vote of security holders 21
Item 6. Exhibits and reports on Form 8-K 21
SIGNATURES 24
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except for Share and Per Share Data)
- --------------------------------------------------------------------------------
AUGUST 3, FEBRUARY 3,
1996 1995
ASSETS (Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 73,894 $ 45,223
Accounts receivable 43,595 61,033
Inventories 45,264 84,354
Net assets held for sale and
other current assets 33,067 32,413
---------- ----------
Total current assets 195,820 223,023
--------- ---------
OTHER ASSETS 6,911 14,429
----------- ----------
PROPERTY, PLANT AND EQUIPMENT 105,392 134,016
Less accumulated depreciation and
amortization 51,204 58,566
--------- ----------
Total property, plant and equipment 54,188 75,450
---------- ----------
IDENTIFIED INTANGIBLES AND COST IN EXCESS
OF NET ASSETS ACQUIRED (GOODWILL), less
accumulated amortization of $21,205
at February 3, 1996 0 9,063
---------- ----------
$ 256,919 $ 321,965
========= =========
See Notes to Condensed Consolidated
Financial Statements
3
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GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands Except for Share and Per Share Data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AUGUST 3, FEBRUARY 3,
1996 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (Unaudited)
CURRENT LIABILITIES:
Accounts payable $ 9,089 $ 19,000
Accrued compensation and fringe benefits 4,720 8,073
Other current liabilities 28,724 30,641
--------- ---------
Total current liabilities 42,533 57,714
--------- ---------
NONCURRENT LIABILITIES:
Long-term debt 149,854 149,845
Accumulated postretirement benefit obligation 28,230 27,572
Other 16,728 2,481
--------- ----------
Total noncurrent liabilities 194,812 179,898
-------- --------
CONVERTIBLE PREFERRED STOCK - Series A, 20,000
shares authorized, no par value, 19,970 shares issued and outstanding; at
mandatory redemption amount 9,985
STOCKHOLDERS' EQUITY:
Convertible Preferred Stock - Series B, 13,000 shares authorized, no
par value, 13,000 shares issued and
outstanding; at redemption amount 65,000
Common Stock, $.01 par value, 60,000,000 shares authorized, 22,082,137
and 21,875,539 shares issued 221 219
Additional paid in capital 80,623 87,044
Note receivable from sale of Common Stock (4,796)
Retained earnings (deficit) (121,762) (3,608)
Cumulative translation adjustments (1,686) (1,669)
----------- -----------
22,396 77,190
Less cost of Common Stock in treasury - 208,800 shares 2,822 2,822
---------- ----------
Total stockholders' equity 19,574 74,368
--------- ---------
$256,919 $321,965
======== ========
</TABLE>
See Notes to Condensed Consolidated
Financial Statements
4
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except for Per Share Data)
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<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------
AUGUST 3, JULY 29,
1996 1995
(Unaudited)
<S> <C> <C>
REVENUES: $ 66,517 $ 93,391
COSTS AND EXPENSES:
Cost of sales 80,032 67,149
Selling, general and administrative 52,741 29,385
Gain on streamlining plan (2,000)
Restructuring charges 40,680
-----------
Total costs and expenses 173,453 94,534
---------- ----------
LOSS BEFORE INTEREST EXPENSE AND PROVISION (BENEFIT) FOR INCOME TAXES
(106,936) (1,143)
INTEREST EXPENSE, net of interest income of $988 and
$818, respectively 1,880 1,983
------------ -----------
LOSS BEFORE PROVISION (BENEFIT) FOR INCOME TAXES (108,816) (3,126)
PROVISION (BENEFIT) FOR INCOME TAXES 574 (85)
------------- -------------
NET LOSS ($109,390) ($ 3,041)
========== ==========
LOSS PER COMMON SHARE ($5.07) ($0.15)
============= ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 22,060 21,025
=========== ==========
</TABLE>
See Notes to Condensed Consolidated
Financial Statements
5
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands Except for Per Share Data)
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<TABLE>
<CAPTION>
SIX MONTHS ENDED
---------------------------------------
AUGUST 3, JULY 29,
1996 1995
(Unaudited)
<S> <C> <C>
REVENUES: $ 134,856 $ 178,212
COSTS AND EXPENSES:
Cost of sales 131,951 132,747
Selling, general and administrative 75,466 59,485
Gain on streamlining plan (2,000)
Restructuring charges 40,680
----------- ----------
Total costs and expenses 248,097 190,232
---------- ----------
LOSS BEFORE INTEREST EXPENSE AND PROVISION
(BENEFIT) FOR INCOME TAXES (113,241) (12,020)
INTEREST EXPENSE, net of interest income of $1,535
and $1,942, respectively 4,391 4,401
------------ ------------
LOSS BEFORE PROVISION (BENEFIT) FOR INCOME TAXES (117,632) (16,421)
PROVISION (BENEFIT) FOR INCOME TAXES 522 (72)
-------------- ---------------
NET LOSS $ (118,154) $ (16,349)
=========== ===========
LOSS PER COMMON SHARE $ (5.50) $ (0.80)
=========== ============
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 21,968 21,024
========== ===========
</TABLE>
See Notes to Condensed Consolidated
Financial Statements
6
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
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<TABLE>
<CAPTION>
SIX MONTHS ENDED
--------------------------------------
AUGUST 3, JULY 29,
1996 1995
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (118,154) $ (16,349)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 7,616 7,271
Provision for losses on accounts receivable 1,722 739
Gain on streamlining plan (2,000)
Loss (gain) on disposition of plant and equipment 66 (353)
Restructuring charge 40,680
Other non-cash charges associated with strategic redirection
of the Company 39,449
Non-cash compensation expenses 12,786
Other 857 449
Changes in assets and liabilities:
Accounts receivable 5,950 (737)
Inventories 11,350 (2,671)
Accounts payable (8,217) 951
Accrued compensation and fringe benefits (2,013)
Other assets and liabilities (5,296) (9,692)
------------ -----------
Net cash used in operating activities (13,204) (22,392)
----------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposit on Broadway Video acquisition (5,000)
Acquisitions of plant and equipment (4,340) (6,129)
Proceeds from streamlining plan 642 3,801
Proceeds from disposition of plant and equipment 52 571
Other 350
-----------
Net cash used in investing activities (8,646) (1,407)
---------- -----------
</TABLE>
See Notes to Condensed Consolidated
Financial Statements
7
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
-------------------------------------
AUGUST 3, JULY 29,
1996 1995
(Unaudited)
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under Credit Agreement $ (32,000)
Proceeds from issuance of Preferred Stock-Series B $ 65,000
Issuance costs of Preferred Stock-Series B (6,163)
Redemption of Preferred Stock-Series A (9,985)
Proceeds from sale of Common Stock 2,305 30
Dividends paid on Preferred Stock (646) (424)
------------- -------------
Net cash provided by (used in) financing activities 50,511 (32,394)
---------- -----------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH 10 17
------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 28,671 (56,176)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 45,223 85,406
---------- ----------
CASH AND CASH EQUIVALENTS, END
OF PERIOD $ 73,894 $ 29,230
========= =========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid (received) during the period for:
Interest $ 5,817 $ 6,091
Income taxes, net of refunds received $ (154) $ (5,147)
</TABLE>
See Notes to Condensed Consolidated
Financial Statements
8
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - Basis of Presentation
As more fully described in Note C - Change in Control and Strategic Direction
of Registrant, the financial statements for the three month and six month
periods ended August 3, 1996 include restructuring and other charges
aggregating $96.3 million, which consists of (i) $16.2 million in connection
with the sale of a significant equity interest in Golden Books Family
Entertainment, Inc. (formerly Western Publishing Group, Inc.) (the "Company")
to Golden Press Holding LLC, a Delaware limited liability company owned by
Richard E. Snyder, Barry Diller and Warburg, Pincus Ventures, L.P. ("GP
Holding") (the "GPH Transaction"), and (ii) $80.1 million in connection with
the implementation by the Company of its strategic plan to return its core
business to profitability and to redeploy assets.
The results of operations for any interim period are not necessarily
indicative of the results to be expected for the full fiscal year. The
business of the Company in general is seasonal and depends to a significant
extent on the Christmas selling season, resulting in a disproportionately
higher percentage of revenues in the Company's third fiscal quarter.
In connection with the transactions described below in Note C, and as approved
by the requisite vote of the Company's stockholders, the name of the Company
was changed from Western Publishing Group, Inc. to Golden Books Family
Entertainment, Inc. In addition, the name of Western Publishing Company, Inc.,
the principal operating subsidiary of the Company ("WPC"), was changed to
Golden Books Publishing Company, Inc. ("Golden Books Publishing").
In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary to present
fairly the financial position as of August 3, 1996 and the results of
operations for the three month and six month periods ended August 3, 1996 and
July 29, 1995 and cash flows for the six month periods ended August 3, 1996
and July 29, 1995. Certain reclassifications have been made in the prior year
financial statements to conform with the current year presentation. These
financial statements should be read in conjunction with the consolidated
financial statements of the Company contained in the Company's Form 10-K for
the year ended February 3, 1996.
NOTE B - Inventories
Inventories consisted of the following:
AUGUST 3 , FEBRUARY 3,
1996 1996
(IN THOUSANDS)
Raw materials $ 9,202 $ 10,877
Work in process 5,146 13,014
Finished goods 30,916 60,463
------------- -------------
$ 45,264 $ 84,354
============ =============
9
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NOTE C - Change in Control and Strategic Direction of Registrant
Control of Registrant
On May 8, 1996, the Company completed the sale of a significant equity
interest to GP Holding. The Company issued to GP Holding, for an aggregate
purchase price of $65,000,000, (i) 13,000 shares of the Company's Series B
Convertible Preferred Stock, no par value (the "Series B Preferred Stock"),
each of which shares is convertible into shares of the Company's common stock,
par value $.01 per share ("Common Stock"), at an initial conversion price of
$10 per share, and (ii) a warrant to purchase 3,250,000 shares of Common Stock
at an initial exercise price of $10 per share. Net proceeds associated with
the transaction were $58.8 million, after giving effect to $6.2 million of
transaction costs. Net proceeds were partially used to retire approximately
$10 million of Series A Preferred Stock, no par value (the "Series A Preferred
Stock"), at its face amount plus $.7 million of related accrued dividends, in
addition to payments of $3.4 million for severance and transition costs.
On January 31, 1996, 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 (the "Snyder
Incentive 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. On May 8, 1996, the Interim Employment Agreement was superseded by
a five year employment agreement (the "Employment Agreement"). Under the terms
of the Employment Agreement, Mr. Snyder is entitled to receive annual
compensation of $500,000 and an opportunity to earn bonuses of up to $1
million each year. Additionally, on May 8, 1996, Mr. Snyder received options
to acquire 1,113,293 shares of Common Stock at a price of $12.81 per share
(the "Snyder Option"), special bonuses based on the market price of the Common
Stock, supplemental retirement benefits, post-retirement medical benefits and
certain other benefits. Accordingly, in the second quarter of fiscal 1997,
$12.8 million of costs associated with the Employment Agreement were charged
to operations.
Strategic Direction of Registrant
As part of new management's plan to return the Company's core publishing
business to profitability and to redeploy assets, new management has taken a
number of strategic actions and, accordingly, made decisions with respect to
certain of the Company's assets.
New management has determined that Penn Corporation ("Penn"), a wholly owned
subsidiary of the Company that designs, produces and distributes decorated
paper tableware, party accessories and giftware, does not fit the Company's
future strategic direction and, accordingly, will divest Penn. Penn's net
assets have been classified as a net asset held for sale in the second quarter
financial statements (see Note E).
In addition, new management is in the process of reviewing the Company's
operations with a view to reducing the costs of those operations and creating
an operating environment conducive to the pursuit of its new business
strategy. The Company expects to complete the review by the end of fiscal
1997. As a consequence of this review and the decision to sell Penn, the
Company recorded writedowns and other charges in the second quarter financial
statements totaling $80.1 million (in addition to charges of $16.2 million in
connection with the sale of a significant equity interest to GP Holding) as
follows: (i) a restructuring charge totaling $40.7 million pertaining to a
$30.1 million writedown of the net assets of Penn to net realizable value, a
$3.0 million reduction in the net realizable value of the Company's
Fayetteville facility and $7.6 million in costs associated with the
termination of certain customer program initiatives; (ii) a cost of sales
adjustment of $25.0 million comprised of $17.6 million of costs pertaining to
the Company's decision to discontinue or replace certain product lines and
expeditiously liquidate related inventory and slow moving product and $7.4
million of other inventory related costs, consisting primarily of licensor and
prepublication costs, (iii) a selling, general and administrative charge of
$11.0 million relating to costs associated with management's revised plans to
resolve certain legal and contractual matters; and
10
<PAGE>
(iv) adjustments to revenue totaling $3.4 million to establish reserves in
connection with the Company's plans to resolve differences with customers with
a view toward mending and improving the Company's relationships with its
customers.
The Company expects to record additional writedowns and other charges in
fiscal 1997, which may be substantial.
Note D - Corporate Reorganization
On May 8, 1996, the Company effected a reorganization of certain of its
subsidiaries (the "Reorganization"). First, the Company conveyed to Golden
Books, Inc., a Delaware corporation and wholly owned subsidiary of the Company
("GB"), (x) all of the issued and outstanding shares of capital stock of Penn
and (y) all of the issued and outstanding shares of capital stock of WPC.
Immediately thereafter, the Company caused GB to merge with and into WPC. In
connection with the Reorganization, the Company, WPC and GB entered into a
First Supplemental Indenture, dated as of May 8, 1996, with Marine Midland
Bank, a New York banking and trust company, as Successor Trustee, pursuant to
which WPC (the name of which was subsequently changed to Golden Books
Publishing Company, Inc.) was substituted for the Company as the obligor with
respect to the 7.65% Senior Notes due 2002 originally issued by the Company.
NOTE E - Net Assets Held for Sale
During fiscal 1995, prior management adopted a plan designed to improve the
Company's 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. As of August 3, 1996, net assets held for
sale and other current assets include the Company's Fayetteville facility,
which was closed in conjunction with the sale of the Company's game and puzzle
business. A $3.0 million revision to the net realizable value of this facility
was recorded in the second quarter of fiscal 1997.
As discussed in Note C, during the second quarter, management decided to
divest Penn. Accordingly, in the second quarter of fiscal 1997, the Company
recorded a restructuring charge of $30.1 million to reflect the writedown of
Penn's assets to net realizable value. In the second quarter financial
statements, Penn's net assets have been classified as a net asset held for
sale and other current assets. Penn's operations for the three and six months
ended August 3, 1996 and July 29, 1995 were as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
3 Months Ended 6 Months Ended
------------------- -------------------
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues $ 11,024 $ 14,097 $ 23,736 $ 30,700
Gross profit 1,005 3,366 4,255 7,877
Loss before interest expense
and provision for income taxes $ (1,433) $ (400) $ (1,766) $ (90)
</TABLE>
NOTE F - Stockholders' Equity
On May 8, 1996, pursuant to the sale of a significant equity interest in the
Company to GP Holding, and the requisite vote of the stockholders of the
Company (see Note C), an amendment to increase the authorized number of shares
of Common Stock from 40,000,000 shares to 60,000,000 shares was approved and
an amendment to
11
<PAGE>
increase the number of shares of Common Stock available under
the 1995 Stock Option Plan from 750,000 shares to 2,250,000 shares was
approved.
During the period from February 4, 1996 through September 17, 1996, the
Company granted to its directors and employees options to purchase, in the
aggregate, 2,626,089 shares of Common Stock of the Company. Such options are
exercisable at the fair market value of the Common Stock on the date of grant
(or, in the case of the anti-dilution adjustment to Richard E. Snyder's
options, the date of the initial grant) and are exercisable beginning between
one and five years following such date and expire between seven and ten years
following such date, in each case, depending upon the particular option grant.
NOTE G - Loss Per Common Share
Loss per common share was computed as follows:
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------ ----------------
August 3, July 29, August 3, July 29,
1996 1995 1996 1995
(in thousands except for per share data)
<S> <C> <C> <C> <C>
Net loss $ (109,390) $ (3,041) $ (118,154) $ (16,349)
Preferred dividend requirements (2,349) (212) (2,561) (424)
------------- ----------- ------------- -------------
Loss applicable to common stock $(111,739) $ (3,253) $(120,715) $ (16,773)
========== =========== ========== =============
Weighted average common shares
outstanding 22,060 21,025 21,968 21,024
============= =========== ============= =============
Loss per common share $ (5.07) $ (0.15) $ (5.50) $ (0.80)
============= =========== ============= =============
</TABLE>
NOTE H - Subsequent Events
On August 20, 1996, the Company raised $100 million through a private
placement of convertible Trust Originated Preferred Securities (the "Preferred
Securities") under Rule 144A under the Securities Act of 1933, as amended (the
"Securities Act"). The Preferred Securities were issued by Golden Books
Financing Trust (the "Trust"), a Delaware business trust financing vehicle.
The Company owns all of the common securities of the Trust. On September 9,
1996, the Company raised an additional $15 million pursuant to an
overallotment option granted with respect to the $100 million offering. The
net proceeds of such offering (including the overallotment option), after
commissions and expenses, were $110.75 million. The Preferred Securities pay
quarterly distributions at an annual distribution rate of 8 3/4% (subject to
any deferral by the Company and Golden Books Publishing), have an aggregate
liquidation preference of $115 million and are convertible at the option of
their holders into convertible debentures of the Company and Golden Books
Publishing, which are immediately convertible into Common Stock at an initial
conversion price of $13.00 per share.
On August 20, 1996, pursuant to an Asset Purchase Agreement, dated as of July
30, 1996, among Broadway Video Entertainment, L.P., Broadway Video
Enterprises, Inc., Lone Ranger Music, Inc., Palladium Limited Partnership
(collectively "BVELP"), the Company and certain of the Company's subsidiaries.
the Company acquired, among other things, substantially all of BVELP's
television and film library properties, and assumed payables and all
liabilities incurred in connection with the exploitation of such assets after
the closing, for an aggregate purchase price of approximately $81 million in
cash and $10 million in Common Stock (901,408 shares), as provided for in
12
<PAGE>
the Asset Purchase Agreement (the "Broadway Video Acquisition"). The Broadway
Video Acquisition will be accounted under the purchase method of accounting.
On September 6, 1996, the Company completed the sale to H C Crown Corp., a
wholly owned subsidiary of Hallmark Cards Incorporated ("Hallmark"), of
2,356,198 shares of Common Stock for approximately $25 million (the "Hallmark
Transaction"). The sale represented the completion of the first step in the
Company's strategic relationship with Hallmark. The Company and Hallmark are
discussing a further $25 million investment by Hallmark in Common Stock and
the terms of their strategic alliance and anticipate finalizing these
arrangements by year-end.
In connection with the Preferred Securities offering, the Broadway Video
Acquisition and the Hallmark Transaction, in accordance with the anti-dilution
provision of Richard E. Snyder's Employment Agreement, the Company issued
84,967 additional shares of Snyder Incentive Stock, increased by 157,796 the
number of shares exercisable under the Snyder Option and adjusted the special
bonuses provided for in the Employment Agreement (see Note C). This will
result in an additional charge of approximately $1.5 million in the third
quarter of fiscal 1997.
On August 14, 1996, the Company entered into an agreement with FUTECH
Educational Products, Inc. ("FUTECH"), pursuant to which the Company was
granted certain rights with respect to FUTECH's exclusive "talking pages"
technology, which the Company believes will replace that which is currently
used in its traditional Sight & Sound products. The Company's initial capital
contribution pursuant to such agreement totaled $2 million.
Unaudited pro forma results from operations, as if the above transactions had
occurred at the beginning of each respective period, are as follows:
6 Months Ended
-------------------
August 3, July 29,
1996 1995
(In thousands, except per share amounts)
Revenues $ 142,125 $ 183,845
Net Loss $ (124,327) $ (21,233)
Loss per common share $ (4.91) $ (1.04)
In addition, as result of the above transactions, the Company had, on a
pro forma basis, cash of approximately $129 million.
13
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL AND SHIFT IN BUSINESS STRATEGY
- --------------------------------------
Certain of the matters discussed in this Item may constitute forward-looking
statements within the meaning of Section 7A of the Securities Act and, as
such, may involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements.
The following discussion should be read in conjunction with the unaudited
consolidated statements of the Company for the three and six months ended
August 3, 1996 and July 29, 1995 and the related notes thereto.
The Company is the largest publisher of children's books in the North American
retail market. The Company creates, publishes and markets an extensive range
of children's entertainment products, including "Little Golden Books" and
other storybooks, coloring/activity books, electronic storybooks, puzzles,
educational workbooks, reference books and novelty book formats. The Company
has published its flagship product line, "Little Golden Books," for over 50
years.
On May 8, 1996, GP Holding, an investment vehicle formed by Warburg, Pincus
Ventures, L.P., Richard E. Snyder, and Barry Diller, invested $65 million in
the Company. At that time, the Company's name was changed from Western
Publishing Group, Inc. to Golden Books Family Entertainment, Inc. and Mr.
Snyder, the former Chairman and Chief Executive Officer of Simon & Schuster,
was appointed Chairman and Chief Executive Officer of the Company.
Since May 8, 1996, Mr. Snyder has assembled a new management team. Mr. Snyder
and his management team are implementing a new business strategy to build a
leading family entertainment company that creates, publishes and licenses
children's entertainment products. The Company intends to build on the
Company's position as a leader in the children's publishing market, utilizing
the strength of the Golden Books brand to provide family-oriented content
through multiple media.
As part of management's plan to return the Company's core publishing business
to profitability and to redeploy assets, new management has taken a number of
strategic actions and, accordingly, made decisions with respect to certain of
the Company's assets.
New management has determined that Penn, a wholly owned subsidiary of the
Company that designs, produces and distributes decorated paper tableware,
party accessories and giftware, does not fit the Company's future strategic
direction and, accordingly, will divest Penn. Penn's net assets have been
classified as a net asset held for sale and other current assets in the
Company's second quarter financial statements.
In addition, new management is in the process of reviewing the Company's
operations with a view to reducing the costs of those operations and creating
an operating environment conducive to the pursuit of its new business
strategy. The Company expects to complete the review by the end of fiscal
1997. As a consequence of this review, the Company recorded writedowns and
other charges in its second quarter financial statements totaling $80.1
million (in addition to charges of $16.2 million in connection with the sale
of a significant equity interest to GP Holding) as follows: (i) a
restructuring charge totaling $40.7 million pertaining to a $30.1 million
writedown of the net assets of Penn to net realizable value, a $3.0 million
reduction in the net realizable value of the Company's Fayetteville facility
and $7.6 million in costs associated with the termination of certain customer
program initiatives; (ii) a cost of sales adjustment of $25.0 million
comprised of $17.6 million of costs pertaining to the Company's decision to
discontinue or replace certain product lines and expeditiously liquidate
related inventory and slow moving product and $7.4 million of other inventory
related costs, consisting primarily of licensor and
14
<PAGE>
prepublication costs, (iii) a selling, general and administrative charge
of $11.0 million relating to costs associated with management's revised plans
to resolve certain legal and contractual matters; and (iv) adjustments to
revenue totaling $3.4 million to establish reserves in connection with the
Company's plans to resolve differences with customers with a view toward
mending and improving the Company's relationships with its customers.
The Company expects to record additional writedowns and other charges in
fiscal 1997, which may be substantial.
The Company's return to profitability is dependent in part on the successful
implementation of management's new strategy. If the new strategy is
successful, the Company still does not expect to generate positive net income
until fiscal 1999 at the earliest.
THREE AND SIX MONTHS ENDED AUGUST 3, 1996 COMPARED TO THREE AND SIX MONTHS
ENDED JULY 29, 1995
As more fully discussed below, the financial statements of the Company for the
three month and six month periods ended August 3, 1996 include restructuring
and other charges aggregating $96.3 million, which consist of (i) $16.2
million in connection with the sale of a significant equity interest to GP
Holding and (ii) $80.1 million in connection with the Company's implementation
of its strategic plan to return its core business to profitability and to
redeploy assets.
Historically, the Company has reported operating results under two segments:
(i) the Consumer Products Segment and (ii) the Commercial Products Segment.
The Consumer Products Segment includes Children's Publishing operations and
Penn. The Commercial Products Segment includes the Commercial Printing
Division. Children's Publishing operations have been reorganized along the
following categories: Classic Format; Electronic Storybooks and CD-ROM;
Education and Reference; and Trade and Novelty Products. In addition, a new
Adult Publishing category has been established.
Revenues
Revenues for the quarter ended August 3, 1996 decreased $26.8 million (28.8%)
to $66.5 million, as compared to $93.3 million for the quarter ended July 29,
1995, and decreased $43.3 million (24.3%) to $134.9 million for the six months
ended August 3, 1996, as compared to $178.2 million for the six months ended
July 29, 1995. $3.4 million of the three and six month reduction in revenues
related to reserves established to resolve differences with customers with a
view toward mending and improving the Company's relationships with its
customers. The remaining $23.4 million reduction for the three months ended
August 3, 1996 (before giving effect to the $3.4 million reserve adjustment)
consisted of a reduction of $24.8 million (31.0%) in Consumer Products Segment
revenues to $54.8 million from $79.6 million for the three months ended July
29, 1995, which was partially offset by a $1.4 million (9.8%) increase in
Commercial Products Segment revenues to $15.1 million from $13.7 million for
the three months ended July 29, 1995. The $39.9 million reduction for the six
months ended August 3, 1996 (before giving effect to the $3.4 million reserve
adjustment) consisted of a reduction of $40.8 million (27.3%) in Consumer
Products Segment revenues to $108.9 million from $149.7 million for the six
months ended July 29, 1995, which was partially offset by a $.9 million (3.0%)
increase in Commercial Products Segment revenues to $29.4 million from $28.5
million for the six months ended July 29, 1995.
The $24.8 million Consumer Products Segment decrease (before giving effect to
the $3.4 million reserve adjustment) for the quarter ended August 3, 1996 was
comprised of a $22.9 million decrease in Children's Publishing revenues and a
$3.1 million decrease in revenues from Penn, which was in part offset by a
$1.2 million (189.0%) increase in other revenues, including revenues from
Adult Publishing. The $40.8 million Consumer Products Segment revenue decrease
(before giving effect to the $3.4 million reserve adjustment) for the six
months ended August 4, 1996 was comprised of a $34.6 million (29.6%) decrease
in Children's Publishing revenues and a $7.0 million (22.7%) decrease in
revenues from Penn, which was offset in part by a $.8 million (40.4%) increase
in other revenues, including revenues from Adult Publishing. The three and six
month decreases in Children's
15
<PAGE>
Publishing revenues consisted of broad based category declines arising from
(i) the discontinuation of the sourcing and sale of third party ("guest")
publisher product for Storyland locations at Wal Mart, as the previously
announced decision to return the operation of the program to Wal Mart
management was implemented at the beginning of the fiscal year, (ii) volume
reductions arising from resistance from mass retailers to price increases that
the Company implemented beginning in the first quarter of fiscal 1997, (iii)
the continuing decline in sales of the Company's interactive electronic
storybooks due to competitive factors, limited new product introductions and
price reductions implemented on certain of the Company's mature formats and
(iv) the decline in sales of the Company's international operations, which
primarily resulted from product utilizing licenses associated with major
motion pictures released in fiscal 1996 and certain new character licenses not
having the consumer acceptance or longevity of prior years' products. The
three and six month declines in Penn's revenues were due to a combination of
the declining popularity of products utilizing licensed characters released in
prior years, the success of new products introduced by competitors and the
impending loss of a significant license at the end of fiscal 1996.
Commercial Products Segment revenues, which are comprised of creative,
printing and publishing services to third parties, increased $1.4 million
(9.8%) to $15.1 million, as compared to $13.7 million for the three months
ended July 29, 1995, and $.9 million (3.0%) to $29.4 million, as compared to
$28.5 million for the six months ended July 29, 1995. The increase for the
second quarter was due to growth in the educational kit business while the six
month increase was due to growth in the Custom Publishing market.
Gross Profit
Gross profit, before consideration of $28.4 million of revenue and cost of
sales adjustments described above, decreased $11.5 million (43.7%) to $14.7
million for the quarter ended August 3, 1996, as compared to $26.2 million for
the quarter ended July 29, 1995. For the six months ended August 3, 1996,
gross profit, before consideration of $28.4 million of revenue and cost of
sales adjustments described above, decreased $14.2 million (31.4%) to $31.2
million, as compared to $45.4 million for the six months ended July 29, 1995.
The $11.5 million reduction in gross profit for the three months ended August
3, 1996 consisted of an $11.6 million (47.6%) reduction in Consumer Products
Segment gross profit to $12.8 million from $24.4 million for the three months
ended July 29, 1995, which was offset by a $.1 million increase in gross
profit of the Commercial Products Segment to $1.9 million from $1.8 million
for the three months ended July 29, 1995. The $14.2 million reduction in gross
profit for the six months ended August 3, 1996 consisted of a $13.9 million
(33.7%) decrease in Consumer Products Segment gross profit to $27.5 million
from $41.4 million for the three months ended July 29, 1995, combined with a
$.3 million (8.0%) decrease in gross profit of the Commercial Products Segment
to $3.7 million from $4.0 million for the six months ended July 29, 1995. As a
percentage of revenues, gross profit margin, before consideration of $28.4
million of revenue and cost of sales adjustments described above, decreased to
21.1% and 22.6% for the quarter and six months ended August 3, 1996 from 28.1%
and 25.5% for the quarter and six months ended July 29, 1995.
The $11.6 million decrease in Consumer Products Segment gross profit, before
the revenue and cost of sales adjustments of $28.4 million previously
discussed, for the three months ended August 3, 1996 consisted of a $9.3
million (46.3%) decrease in Children's Publishing gross profit to $10.8
million from $20.1 million for the three months ended July 29, 1995 and a $2.3
million (70.1%) decrease in Penn gross profit to $1.0 million from $3.3
million. The $13.9 million reduction in Consumer Products Segment gross
profit, before the revenue and cost of sales adjustments of $28.4 million
previously discussed, for the six months ended August 3, 1996 consisted of a
$9.8 million (30.8%) decrease in Children's Publishing gross profit to $22.0
million from $31.8 million for the six months ended July 29, 1995, a $3.6
million (46.0%) decrease in Penn gross profit to $4.3 million from $7.9
million for the six months ended July 29, 1995 and a $.5 million (30.0%)
reduction in miscellaneous gross profit, to $1.2 million from $1.7 million for
the six months ended July 29, 1995. As a percentage of revenues, the Consumer
Products Segment gross profit margin, before the $28.4 million revenue and
cost of sales adjustments previously discussed, decreased to 23.3% and 25.2 %
for the three and six months ended August 3, 1996, as compared to 30.7% and
27.7% for the three and six months ended July 29, 1995. As a percentage of
revenues, the Children's
16
<PAGE>
Publishing gross profit margin, before the $28.4 million revenue and cost of
sales adjustments previously discussed, decreased to 25.6% and 26.7 % for the
three and six months ended August 3, 1996, as compared to 30.9% and 27.2% for
the three and six months ended July 29, 1995. As a percentage of revenues,
Penn's gross profit margin decreased to 9.1% and 17.9 % for the three and six
months ended August 3, 1996, as compared to 23.9% and 25.6% for the three and
six months ended July 29, 1995. The decrease in gross profit and gross profit
margin in Children's Publishing was comprised of cost increases related to
increases in licensor sales costs and unabsorbed fixed costs associated with
significant volume reductions, which were partially offset by price increases
and lower product returns. The decreases at Penn were due to the adverse
impact of the revenue declines previously discussed.
In the Commercial Products Segment, the gross profit margin for printing
services decreased to 13.1% and 12.7% for the second quarter and first six
months of fiscal 1997, compared to 13.3% and 14.2% for the second quarter and
first six months of fiscal 1996. The decrease for the quarter ended August 3,
1996 was a result of a change in the mix of printing business. The six months
decrease was primarily due to unfavorable manufacturing variances.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, before consideration of $11.0
million of charges relating to costs associated with management's plans to
resolve certain legal and contractual matters and $16.2 million of expenses
related to the acquisition of an equity interest by GP Holding, decreased $3.9
million to $25.5 million from $29.4 million for the three months ended July
29, 1995 and $11.2 million to $48.3 million from $59.5 million for the six
months ended July 29, 1995. These decreases were primarily the result of
significant reductions in employee expenses attributable to the Company's
workforce reduction initiative, which included a significant sales and
merchandising force reorganization, completed in January 1996. In addition,
sales promotion costs, including costs of corrugated displays, sell sheets and
co-operative advertising, declined as overall volume declines were
experienced. The $16.2 million of costs pertaining to the equity investment by
GP Holding included $3.4 million for severance and transition costs and $12.8
million of costs related to the Employment Agreement. The decreases in
selling, general and administrative expenses experienced in the first six
months of fiscal 1997 may not be as great in the second half of fiscal 1997
due to the anticipated incurrence of additional expenses in the second half of
the fiscal year attributable to retaining new management and other upgrading
measures relating to the Company's new strategy.
Interest Expense, net
Interest expense, before consideration of interest income, for the second
quarter of fiscal 1997 increased $.1 million to $2.9 million, as compared to
$2.8 million for the second quarter of fiscal 1996, and for the first six
months of fiscal 1997 decreased $.4 million to $5.9 million, as compared to
$6.3 million for the first six months of fiscal 1996. The decrease in interest
expense for the first six months of fiscal 1997 was due to lower average debt
outstanding, as the Company repaid all outstanding notes under it Revolving
Credit Agreement during the first quarter of fiscal 1996, and lower interest
rates during the first six months of fiscal 1997. Total average outstanding
debt decreased to $149.8 million for the six months ended August 3, 1997 from
$155.9 million for the comparable fiscal 1996 period (see Financial Condition,
Liquidity and Capital Resources), while average interest rates decreased to
7.9% for such fiscal 1997 period, as compared to 8.2% for the comparable
fiscal 1996 period. The decrease in average interest rates resulted primarily
from changes in the composition of the average debt outstanding.
Interest income for the three months ended August 3, 1997 increased $.2
million to $1.0 million from $.8 million for the comparable period in fiscal
1996 and decreased $.4 million for the six months ended August 3, 1997 to $1.5
million from $1.9 million for the comparable period in fiscal 1996. The
decrease resulted from a combination of a decline in the amount of cash
available for investment and a decline in average interest rates.
17
<PAGE>
Income Taxes
The Company does not anticipate any significant provision or benefit for
income taxes in fiscal 1997. As such, operations for the first and second
quarters do not include an income tax benefit from domestic operations as no
tax benefit was provided on operating losses. Profitable operating results in
subsequent periods will benefit from an income tax rate which will be lower
than the statutory rate due to the reinstatement of deferred tax assets for
which a valuation allowance was established. The provision for the three and
six months ended August 3, 1996 pertained principally to anticipated
resolution of outstanding issues from prior years.
Net Loss
The net loss for the quarter ended August 3, 1996 was $109.4 million, or $5.07
per common share, compared to a net loss of $3.0 million, or $.15 per common
share, for the quarter ended July 29, 1995. The net loss for the six months
ended August 3, 1996 was $118.2 million, or $5.50 per common share, compared
to a net loss of $16.4 million, or $.80 per common share, for the six months
ended July 29, 1995. Results for the three and six month periods ended August
3, 1996 included restructuring and other charges aggregating $96.3 million, as
previously discussed. The operations for the six months ended August 3, 1996
reflect the normal seasonality of the Company's business. A disproportionate
percentage of the Company's revenues historically have been attributable to
the third fiscal quarter due to the disproportionate share of Children's
Publishing products that are shipped to the Company's customers in
anticipation of the holiday selling season.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
Operations for the six months ended August 3, 1996, excluding non-cash charges
for restructuring and other charges totaling $80.1 million, non-cash
compensation expenses of $12.8 million, depreciation, amortization, provision
for losses on accounts receivable and other non-cash charges, utilized cash of
approximately $15.0 million. Operations for the six months ended July 29,
1995, excluding the streamlining plan gain, non-cash charges for depreciation,
amortization and the provision for losses on accounts receivable, utilized
cash of approximately $10.2 million. During the six months ended August 3,
1996 and July 29, 1995, other changes in assets and liabilities resulting from
operating activities generated cash of $1.8 million and utilized cash of $12.2
million, respectively, resulting in net cash used in operating activities of
$13.2 million and $22.4 million, respectively. Acquisitions of property, plant
and equipment were $4.3 million during the six months ended August 3, 1996, as
compared to $6.1 million during the six months ended July 29, 1995. Capital
expenditures for the six months ended August 3, 1996 included costs associated
with the completion of the acquisition of a five unit web press and
conveyoring equipment for the Company's distribution centers. In addition,
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 was completed in fiscal 1997 at a cost of $5.1 million, $1.5
million of which was expended during the first two quarters of fiscal 1997.
Working capital at August 3, 1996 was $153.3 million, as compared to $165.3
million at February 3, 1996. The decrease resulted from the Company's
investment in property, plant and equipment and the funding requirements for
its operations during the first half of fiscal 1997.
The Company believes that, based on the carrying value of both the assets held
for sale and the inventory to be discontinued or replaced in connection with
the Company's strategic actions, it will realize cash proceeds in excess of
$30 million dollars on the sale of these assets. Such proceeds and cash
attributable to the Company's cost savings will be used in connection with the
Company's change in strategic focus and other strategic measures.
During the year ended February 3, 1996, Golden Books Publishing entered into
an extendible 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
18
<PAGE>
million outstanding at any one time. As of the end of the second quarter of
fiscal 1997, there were no trade accounts receivable outstanding under this
program.
Equity Investment
On May 8, 1996, the Company completed the GPH Transaction. GP Holding invested
$65 million of cash in the Company in exchange for 13,000 shares of
newly-issued shares of Series B Preferred Stock and a warrant to purchase
3,250,000 shares of Common Stock (the "Warrant"). The Series B Preferred Stock
has a dividend rate of 12% per annum, is convertible into Common Stock at an
initial conversion price of $10 per share and does not have a mandatory
redemption date. Through May 8, 2000, the Series B Preferred Stock quarterly
dividend is payable in lieu of cash with 195,000 shares of Common Stock,
subject to certain adjustments based on the market price of the Common Stock
at the time that the dividend is paid. Thereafter, Series B Preferred Stock
dividends will be paid in cash. The Warrant, which is not exercisable for the
first two years following issuance, has a seven year term and an initial
exercise price of $10 per share. In connection with the GPH Transaction, the
Company's Series A Preferred Stock was redeemed at its face amount plus
accrued dividends.
Offering of Preferred Securities
On August 20, 1996, the Company raised $100 million through a private
placement of Preferred Securities under Rule 144A under the Securities Act .
The Preferred Securities were issued by the Trust, a Delaware business trust
financing vehicle. The Company owns all of the common securities of the Trust.
On September 9, 1996, the Company raised an additional $15 million pursuant to
an overallotment option granted with respect to the $100 million offering. The
net proceeds of such offering (including the over-allotment option), after
commissions and expenses, were $110.75 million. The Preferred Securities pay
quarterly distributions at an annual distribution rate of 8 3/4% (subject to
any deferral by the Company and Golden Books Publishing), have an aggregate
liquidation preference of $115 million and are convertible at the option of
their holders into convertible debentures of the Company and Golden Books
Publishing, which are immediately convertible into Common Stock of the Company
at an initial conversion price of $13.00 per share.
Acquisition of Broadway Video Entertainment Assets
On August 20, 1996, pursuant to an Asset Purchase Agreement, dated as of July
30, 1996, among BVELP, the Company and certain of the Company's subsidiaries,
the Company acquired, among other things, substantially all of BVELP's
television and film library properties, and assumed payables and all
liabilities incurred in connection with the exploitation of such assets after
the closing, for an aggregate purchase price of approximately $81 million in
cash and $10 million in Common Stock (901,408 shares), as provided for in the
Asset Purchase Agreement. The Broadway Video Acquisition will be accounted
under the purchase method of accounting.
Strategic Alliance with Hallmark
On September 6, 1996, the Company completed the sale to H C Crown Corp., a
wholly owned subsidiary of Hallmark, of 2,356,198 shares of Common Stock for
approximately $25 million. The sale represented the completion of the first
step in the Company's strategic relationship with Hallmark. The Company and
Hallmark are discussing a further $25 million investment by Hallmark in Common
Stock and the terms of their strategic alliance and anticipate finalizing
these arrangements by year-end.
FUTECH Agreement
On August 14, 1996, the Company entered into an agreement with FUTECH,
pursuant to which the Company was granted certain rights with respect to
FUTECH's exclusive "talking pages" technology, which the Company
19
<PAGE>
believes will replace that which is currently used in its traditional Sight &
Sound products. The Company's initial capital contribution pursuant to such
agreement totaled $2 million.
The Company had approximately $129 million in cash, after giving pro forma
effect to the offering of the Preferred Securities, the Broadway Video
Acquisition, the Hallmark Transaction and the execution and delivery of the
FUTECH agreement. The Company believes that it will have sufficient funds to
meet its debt service obligations, to fund working capital needs for the
foreseeable future or to pursue strategic opportunities, including
acquisitions and joint ventures. There can, however, be no assurance that
events in the future will not require the Company to seek additional capital
or, if so required, that adequate capital will be available on terms
acceptable to the Company.
20
<PAGE>
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A Special Meeting of Stockholders of the Company was held on May 8, 1996. The
information required to be provided by this Item in respect of such meeting
was previously furnished in Item 4 of the Company's Quarterly Report on Form
10-Q for the quarter ended May 4, 1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit Number Description
3.1 Amendment to Certificate of Incorporation of
Golden Books Family Entertainment, Inc. as
approved by a majority of the stockholders at
the Annual Meeting of Stockholders held May 8,
1996 (Incorporated by reference to Appendix
VIII of the Proxy Statement of Golden Books
Family Entertainment, Inc., dated April 18,
1996, for the Special Meeting of Stockholders
held on May 8, 1996)
3.2 Certificate of Designation of Golden Books
Family Entertainment, Inc. as approved by a
majority of the stockholders at the Annual
Meeting of Stockholders held May 8, 1996
(Incorporated by reference to Appendix IV of
the Proxy Statement of Golden Books Family
Entertainment, Inc., dated April 18, 1996, for
the Special Meeting of Stockholders held on
May 8, 1996)
10.1 Amended and Restated Declaration of Trust of
Golden Books Financing Trust, dated August 20,
1996
10.2 Indenture, dated as of August 20, 1996,
between The Bank of New York, as Indenture
Trustee, Golden Books Family Entertainment,
Inc. and Golden Books Publishing Company,
Inc.
10.3 Preferred Securities Guarantee Agreement,
dated as of August 20, 1996, between Golden
Books Family Entertainment, Inc. and The Bank
of New York, as Guarantee Trustee
10.4 Registration Rights Agreement, dated August
20, 1996, among Golden Books Financing
Trust, Golden Books Family Entertainment,
Inc., Golden Books Publishing Company, Inc.,
Merrill Lynch & Co., Donaldson, Lufkin &
Jenrette Securities Corporation and SBC
Warburg Inc.
10.5 Letter Agreement, dated July 30, 1996,
between Golden Books Family Entertainment,
Inc. and H C Crown Corp.
10.6 Registration Rights Agreement, dated as of
September 6, 1996, between Golden Books
Family Entertainment, Inc. and H C Crown Corp.
21
<PAGE>
10.7 Amendment No. 1 to Asset Purchase Agreement,
dated as of August 20, 1996 to Asset Purchase
Agreement, dated as of July 30, 1996 among
Broadway Video Entertainment, L.P., Broadway
Video Enterprises, Inc., Lone Ranger Music,
Inc., Palladium Limited Partnership, Golden
Books Family Entertainment, Inc., Golden Books
Publishing Company, Inc. and LRM Acquisition
Corp.
10.8 Registration Rights Agreement, dated August
20, 1996, between Golden Books Family
Entertainment, Inc. and Broadway Video
Entertainment, L.P.
10.9 License Agreement, dated August 20, 1996,
among Broadway Video Enterprises, Inc.,
Broadway Video Entertainment, L.P. and Golden
Books Publishing Company, Inc.
10.10 License Agreement, dated August 20, 1996,
among Broadway Video, Inc., Broadway Video
International ltd, and Golden Books Publishing
Company, Inc.
10.11 License Agreement, dated August 20, 1996,
between Broadway Video Enterprises, Inc. and
Golden Books Publishing Company, Inc.
10.12 Trademark License Agreement, dated August 20,
1996, among Broadway Video, Inc., Broadway
Video Entertainment, L.P., Golden Books
Publishing Company, Inc. and LRM Acquisition
Corp.
10.13 Sublease Agreement, dated as of August 20,
1996, between Broadway Video, Inc. and LRM
Acquisition Corp.
10.14 Golden Books Family Entertainment, Inc. Amended
and Restated 1995 Stock Option Plan
10.15 Golden Books Family Entertainment, Inc.
Executive Officer Bonus Plan (Incorporated by
reference to Appendix VII of the Proxy
Statement of Golden Books Family
Entertainment, Inc., dated April 18, 1996, for
the Special Meeting of Stockholders held on
May 8, 1996)
10.16 Amended and Restated Employment Agreement,
dated as of August 20, 1996, between Golden
Books Family Entertainment, Inc. and Richard
E. Snyder
10.17 Amended and Restated Non-Recourse Promissory
Note, dated as of August 20, 1996, executed
by Richard E. Snyder in favor of Golden Books
Family Entertainment, Inc.
10.18 Amended and Restated Pledge Agreement, dated
as of August 20, 1996, executed by Richard
E. Snyder
10.19 Employment Agreement, dated July 30, 1996,
between Golden Books Family Entertainment,
Inc. and Eric Ellenbogen
22
<PAGE>
10.20 Employment Agreement, dated as of July
1, 1996, between Golden Books Family
Entertainment, Inc. and Philip E. Rowley
10.21 Employment Agreement, dated as of May
28, 1996, between Golden Books Family
Entertainment, Inc. and Willa M. Perlman
27.1 Financial Data Schedule
(b) Reports on Form 8-K:
A Current Report on Form 8-K, dated May 8,
1996, reporting an Item 1 "Change of Control"
and Item 5 "Other Events" was filed with the
Securities and Exchange Commission.
A Current Report on Form 8-K, dated June 20,
1996, reporting an Item 4 "Change in
Registrant's Certifying Accountant" was filed
with the Securities and Exchange Commission.
Current Reports on Form 8-K, dated July 1,
1996, July 30, 1996 and August 2, 1996, each
reporting Item 5 "Other Events," were filed
with the Securities and Exchange Commission.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
September 16, 1996 /s/ Richard E. Snyder
---------------------
Richard E. Snyder
Chairman of the Board, President and
Chief Executive Officer
September 16, 1996 /s/ Philip E. Rowley
--------------------
Philip E. Rowley
Executive Vice President and
Chief Financial Officer
24
================================================================
AMENDED AND RESTATED DECLARATION
OF TRUST
GOLDEN BOOKS FINANCING TRUST
Dated as of August 20, 1996
================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I INTERPRETATION AND DEFINITIONS....................................................2
SECTION 1.1 Definitions.......................................................................2
ARTICLE II TRUST INDENTURE ACT...............................................................8
SECTION 2.1 Trust Indenture Act; Application..................................................8
SECTION 2.2 Lists of Holders of Securities....................................................9
SECTION 2.3 Reports by the Property Trustee...................................................9
SECTION 2.4 Periodic Reports to Property Trustee..............................................9
SECTION 2.5 Evidence of Compliance with Conditions Precedent..................................9
SECTION 2.6 Events of Default; Waiver........................................................10
SECTION 2.7 Event of Default; Notice.........................................................11
ARTICLE III ORGANIZATION.....................................................................12
SECTION 3.1 Name.............................................................................12
SECTION 3.2 Office...........................................................................12
SECTION 3.3 Purpose..........................................................................12
SECTION 3.4 Authority........................................................................12
SECTION 3.5 Title to Property of the Trust...................................................13
SECTION 3.6 Powers and Duties of the Regular Trustees........................................13
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees.............................16
SECTION 3.8 Powers and Duties of the Property Trustee........................................17
SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee......................18
SECTION 3.10 Certain Rights of Property Trustee...............................................20
SECTION 3.11 Delaware Trustee.................................................................22
SECTION 3.12 Not Responsible for Recitals or Issuance of Securities...........................22
SECTION 3.13 Duration of Trust................................................................22
SECTION 3.14 Mergers..........................................................................22
ARTICLE IV SPONSOR AND DEBENTURE ISSUERS....................................................24
SECTION 4.1 Sponsor's Purchase of Common Securities..........................................24
SECTION 4.2 Responsibilities of the Debenture Issuers........................................24
ARTICLE V TRUSTEES.........................................................................25
SECTION 5.1 Number of Trustees...............................................................25
SECTION 5.2 Delaware Trustee.................................................................25
SECTION 5.3 Property Trustee; Eligibility....................................................26
<PAGE>
Page
----
SECTION 5.4 Qualifications of Regular Trustees and Delaware
Trustee Generally............................................................27
SECTION 5.5 Initial Trustees.................................................................27
SECTION 5.6 Appointment, Removal and Resignation of Trustees.................................27
SECTION 5.7 Vacancies among Trustees.........................................................28
SECTION 5.8 Effect of Vacancies..............................................................29
SECTION 5.9 Meetings.........................................................................29
SECTION 5.10 Delegation of Power..............................................................29
SECTION 5.11 Merger, Conversion, Consolidation or Succession to Business......................30
ARTICLE VI DISTRIBUTIONS....................................................................30
SECTION 6.1 Distributions....................................................................30
ARTICLE VII ISSUANCE OF SECURITIES...........................................................30
SECTION 7.2 Execution and Authentication.....................................................31
SECTION 7.3 Form and Dating..................................................................31
SECTION 7.4 Registrar, Paying Agent and Conversion Agent.....................................33
SECTION 7.5 Paying Agent to Hold Money in Trust..............................................34
SECTION 7.6 Replacement Securities...........................................................34
SECTION 7.7 Outstanding Preferred Securities.................................................34
SECTION 7.8 Preferred Securities in Treasury.................................................35
SECTION 7.9 Temporary Securities.............................................................35
SECTION 7.10 Cancellation.....................................................................36
ARTICLE VIII TERMINATION OF TRUST.............................................................36
SECTION 8.1 Termination of Trust.............................................................36
ARTICLE IX TRANSFER AND EXCHANGE............................................................37
SECTION 9.1 General..........................................................................37
SECTION 9.2 Transfer Procedures and Restrictions.............................................38
SECTION 9.3 Deemed Security Holders..........................................................45
SECTION 9.4 Book Entry Interests.............................................................45
SECTION 9.5 Notices to Clearing Agency.......................................................46
SECTION 9.6 Appointment of Successor Clearing Agency.........................................46
ARTICLE X LIMITATION OF LIABILITY OF HOLDERS OF
SECURITIES, TRUSTEES OR OTHERS...................................................46
SECTION 10.1 Liability........................................................................46
SECTION 10.2 Exculpation......................................................................47
SECTION 10.3 Fiduciary Duty...................................................................47
SECTION 10.4 Indemnification..................................................................48
ii
<PAGE>
Page
----
SECTION 10.5 Outside Businesses...............................................................51
ARTICLE XI ACCOUNTING.......................................................................51
SECTION 11.1 Fiscal Year......................................................................51
SECTION 11.2 Certain Accounting Matters.......................................................51
SECTION 11.4 Banking..........................................................................52
SECTION 11.4 Withholding......................................................................52
ARTICLE XII AMENDMENTS AND MEETINGS..........................................................53
SECTION 12.1 Amendments.......................................................................53
SECTION 12.2 Meetings of the Holders of Securities; Action by
Written Consent.............................................................54
ARTICLE XIII REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE.............................................................56
SECTION 13.1 Representations and Warranties of Property Trustee...............................56
SECTION 13.2 Representations and Warranties of Delaware Trustee...............................56
ARTICLE XIV REGISTRATION RIGHTS..............................................................57
SECTION 14.1 Registration Rights..............................................................57
ARTICLE XV MISCELLANEOUS....................................................................58
SECTION 15.1 Notices..........................................................................58
SECTION 15.2 Governing Law....................................................................59
SECTION 15.3 Intention of the Parties.........................................................60
SECTION 15.4 Headings.........................................................................60
SECTION 15.5 Successors and Assigns...........................................................60
SECTION 15.6 Partial Enforceability...........................................................60
SECTION 15.7 Counterparts.....................................................................60
</TABLE>
iii
<PAGE>
CROSS-REFERENCE TABLE*
<TABLE>
<CAPTION>
Section of
Trust Indenture Act Section of
of 1939, as amended Declaration
- -------------------
<S> <C>
310 ......................................................... 2.1(c)
310(a) ......................................................... 5.3(a)
310(b) ......................................................... 5.3(c)
310(c) ......................................................... Inapplicable
311(c) ......................................................... Inapplicable
312(a) ......................................................... 2.2(a)
312(b) ......................................................... 2.2(b)
313 ......................................................... 2.3
314(a) ......................................................... 2.4
314(a)(4) ......................................................... 3.6(j)
314(b) ......................................................... Inapplicable
314(c) ......................................................... 2.5
314(d) ......................................................... Inapplicable
314(f) ......................................................... Inapplicable
315(a) ......................................................... 3.9(b)
315(c) ......................................................... 3.9(a)
315(d) ......................................................... 3.9(b)
316(a) ......................................................... Annex I
316(a)(1)(A) ......................................................... 2.6(b)
316(a)(1)(B) ......................................................... 2.6(a), 2.6(b), 2.6(c)
316(c) ......................................................... 3.6(e)
3.17 ......................................................... 2.1(c)
3.17(b) ......................................................... 3.8(h)
</TABLE>
- ---------------
* This Cross-Reference Table does not constitute part of the
Declaration and shall not affect the interpretation of any of its
terms or provisions.
iv
<PAGE>
AMENDED AND RESTATED
DECLARATION OF TRUST
OF
GOLDEN BOOKS FINANCING TRUST
AUGUST 20, 1996
AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration")
dated and effective as of August 20, 1996, by the undersigned trustees
(together with all other Persons from time to time duly appointed and serving
as trustees in accordance with the provisions of this Declaration, the
"Trustees"), Golden Books Family Entertainment, Inc., a Delaware corporation,
as trust sponsor (the "Sponsor"), and by the holders, from time to time, of
undivided beneficial interests in the Trust issued pursuant to this
Declaration;
WHEREAS, the Trustees and the Sponsor established Golden
Books Financing Trust (the "Trust"), a trust under the Business Trust Act (as
defined herein) pursuant to a Declaration of Trust dated as of August 13, 1996
(the "Original Declaration") and a Certificate of Trust filed with the
Secretary of State of the State of Delaware on August 13, 1996 for the sole
purpose of issuing and selling certain securities representing undivided
beneficial interests in the assets of the Trust and investing the proceeds
thereof in certain Debentures (as defined herein) of the Debenture Issuers (as
defined herein);
WHEREAS, as of the date hereof, no interests in the Trust
have been issued;
WHEREAS, all of the Trustees and the Sponsor, by this
Declaration, amend and restate each and every term and provision of the
Original Declaration; and
NOW, THEREFORE, it being the intention of the parties hereto
to continue the Trust as a business trust under the Business Trust Act and
that this Declaration constitute the governing instrument of such business
trust, the Trustees declare that all assets contributed to the Trust will be
held in trust for the benefit of the holders, from time to time, of the
securities representing undivided beneficial interests in the assets of the
Trust issued hereunder, subject to the provisions of this Declaration.
<PAGE>
ARTICLE I
INTERPRETATION AND DEFINITIONS
SECTION 1.1 Definitions.
Unless the context otherwise requires:
(a) Capitalized terms used in this Declaration but not
defined in the preamble above have the respective meanings assigned to them
in this Section 1.1;
(b) a term defined anywhere in this Declaration has the
same meaning throughout;
(c) all references to "the Declaration" or "this
Declaration" are to this Declaration as modified, supplemented or amended
from time to time;
(d) all references in this Declaration to Articles and
Sections and Annexes and Exhibits are to Articles and Sections and Annexes
and Exhibits to this Declaration unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same
meaning when used in this Declaration unless otherwise defined in this
Declaration or unless the context otherwise requires; and
(f) a reference to the singular includes the plural and
vice versa.
"Additional Interest" means if the Trust is required to pay
any taxes, duties, assessments or governmental charges of whatever nature
(other than withholding taxes) imposed by the United States or any other
taxing authority, such amounts as shall be required so that the net amounts
received and retained by the Trust after paying such taxes, duties,
assessments and governmental charges will not be less than the amounts the
Trust would have received had no such taxes, duties, assessments or
governmental charges been imposed.
"Affiliate" has the same meaning as given to that term in
Rule 405 of the Securities Act or any successor rule thereunder.
"Agent" means any Registrar, Paying Agent, Conversion Agent
or co-registrar.
"Authorized Officer" of a Person means any Person that is
authorized to bind such Person.
"Book Entry Interest" means a beneficial interest in a
Global Certificate, ownership and transfers of which shall be maintained and
made through book entries by a Depositary as described in Section 9.4.
2
<PAGE>
"Business Day" means any day other than a day on which
banking institutions in the City of New York or in Wilmington, Delaware are
authorized or required by law to close.
"Business Trust Act" means Chapter 38 of Title 12 of the
Delaware Code, 12 Del. Code ss.3801 et seq., as it may be amended from time to
time, or any successor legislation.
"Certificate" means a certificate in global or definitive
form representing a Common Security or a Preferred Security.
"Clearing Agency" means an organization registered as a
"Clearing Agency" pursuant to Section 17A of the Exchange Act.
"Closing Date" means August 20, 1996.
"Code" means the Internal Revenue Code of 1986, as amended
from time to time, or any successor legislation.
"Commission" means the Securities and Exchange Commission.
"Common Securities" has the meaning specified in Section
7.1(a).
"Common Securities Guarantee" means the guarantee agreement
dated as of August 20, 1996, of the Sponsor in respect of the Common
Securities.
"Company" means the Sponsor.
"Company Indemnified Person" means (a) any Regular Trustee;
(b) any Affiliate of any Regular Trustee; (c) any officers, directors,
shareholders, members, partners, employees, representatives or agents of any
Regular Trustee; or (d) any officer, employee or agent of the Trust or its
Affiliates.
"Compounded Interest" means interest compounded quarterly at
the rate specified for the Debentures, to the extent permitted by applicable
law, upon interest accrued and unpaid (including Additional Interest and
Liquidated Damages) at the end of each Extension Period.
"Covered Person" means (a) any officer, director,
shareholder, partner, member, representative, employee or agent of (i) the
Trust or (ii) any of the Trust's Affiliates; and (b) any Holder of Securities.
"Debenture Issuers" means the Sponsor and Golden Books
Publishing together in their capacities as joint issuer of the Debentures
under the Indenture.
"Debenture Trustee" means The Bank of New York, a New York
banking corporation, as trustee under the Indenture until a successor is
appointed thereunder, and thereafter means such successor trustee.
3
<PAGE>
"Debentures" means the series of Debentures to be issued by
the Debenture Issuers under the Indenture to be held by the Property Trustee,
a specimen certificate for such series of Debentures being Exhibit B.
"Definitive Preferred Securities" means the Regulation S
Definitive Preferred Security, the Restricted Definitive Preferred Security
and any other Preferred Securities in definitive form issued by the Trust.
"Delaware Trustee" has the meaning set forth in Section 5.2.
"Depositary" means The Depository Trust Company, the initial
Clearing Agency.
"Distribution" means a distribution payable to Holders of
Securities in accordance with Section 6.1.
"Effectiveness Period" has the meaning specified in Section
14.1.
"Event of Default" in respect of the Securities means an
Event of Default (as defined in the Indenture) has occurred and is continuing
in respect of the Debentures.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor legislation.
"Exchanged Global Preferred Securities" shall have the
meaning set forth in Section 9.2(b).
"Exchanged Preferred Securities" means any Preferred
Security issued in connection with a sale pursuant to an effective Shelf
Registration Statement and not bearing any Restricted Securities Legend.
"Fiduciary Indemnified Person" has the meaning set forth in
Section 10.4(b).
"Golden Books Publishing" means Golden Books Publishing
Company, Inc., a Delaware corporation, or any successor entity in a merger,
consolidation or amalgamation.
"Holder" means a Person in whose name a Certificate
representing a Security is registered, such Person being a beneficial owner
within the meaning of the Business Trust Act.
"Indemnified Person" means a Company Indemnified Person or
a Fiduciary Indemnified Person.
"Indenture" means the Indenture dated as of August 20, 1996,
between the Debenture Issuers and the Debenture Trustee, and any indenture
supplemental thereto pursuant to which the Debentures are to be issued.
"Initial Purchasers" has the meaning set forth in the
Purchase Agreement.
4
<PAGE>
"Investment Company" means an investment company as defined
in the Investment Company Act.
"Investment Company Act" means the Investment Company Act of
1940, as amended from time to time, or any successor legislation.
"Investment Company Event" has the meaning set forth in the
terms of the Securities as set forth in Annex I hereto.
"Legal Action" has the meaning set forth in Section 3.6(g).
"Liquidated Damages" means the additional interest which
shall accrue on the Debentures and, accordingly on the Preferred Securities,
if, (i) on or prior to 60 days following the date of original issuance of the
Preferred Securities, a Shelf Registration Statement has not been filed with
the Commission, or (ii) on or prior to the 150th day following the issuance of
Registrable Securities (as defined in Section 14.1 herein), such Registration
Statement is not declared effective.
"Majority in liquidation amount of the Securities" means,
except as provided in the terms of the Preferred Securities or by the Trust
Indenture Act, Holder(s) of outstanding Securities voting together as a single
class or, as the context may require, Holders of outstanding Preferred
Securities or Holders of outstanding Common Securities voting separately as a
class, who are the record owners of more than 50% of the aggregate liquidation
amount (including the stated amount that would be paid on redemption,
liquidation or otherwise, plus accrued and unpaid Distributions to the date
upon which the voting percentages are determined) of all outstanding
Securities of the relevant class.
"Ministerial Action" has the meaning set forth in the terms
of the Securities as set forth in Annex I hereto.
"Offering Memorandum" means the confidential offering
memorandum, dated as of August 14, 1996, relating to the issuance by the Trust
of Preferred Securities, as amended or supplemented from time to time.
"Officer's Certificate" means, with respect to any Person, a
certificate signed by an Authorized Officer of such Person. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Declaration shall include:
(a) a statement that each officer signing the
Certificate has read the covenant or condition and the definitions relating
thereto;
(b) a brief statement of the nature and scope of the
examination or investigation undertaken by each officer in rendering the
Certificate;
(c) a statement that each such officer has made such
examination or investigation as, in such officer's opinion, is necessary to
enable such officer to express an informed opinion as to whether or not such
covenant or condition has been complied with; and
5
<PAGE>
(d) a statement as to whether, in the opinion of each
such officer, such condition or covenant has been complied with.
"Participants" has the meaning set forth in Section 7.3(b).
"Paying Agent" has the meaning specified in Section 3.8(h).
"Payment Amount" shall have the meaning set forth in Section
6.1.
"Person" means a legal person, including any individual,
corporation, estate, partnership, joint venture, association, joint stock
company, limited liability company, trust, unincorporated association, or
government or any agency or political subdivision thereof, or any other entity
of whatever nature.
"Preferred Securities" has the meaning specified in Section
7.1(a).
"Preferred Securities Guarantee" means the guarantee
agreement dated as of August 20, 1996, of the Sponsor in respect of the
Preferred Securities.
"Preferred Security Beneficial Owner" means, with respect to
a Book Entry Interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Depositary, or on the books of a
Person maintaining an account with such Depositary (directly as a Participant
or as an indirect Participant, in each case in accordance with the rules of
such Depositary).
"Property Trustee" means the Trustee meeting the eligibility
requirements set forth in Section 5.3.
"Property Trustee Account" has the meaning set forth in
Section 3.8(c)(i).
"Purchase Agreement" shall have the meaning set forth in
Section 7.3(a).
"Quorum" means a majority of the Regular Trustees or, if
there are only two Regular Trustees, both of them.
"Registration Rights Agreement" means the Registration
Rights Agreement, dated August 20, 1996, among the Debenture Issuers, the
Trust, and the Initial Purchasers named in the Purchase Agreement.
"Regular Trustee" means any Trustee other than the Property
Trustee, the Guarantee Trustee and the Delaware Trustee.
"Regulation S Definitive Preferred Security" has the meaning
set forth in Section 7.3(c).
6
<PAGE>
"Related Party" means, with respect to the Sponsor, any
direct or indirect wholly owned subsidiary of the Sponsor or any other Person
that owns, directly or indirectly, 100% of the outstanding voting securities
of the Sponsor.
"Responsible Officer" means, with respect to the Property
Trustee, any vice-president, any assistant vice-president, the treasurer, any
assistant treasurer, any trust officer or assistant trust officer or any other
officer in the Corporate Trust Department of the Property Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of that officer's
knowledge of and familiarity with the particular subject.
"Restricted Definitive Preferred Security" has the meaning
set forth in Section 7.3(c).
"Restricted Period" means the one-year period following the
last issue date for the Preferred Securities (including Preferred Securities
issued to cover overallotments and Common Securities issued in connection with
related capital contributions). The Sponsor shall inform the Trustee as to the
termination of the restricted period and the Trustee may rely conclusively
thereon.
"Restricted Preferred Securities" shall include the
Regulation S Definitive Preferred Securities, the Restricted Definitive
Preferred Securities and the Rule 144A Global Preferred Securities (as
defined in Article IX herein).
"Rule 3a-5" means Rule 3a-5 under the Investment Company Act.
"Securities" means the Common Securities and the Preferred
Securities.
"Securities Act" means the Securities Act of 1933, as
amended from time to time, or any successor legislation.
"Securities Custodian" means the custodian with respect to
the Rule 144A Global Preferred Security and any other Preferred Security in
global form.
"Shelf Registration Statement" has the meaning specified in
Section 14.1.
"66-2/3% in liquidation amount of the Securities" means,
except as provided in the terms of the Preferred Securities or by the Trust
Indenture Act, Holders of outstanding Securities voting together as a single
class or, as the context may require, Holders of outstanding Preferred
Securities or Holder(s) of outstanding Common Securities voting separately as
a class, who are the record owners of at least 66 2/3% of the aggregate
liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions,
to the date upon which the voting percentages are determined) of all
outstanding Securities of the relevant class.
"Special Event" has the meaning set forth in Annex I hereto.
7
<PAGE>
"Sponsor" means Golden Books Family Entertainment, Inc., a
Delaware corporation, or any successor entity in a merger, consolidation or
amalgamation, in its capacity as sponsor of the Trust.
"Super Majority" has the meaning set forth in Section
2.6(a)(ii).
"Tax Event" has the meaning set forth in Annex I hereto.
"10% in liquidation amount of the Securities" means, except
as provided in the terms of the Preferred Securities or by the Trust Indenture
Act, Holders of outstanding Securities voting together as a single class or,
as the context may require, Holders of outstanding Preferred Securities or
Holders of outstanding Common Securities, voting separately as a class, who
are the record owners of 10% or more of the aggregate liquidation amount
(including the stated amount that would be paid on redemption, liquidation or
otherwise, plus accrued and unpaid Distributions to the date upon which the
voting percentages are determined) of all outstanding Securities of the
relevant class.
"Treasury Regulations" means the income tax regulations,
including temporary and proposed regulations, promulgated under the Code by
the United States Treasury, as such regulations may be amended from time to
time (including corresponding provisions of succeeding regulations).
"Trustee" or "Trustees" means each Person who has signed
this Declaration as a trustee, so long as such Person shall continue in office
in accordance with the terms hereof, and all other Persons who may from time
to time be duly appointed, qualified and serving as Trustees in accordance
with the provisions hereof, and references herein to a Trustee or the Trustees
shall refer to such Person or Persons solely in their capacity as trustees
hereunder.
"Trust Indenture Act" means the Trust Indenture Act of 1939,
as amended from time to time, or any successor legislation.
"Unrestricted Definitive Preferred Security" has the meaning
set forth in Section 9.2(c).
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application.
---------------------------------
(a) This Declaration is subject to the provisions of the
Trust Indenture Act that are required to be part of this Declaration, which
are incorporated by reference in and made part of this Declaration and shall,
to the extent applicable, be governed by such provisions.
(b) The Property Trustee shall be the only Trustee
which is a Trustee for the purposes of the Trust Indenture Act.
8
<PAGE>
(c) If and to the extent that any provision of this
Declaration limits, qualifies or conflicts with the duties imposed by ss.ss.
310 to 317, inclusive, of the Trust Indenture Act, such imposed duties shall
control.
(d) The application of the Trust Indenture Act to this
Declaration shall not affect the nature of the Securities as equity securities
representing undivided beneficial interests in the assets of the Trust.
SECTION 2.2 Lists of Holders of Securities.
------------------------------
(a) Each of the Debenture Issuers and the Regular Trustees
on behalf of the Trust shall provide the Property Trustee (i) within 14 days
after each record date for payment of Distributions, a list, in such form as
the Property Trustee may reasonably require, of the names and addresses of the
Holders of the Securities ("List of Holders") as of such record date, provided
that neither the Debenture Issuers nor the Regular Trustees on behalf of the
Trust shall be obligated to provide such List of Holders at any time the List
of Holders does not differ from the most recent List of Holders given to the
Property Trustee by the Debenture Issuers and the Regular Trustees on behalf
of the Trust, and (ii) at any other time, within 30 days of receipt by the
Trust of a written request for a List of Holders as of a date no more than 14
days before such List of Holders is given to the Property Trustee. The
Property Trustee shall preserve, in as current a form as is reasonably
practicable, all information contained in Lists of Holders given to it or
which it receives in the capacity as Paying Agent (if acting in such
capacity), provided that the Property Trustee may destroy any List of Holders
previously given to it on receipt of a new List of Holders.
(b) The Property Trustee shall comply with its obligations
under ss.ss. 311(a), 311(b) and 312(b) of the Trust Indenture Act.
SECTION 2.3 Reports by the Property Trustee.
--------------------------------
Within 60 days after May 15 of each year, the Property
Trustee shall provide to the Holders of the Preferred Securities such reports
as are required by ss. 313 of the Trust Indenture Act, if any, in the form and
in the manner provided by ss. 313 of the Trust Indenture Act. The Property
Trustee shall also comply with the requirements of ss. 313(d) of the Trust
Indenture Act.
SECTION 2.4 Periodic Reports to Property Trustee.
-------------------------------------
Each of the Sponsor and the Regular Trustees on behalf of
the Trust shall provide to the Property Trustee such documents, reports and
information as required by ss. 314 of the Trust Indenture Act (if any) and the
compliance certificate required by ss. 314 of the Trust Indenture Act in the
form, in the manner and at the times required by ss. 314 of the Trust
Indenture Act.
SECTION 2.5 Evidence of Compliance with Conditions Precedent.
-------------------------------------------------
Each of the Sponsor and the Regular Trustees on behalf of
the Trust shall provide to the Property Trustee such evidence of compliance
with any conditions precedent, if any, provided for in this Declaration that
relate to any of the matters set forth in ss. 314(c) of the Trust Indenture
9
<PAGE>
Act. Any certificate or opinion required to be given by an officer pursuant to
ss. 314(c)(1) may be given in the form of an Officers' Certificate.
SECTION 2.6 Events of Default; Waiver.
--------------------------
(a) The Holders of a Majority in liquidation amount of
Preferred Securities may, by vote, on behalf of the Holders of all of the
Preferred Securities, waive any past Event of Default in respect of the
Preferred Securities and its consequences, provided that, if the underlying
Event of Default under the Indenture:
(i) is not waivable under the Indenture, the
Event of Default under the Declaration shall also not be waivable; or
(ii) requires the consent or vote of greater than a
majority in principal amount of the holders of the Debentures (a
"Super Majority") to be waived under the Indenture, the Event of
Default under the Declaration may only be waived by the vote of the
Holders of at least the proportion in liquidation amount of the
Preferred Securities that the relevant, required Super Majority
represents of the aggregate principal amount of the Debentures
outstanding.
The foregoing provisions of this Section 2.6(a) shall be in
lieu of ss. 316(a)(1)(B) of the Trust Indenture Act and such ss. 316(a)(1)(B)
of the Trust Indenture Act is hereby expressly excluded from this Declaration
and the Securities, as permitted by the Trust Indenture Act. Upon such waiver,
any such default shall cease to exist, and any Event of Default with respect
to the Preferred Securities arising exclusively therefrom shall be deemed to
have been cured, for every purpose of this Declaration, but no such waiver
shall extend to any subsequent or other default or an Event of Default with
respect to the Preferred Securities or impair any right consequent thereon.
Any waiver by the Holders of the Preferred Securities of an Event of Default
with respect to the Preferred Securities shall also be deemed to constitute a
waiver by the Holders of the Common Securities of any such Event of Default
with respect to the Common Securities for all purposes of this Declaration
without any further act, vote or consent of the Holders of the Common
Securities.
(b) The Holders of a Majority in liquidation amount of the
Common Securities may, by vote, on behalf of the Holders of all of the Common
Securities, waive any past Event of Default with respect to the Common
Securities and its consequences, provided that, if the underlying Event of
Default under the Indenture:
(i) is not waivable under the Indenture, except
where the Holders of the Common Securities are deemed to have waived
such Event of Default under the Declaration as provided below in this
Section 2.6(b), the Event of Default under the Declaration shall also
not be waivable; or
(ii) requires the consent or vote of a Super
Majority to be waived, except where the Holders of the Common
Securities are deemed to have waived such Event of Default under the
Declaration as provided below in this Section 2.6(b), the Event of
Default under the Declaration may only be waived by the vote of the
Holders of at least the
10
<PAGE>
proportion in liquidation amount of the Common Securities that the
relevant Super Majority represents of the aggregate principal amount
of the Debentures outstanding;
provided further, that each Holder of Common Securities will be deemed to have
waived any such Event of Default and all Events of Default with respect to the
Common Securities and its consequences until all Events of Default with
respect to the Preferred Securities have been cured, waived or otherwise
eliminated, and until such Events of Default have been so cured, waived or
otherwise eliminated, the Property Trustee will be deemed to be acting solely
on behalf of the Holders of the Preferred Securities and only the Holders of
the Preferred Securities will have the right to direct the Property Trustee in
accordance with the terms of the Securities. The foregoing provisions of this
Section 2.6(b) shall be in lieu of ss.ss. 316(a)(1)(A) and 316(a)(1)(B) of the
Trust Indenture Act and such ss.ss. 316(a)(1)(A) and 316(a)(1)(B) of the Trust
Indenture Act are hereby expressly excluded from this Declaration and the
Securities, as permitted by the Trust Indenture Act. Subject to the foregoing
provisions of this Section 2.6(b), upon such waiver, any such default shall
cease to exist and any Event of Default with respect to the Common Securities
arising therefrom shall be deemed to have been cured for every purpose of this
Declaration, but no such waiver shall extend to any subsequent or other
default or Event of Default with respect to the Common Securities or impair
any right consequent thereon.
(c) A waiver of an Event of Default under the Indenture by
the Property Trustee at the direction of the Holders of the Preferred
Securities, constitutes a waiver of the corresponding Event of Default under
this Declaration. The foregoing provisions of this Section 2.6(c) shall be in
lieu of ss. 316(a)(1)(B) of the Trust Indenture Act and such ss. 316(a)(1)(B)
of the Trust Indenture Act is hereby expressly excluded from this Declaration
and the Securities, as permitted by the Trust Indenture Act.
SECTION 2.7 Event of Default; Notice.
-------------------------
(a) The Property Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders of the Securities, notices of all defaults with
respect to the Securities actually known to a Responsible Officer of the
Property Trustee, unless such defaults have been cured before the giving of
such notice (the term "defaults" for the purposes of this Section 2.7(a) being
hereby defined to be an Event of Default as defined in the Indenture, not
including any periods of grace provided for therein and irrespective of the
giving of any notice provided therein); provided that, except for a default in
the payment of principal of (or premium, if any) or interest on any of the
Debentures or in the payment of any sinking fund installment established for
the Debentures, the Property Trustee shall be protected in withholding such
notice if and so long as the board of directors, the executive committee, or a
trust committee of directors and/or Responsible Officers of the Property
Trustee in good faith determines that the withholding of such notice is in the
interests of the Holders of the Securities.
(b) The Property Trustee shall not be deemed to have
knowledge of any default except:
(i) a default under Sections 501(1) and 501(2)
of the Indenture; or
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(ii) any default as to which the Property Trustee
shall have received written notice or of which a Responsible Officer
of the Property Trustee charged with the administration of the
Declaration shall have actual knowledge.
ARTICLE III
ORGANIZATION
SECTION 3.1 Name.
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The Trust is named "Golden Books Financing Trust," as such
name may be modified from time to time by the Regular Trustees following
written notice to the Holders of Securities. The Trust's activities may be
conducted under the name of the Trust or any other name deemed advisable by
the Regular Trustees.
SECTION 3.2 Office.
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The address of the principal office of the Trust is c/o
Golden Books Family Entertainment, Inc., 850 Third Avenue, New York, New York
10022, Attention: Chief Financial Officer. At any time, the Regular Trustees
may designate another principal office.
SECTION 3.3 Purpose.
--------
The exclusive purposes and functions of the Trust are (a) to
issue and sell the Securities and use the proceeds from such sale to acquire
the Debentures, and (b) except as otherwise limited herein, to engage in only
those other activities necessary or incidental thereto. The Trust shall not
borrow money, issue debt or reinvest proceeds derived from investments, pledge
any of its assets or otherwise undertake (or permit to be undertaken) any
activity that would cause the Trust not to be classified for United States
federal income tax purposes as a grantor trust.
SECTION 3.4 Authority.
----------
(a) Subject to the limitations provided in this Declaration
and to the specific duties of the Property Trustee, the Regular Trustees shall
have exclusive and complete authority to carry out the purposes of the Trust.
An action taken by the Regular Trustees in accordance with their powers shall
constitute the act of and serve to bind the Trust and an action taken by the
Property Trustee on behalf of the Trust in accordance with its powers shall
constitute the act of and serve to bind the Trust. In dealing with the
Trustees acting on behalf of the Trust, no person shall be required to inquire
into the authority of the Trustees to bind the Trust. Persons dealing with the
Trust are entitled to rely conclusively on the power and authority of the
Trustees as set forth in this Declaration.
(b) Except as expressly set forth in this Declaration and
except if a meeting of the Regular Trustees is called with respect to any
matter over which the Regular Trustees have power to act, any power of the
Regular Trustees may be exercised by, or with the consent of, any one such
Regular Trustee.
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(c) Unless otherwise determined by the Regular Trustees, and
except as otherwise required by the Business Trust Act or applicable law, any
Regular Trustee is authorized to execute on behalf of the Trust any documents
which the Regular Trustees have the power and authority to cause the Trust to
execute pursuant to Section 3.6, provided, that the registration statement
referred to in Section 3.6, including any amendments thereto, shall be signed
by a Regular Trustee, or if there are more than two, a majority of the Regular
Trustees; and
(d) a Regular Trustee may, by power of attorney consistent
with applicable law, delegate to any other natural person over the age of 21
his or her power for the purposes of signing any documents which the Regular
Trustees have power and authority to cause the Trust to execute pursuant to
Section 3.6.
SECTION 3.5 Title to Property of the Trust.
-------------------------------
Except as provided in Section 3.8 with respect to the
Debentures and the Property Trustee Account or as otherwise provided in this
Declaration, legal title to all assets of the Trust shall be vested in the
Trust. The Holders shall not have legal title to any part of the assets of the
Trust, but shall have an undivided beneficial interest in the assets of the
Trust.
SECTION 3.6 Powers and Duties of the Regular Trustees.
------------------------------------------
The Regular Trustees shall have the exclusive power, duty
and authority to cause the Trust to engage in the following activities:
(a) to issue and sell the Preferred Securities and the
Common Securities in accordance with this Declaration; provided, however, that
the Trust may issue no more than one series of Preferred Securities and no
more than one series of Common Securities, and, provided, further, that there
shall be no interests in the Trust other than the Securities, and the issuance
of Securities shall be limited to simultaneous issuance of both Preferred
Securities and Common Securities on the Closing Date and any other date
Preferred Securities and Common Securities are sold pursuant to the
over-allotment option granted to the Initial Purchasers in the Purchase
Agreement;
(b) in connection with the issue and sale of the
Preferred Securities, at the direction of the Debenture Issuers, to:
(i) prepare, execute, and amend and supplement, if
necessary, an offering memorandum (the "Offering Memorandum") in
preliminary and final form, in relation to the offering and sale of
Preferred Securities to qualified institutional buyers in reliance on
Rule 144A under the Securities Act, to institutional "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) and outside the United States to non-U.S. persons in
offshore transactions in reliance on Regulation S under the
Securities Act and to execute and file with the Commission, at such
time as determined by the Sponsor, a registration statement filed on
Form S-3 prepared by the Sponsor, including any amendments thereto in
relation to the resale of the Preferred Securities;
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(ii) execute and file any documents prepared by the
Debenture Issuers, or take any acts as determined by the Debenture
Issuers to be necessary in order to qualify or register all or part
of the Preferred Securities in any State or foreign jurisdiction in
which the Debenture Issuers have determined to qualify or register
such Preferred Securities for sale;
(iii) execute and file an application, prepared by
the Sponsor, to the Private Offerings, Resale and Trading through
Automated Linkages ("PORTAL") Market and, at such time as determined
by the Sponsor, to the Nasdaq National Market or any other national
stock exchange or similar organization for listing or quotation of
the Preferred Securities and the Common Stock issuable on conversion
thereof;
(iv) to execute and deliver letters, documents,
or instruments with The Depository Trust Company relating to the
Preferred Securities;
(v) execute and file with the Commission, at such
time as determined by the Sponsor, a registration statement on Form
8-A, including any amendments thereto, prepared by the Debenture
Issuers relating to the registration of the Preferred Securities and
the Common Stock issuable on conversion thereof under Section 12(b)
of the Exchange Act; and
(vi) execute and enter into the Purchase Agreement,
Registration Rights Agreement and other related agreements and
instruments providing for the sale of the Preferred Securities and
perform its obligations under such instruments;
(c) to acquire the Debentures with the proceeds of the sale
of the Preferred Securities and the Common Securities; provided, however, that
the Regular Trustees shall cause legal title to the Debentures to be held of
record in the name of the Property Trustee for the benefit of the Holders of
the Preferred Securities and the Holders of Common Securities;
(d) to give the Debenture Issuers and the Property Trustee
prompt written notice of the occurrence of a Special Event; provided that the
Regular Trustees shall consult with the Debenture Issuers and the Property
Trustee before taking or refraining from taking any Ministerial Action in
relation to a Special Event;
(e) to establish a record date with respect to all actions
to be taken hereunder that require a record date be established, including and
with respect to, for the purposes of ss.316(c) of the Trust Indenture Act,
Distributions, voting rights, redemptions and exchanges, and to issue relevant
notices to the Holders of Preferred Securities and Holders of Common
Securities as to such actions and applicable record dates;
(f) to take all actions and perform such duties as may
be required of the Regular Trustees pursuant to the terms of the Securities;
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(g) to bring or defend, pay, collect, compromise, arbitrate,
resort to legal action, or otherwise adjust claims or demands of or against
the Trust ("Legal Action"), unless pursuant to Section 3.8(e), the Property
Trustee has the exclusive power to bring such Legal Action;
(h) to employ or otherwise engage employees and agents (who
may be designated as officers with titles) and managers, contractors, advisors
and consultants and pay reasonable compensation for such services;
(i) to cause the Trust to comply with the Trust's
obligations under the Trust Indenture Act;
(j) to give the certificate required by ss. 314(a)(4)
of the Trust Indenture Act to the Property Trustee, which certificate may be
executed by any Regular Trustee;
(k) to incur expenses that are necessary or incidental
to carry out any of the purposes of the Trust or seek reimbursement from the
Debenture Issuers;
(l) to act as, or appoint another Person to act as,
registrar and transfer agent for the Securities;
(m) to give prompt written notice to the Holders of the
Securities of any notice received from the Debenture Issuers of an election by
the Debenture Issuers to defer payments of interest on the Debentures by
extending the interest payment period under the Indenture;
(n) to take all action that may be necessary or appropriate
for the preservation and the continuation of the Trust's valid existence,
rights, franchises and privileges as a statutory business trust under the laws
of the State of Delaware and of each other jurisdiction in which such
existence is necessary to protect the limited liability of the Holders of the
Preferred Securities or to enable the Trust to effect the purposes for which
the Trust was created;
(o) to take any action, not inconsistent with this
Declaration or with applicable law, that the Regular Trustees determine in
their discretion to be necessary or desirable in carrying out the activities
of the Trust as set out in this Section 3.6, including, but not limited to:
(i) causing the Trust not to be deemed to be
an Investment Company required to be registered under the Investment
Company Act;
(ii) causing the Trust to be classified for
United States federal income tax purposes as a grantor trust; and
(iii) cooperating with the Debenture Issuers to
ensure that the Debentures will be treated as indebtedness of the
Debenture Issuers for United States federal income tax purposes;
provided that such action does not adversely affect the interests of Holders;
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(p) to take all action necessary to cause all applicable tax
returns and tax information reports that are required to be filed with respect
to the Trust to be duly prepared and timely filed by the Regular Trustees, on
behalf of the Trust; and
(q) to execute all documents or instruments, perform
all duties and powers, and do all things for and on behalf of the Trust in
all matters necessary or incidental to the foregoing and the transactions
contemplated thereby;
The Regular Trustees must exercise the powers set forth in
this Section 3.6 in a manner that is consistent with the purposes and
functions of the Trust set out in Section 3.3, and the Regular Trustees shall
not take any action that is inconsistent with the purposes and functions of
the Trust set forth in Section 3.3.
Subject to this Section 3.6, the Regular Trustees shall have
none of the powers or the authority of the Property Trustee set forth in
Section 3.8. Any power and authority not specifically granted to the Property
Trustee may be exercised by the Regular Trustees.
Any expenses incurred by the Regular Trustees pursuant to
this Section 3.6 shall be reimbursed by the Debenture Issuers.
SECTION 3.7 Prohibition of Actions by the Trust and the Trustees.
-----------------------------------------------------
(a) The Trust shall not, and the Trustees (including the
Property Trustee) shall not, engage in any activity other than as required or
authorized by this Declaration. In particular, the Trust shall not and the
Trustees (including the Property Trustee) shall cause the Trust not to:
(i) invest any proceeds received by the Trust from
holding the Debentures, but shall distribute all such proceeds to
Holders of Securities pursuant to the terms of this Declaration and
of the Securities;
(ii) acquire any assets other than as expressly
provided herein;
(iii) possess Trust property for other than a
Trust purpose;
(iv) make any loans or incur any indebtedness
other than loans represented by the Debentures;
(v) possess any power or otherwise act in such
a way as to vary the Trust assets or the terms of the Securities in
any way whatsoever in accordance with the terms of this Declaration;
(vi) issue any securities or other evidences of
beneficial ownership of, or beneficial interest in, the Trust other
than the Securities; or
(vii) other than as provided in this Declaration or
Annex I hereto, (A) direct the time, method and place of exercising
any trust or power conferred upon the Debenture Trustee with respect
to the Debentures, (B) waive any past default that is
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waivable under the Indenture, (C) exercise any right to rescind or
annul any declaration that the principal of all the Debentures shall
be due and payable, or (D) consent to any amendment, modification or
termination of the Indenture or the Debentures where such consent
shall be required unless the Trust shall have received an opinion of
counsel to the effect that such modification will not cause more than
an insubstantial risk that (x) the Trust will be deemed an Investment
Company required to be registered under the Investment Company Act,
or (y) for United States federal income tax purposes the Trust will
not be classified as a grantor trust.
SECTION 3.8 Powers and Duties of the Property Trustee.
------------------------------------------
(a) The legal title to the Debentures shall be owned by and
held of record in the name of the Property Trustee in trust for the benefit of
the Holders of the Securities. The right, title and interest of the Property
Trustee to the Debentures shall vest automatically in each Person who may
hereafter be appointed as Property Trustee in accordance with Section 5.6.
Such vesting and cessation of title shall be effective whether or not
conveyancing documents with regard to the Debentures have been executed and
delivered.
(b) The Property Trustee shall not transfer its right, title
and interest in the Debentures to the Regular Trustees or to the Delaware
Trustee.
(c) The Property Trustee shall:
(i) establish and maintain a segregated
non-interest bearing trust account (the "Property Trustee Account")
in the name of and under the exclusive control of the Property
Trustee on behalf of the Holders of the Securities and, upon the
receipt of payments of funds made in respect of the Debentures held
by the Property Trustee, deposit such funds into the Property Trustee
Account and make payments to the Holders of the Preferred Securities
and Holders of the Common Securities from the Property Trustee
Account in accordance with Section 6.1. Funds in the Property Trustee
Account shall be held uninvested until disbursed in accordance with
this Declaration. The Property Trustee Account shall be an account
that is maintained with a banking institution the rating on whose
long-term unsecured indebtedness is at least equal to the rating
assigned to the Preferred Securities by a "nationally recognized
statistical rating organization", as that term is defined for
purposes of Rule 436(g)(2) under the Securities Act;
(ii) engage in such ministerial activities as so
directed and as shall be necessary or appropriate to effect the
redemption of the Preferred Securities and the Common Securities to
the extent the Debentures are redeemed or mature; and
(iii) upon written notice of a distribution issued
by the Regular Trustees in accordance with the terms of the
Securities, engage in such Ministerial Actions as so directed as
shall be necessary or appropriate to effect the distribution of the
Debentures to Holders of Securities upon the occurrence of certain
Special Events arising from a change in law or a change in legal
interpretation or other specified circumstances pursuant to the terms
of the Securities.
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(d) The Property Trustee shall take all actions and perform
such duties as may be specifically required of the Property Trustee pursuant
to the terms of the Securities.
(e) The Property Trustee shall take any Legal Action which
arises out of or in connection with (i) an Event of Default of which a
Responsible Officer of the Property Trustee has actual knowledge or (ii) the
Property Trustee's duties and obligations under this Declaration or the Trust
Indenture Act.
(f) The Property Trustee shall not resign as a Trustee
unless either:
(i) the Trust has been completely liquidated
and the proceeds of the liquidation distributed to the Holders of Securities
pursuant to the terms of the Securities; or
(ii) a Successor Property Trustee has been
appointed and has accepted that appointment in accordance with
Section 5.6.
(g) The Property Trustee shall have the legal power to
exercise all of the rights, powers and privileges of a holder of Debentures
under the Indenture and, if an Event of Default actually known to a
Responsible Officer of the Property Trustee occurs and is continuing, the
Property Trustee shall, for the benefit of Holders of the Securities, enforce
its rights as holder of the Debentures subject to the rights of the Holders
pursuant to the terms of such Securities.
(h) The Property Trustee will act as Paying Agent and
Registrar in both London and New York (each, a "Paying Agent") to pay
Distributions, redemption payments or liquidation payments on behalf of the
Trust with respect to all securities and any such Paying Agent shall comply
with ss. 317(b) of the Trust Indenture Act. Any Paying Agent may be removed by
the Property Trustee at any time and a successor Paying Agent or additional
Paying Agents may be appointed at any time by the Property Trustee.
(i) Subject to this Section 3.8, the Property Trustee shall
have none of the duties, liabilities, powers or the authority of the Regular
Trustees set forth in Section 3.6.
The Property Trustee must exercise the powers set forth in
this Section 3.8 in a manner that is consistent with the purposes and
functions of the Trust set out in Section 3.3, and the Property Trustee shall
not take any action that is inconsistent with the purposes and functions of
the Trust set out in Section 3.3.
SECTION 3.9 Certain Duties and Responsibilities of the Property Trustee.
------------------------------------------------------------
(a) The Property Trustee, before the occurrence of any Event
of Default and after the curing of all Events of Default that may have
occurred, shall undertake to perform only such duties as are specifically set
forth in this Declaration and no implied covenants shall be read into this
Declaration against the Property Trustee. In case an Event of Default has
occurred (that has not been cured or waived pursuant to Section 2.6) of which
a Responsible Officer of the Property Trustee has actual knowledge, the
Property Trustee shall exercise such of the rights and
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powers vested in it by this Declaration, and use the same degree of care and
skill in their exercise, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
(b) No provision of this Declaration shall be construed to
relieve the Property Trustee from liability for its own negligent action, its
own negligent failure to act, or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default
and after the curing or waiving of all such Events of Default that
may have occurred:
(A) the duties and obligations of the
Property Trustee shall be determined solely by the express
provisions of this Declaration and the Property Trustee
shall not be liable except for the performance of such
duties and obligations as are specifically set forth in this
Declaration, and no implied covenants or obligations shall
be read into this Declaration against the Property Trustee;
and
(B) in the absence of bad faith on the
part of the Property Trustee, the Property Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any
certificates or opinions furnished to the Property Trustee
and conforming to the requirements of this Declaration; but
in the case of any such certificates or opinions that by any
provision hereof are specifically required to be furnished
to the Property Trustee, the Property Trustee shall be under
a duty to examine the same to determine whether or not they
conform to the requirements of this Declaration;
(ii) the Property Trustee shall not be liable for
any error of judgment made in good faith by a Responsible Officer of
the Property Trustee, unless it shall be proved that the Property
Trustee was negligent in ascertaining the pertinent facts upon which
such judgment was made or in taking or omitting to take the pertinent
action;
(iii) the Property Trustee shall not be liable with
respect to any action taken or omitted to be taken by it in good
faith in accordance with the direction of the Holders of not less
than a Majority in liquidation amount of the Securities relating to
the time, method and place of conducting any proceeding for any
remedy available to the Property Trustee, or exercising any trust or
power conferred upon the Property Trustee under this Declaration;
(iv) no provision of this Declaration shall require
the Property Trustee to expend or risk its own funds or otherwise
incur personal financial liability in the performance of any of its
duties or in the exercise of any of its rights or powers, if it shall
have reasonable grounds for believing that the repayment of such
funds or liability is not reasonably assured to it under the terms of
this Declaration or indemnity reasonably satisfactory to the Property
Trustee against such risk or liability is not reasonably assured to
it;
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(v) the Property Trustee's sole duty with respect
to the custody, safe keeping and physical preservation of the
Debentures and the Property Trustee Account shall be to deal with
such property in a similar manner as the Property Trustee deals with
similar property for its own account, subject to the protections and
limitations on liability afforded to the Property Trustee under this
Declaration and the Trust Indenture Act;
(vi) the Property Trustee shall have no duty or
liability for or with respect to the value, genuineness, existence or
sufficiency of the Debentures or the payment of any taxes or
assessments levied thereon or in connection therewith;
(vii) the Property Trustee shall not be liable for
any interest on any money received by it except as it may otherwise
agree in writing with the Debenture Issuers. Money held by the
Property Trustee need not be segregated from other funds held by it
except in relation to the Property Trustee Account maintained by the
Property Trustee pursuant to Section 3.8(c)(i) and except to the
extent otherwise required by law; and
(viii) the Property Trustee shall not be
responsible for monitoring the compliance by the Regular Trustees or
the Debenture Issuers with their respective duties under this
Declaration, nor shall the Property Trustee be liable for any default
or misconduct of the Regular Trustees or the Debenture Issuers.
SECTION 3.10 Certain Rights of Property Trustee.
-----------------------------------
(a) Subject to the provisions of Section 3.9:
(i) the Property Trustee may rely and shall be
fully protected in acting or refraining from acting upon any
resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document believed by
it to be genuine and to have been signed, sent or presented by the
proper party or parties;
(ii) any direction or act of the Sponsor or the
Regular Trustees contemplated by this Declaration shall be
sufficiently evidenced by an Officers' Certificate;
(iii) whenever in the administration of this
Declaration, the Property Trustee shall reasonably deem it desirable
that a matter be proved or established before taking, suffering or
omitting any action hereunder, the Property Trustee (unless other
evidence is herein specifically prescribed) may, in the absence of
bad faith on its part, request and rely upon an Officers' Certificate
which, upon receipt of such request, shall be promptly delivered by
the Sponsor or the Regular Trustees;
(iv) the Property Trustee shall have no duty to see
to any recording, filing or registration of any instrument (including
any financing or continuation statement or any filing under tax or
securities laws) or any rerecording, refiling or registration
thereof;
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(v) the Property Trustee may consult with counsel
of its choice or other experts and the advice or opinion of such
counsel and experts with respect to legal matters or advice within
the scope of such experts' area of expertise shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in accordance
with such advice or opinion. Such counsel may be counsel to the
Debenture Issuers or any of their Affiliates, and may include any of
its employees. The Property Trustee shall have the right at any time
to seek instructions concerning the administration of this
Declaration from any court of competent jurisdiction;
(vi) the Property Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by
this Declaration at the request or direction of any Holder, unless
such Holder shall have provided to the Property Trustee adequate
security and indemnity, reasonably satisfactory to the Property
Trustee, against the costs, expenses (including attorneys' fees and
expenses and the expenses of the Property Trustee's agents, nominees
or custodians) and liabilities that might be incurred by it in
complying with such request or direction, including such reasonable
advances as may be requested by the Property Trustee, provided that,
nothing contained in this Section 3.10(a)(vi) shall be taken to
relieve the Property Trustee, upon the occurrence of an Event of
Default, of its obligation to exercise the rights and powers vested
in it by this Declaration;
(vii) the Property Trustee shall not be bound to
make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, security, bond,
debenture, note, other evidence of indebtedness or other paper or
document, but the Property Trustee, in its discretion, may make such
further inquiry or investigation into such facts or matters as it may
see fit;
(viii) the Property Trustee may execute any of the
trusts or powers hereunder or perform any duties hereunder either
directly or by or through agents or attorneys, and the Property
Trustee shall not be responsible for any misconduct or negligence on
the part of any agent or attorney appointed with due care by it
hereunder;
(ix) any action taken by the Property Trustee or
its agents hereunder shall bind the Trust and the Holders of the
Securities, and the signature of the Property Trustee or its agents
alone shall be sufficient and effective to perform any such action
and no third party shall be required to inquire as to the authority
of the Property Trustee to so act or as to its compliance with any of
the terms and provisions of this Declaration, both of which shall be
conclusively evidenced by the Property Trustee's or its agent's
taking such action;
(x) whenever in the administration of this
Declaration the Property Trustee shall deem it desirable to receive
instructions with respect to enforcing any remedy or right or taking
any other action hereunder, the Property Trustee (i) may request
instructions from the Holders of the Securities which instructions
may only be given by the Holders of the same proportion in
liquidation amount of the Securities as would be entitled to direct
the Property Trustee under the terms of the Securities in respect of
such remedy,
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right or action, (ii) may refrain from enforcing such remedy or right
or taking such other action until such instructions are received, and
(iii) shall be protected in acting in accordance with such
instructions; and
(xi) except as otherwise expressly provided by this
Declaration, the Property Trustee shall not be under any obligation
to take any action that is discretionary under the provisions of this
Declaration.
(xii) the Property Trustee shall not be liable for
any action taken, suffered or omitted to be taken by it in good
faith, without negligence, and reasonably believed by it to be
authorized or within the discretion or rights or powers conferred
upon it by this Declaration.
(b) No provision of this Declaration shall be deemed to
impose any duty or obligation on the Property Trustee to perform any act or
acts or exercise any right, power, duty or obligation conferred or imposed on
it, in any jurisdiction in which it shall be illegal, or in which the Property
Trustee shall be unqualified or incompetent in accordance with applicable law,
to perform any such act or acts, or to exercise any such right, power, duty or
obligation. No permissive power or authority available to the Property Trustee
shall be construed to be a duty.
SECTION 3.11 Delaware Trustee.
-----------------
Notwithstanding any other provision of this Declaration
other than Section 5.2, the Delaware Trustee shall not be entitled to exercise
any powers, nor shall the Delaware Trustee have any of the duties and
responsibilities of the Regular Trustees or the Property Trustee described in
this Declaration. Except as set forth in Section 5.2, the Delaware Trustee
shall be a Trustee for the sole and limited purpose of fulfilling the
requirements of ss. 3807 of the Business Trust Act.
SECTION 3.12 Not Responsible for Recitals or Issuance of Securities.
-------------------------------------------------------
The recitals contained in this Declaration and the
Securities shall be taken as the statements of the Sponsor, and the Trustees
do not assume any responsibility for their correctness. The Trustees make no
representations as to the value or condition of the property of the Trust or
any part thereof. The Trustees make no representations as to the validity or
sufficiency of this Declaration or the Securities.
SECTION 3.13 Duration of Trust.
------------------
The Trust, unless terminated pursuant to the provisions of
Article VIII hereof, shall exist until August 20, 2025.
SECTION 3.14 Mergers.
--------
(a) The Trust may not consolidate, amalgamate, merge with or
into, or be replaced by, or convey, transfer or lease its properties and
assets substantially as an entirety, to any corporation or other entity or
body, except as described in Section 3.14(b) and (c).
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(b) The Trust may, with the consent of the Regular Trustees
or, if there are more than two, a majority of the Regular Trustees, and
without the consent of the Holders of the Securities, the Delaware Trustee or
the Property Trustee, consolidate, amalgamate, merge with or into, or be
replaced by a trust organized as such under the laws of any State of the
United States; provided that:
(i) if the Trust is not the survivor, such
successor entity (the "Successor Entity") either:
(A) expressly assumes all of the
obligations of the Trust under the Declaration and
the Securities; or
(B) substitutes for the Preferred
Securities other securities having substantially
the same terms as the Preferred Securities (the
"Successor Securities") so long as the Successor
Securities rank the same as the Preferred
Securities with respect to Distributions, assets
and payments upon liquidation, redemption and
otherwise;
(ii) the Debenture Issuers expressly acknowledge a
trustee of the Successor Entity that possesses the same powers and
duties as the Property Trustee as the Holder of the Debentures;
(iii) the Preferred Securities or any Successor
Securities are listed, or any Successor Securities will be listed
upon notification of issuance, on any national securities exchange or
with another organization on which the Preferred Securities are then
listed or quoted;
(iv) such merger, consolidation, amalgamation or
replacement does not cause the Preferred Securities (including any
Successor Securities) to be downgraded by any nationally recognized
statistical rating organization;
(v) such merger, consolidation, amalgamation or
replacement does not adversely affect the rights, preferences and
privileges of the Holders of the Preferred Securities (including any
Successor Securities) in any material respect (other than with
respect to any dilution of the Holders' interest in the Successor
Entity);
(vi) such Successor Entity has a purpose
substantially identical to that of the Trust;
(vii) the Company guarantees the obligations of
such Successor Entity under the Successor Securities at least to the
extent provided by the Preferred Securities Guarantee; and
(viii) prior to such merger, consolidation,
amalgamation or replacement, the Sponsor has received an opinion of a
nationally recognized independent counsel to the
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Trust, reasonably acceptable to the Property Trustee, experienced in
such matters to the effect that:
(A) such merger, consolidation,
amalgamation or replacement will not adversely affect the
rights, preferences and privileges of the Holders of the
Securities (including any Successor Securities) in any
material respect (other than with respect to any dilution of
the Holders' interest in the new entity);
(B) following such merger, consolidation,
amalgamation or replacement, neither the Trust nor the
Successor Entity will be required to register as an
Investment Company; and
(C) following such merger, consolidation,
amalgamation or replacement, the Trust (or the Successor
Entity) will be treated as a grantor trust for United States
federal income tax purposes.
(c) Notwithstanding Section 3.14(b), the Trust shall not,
except with the consent of the Holders of 100% in liquidation amount of the
Common Securities, consolidate, amalgamate, merge with or into, or be replaced
by any other entity or permit any other entity to consolidate, amalgamate,
merge with or into, or replace it if such consolidation, amalgamation, merger
or replacement would cause the Trust or Successor Entity to be classified as
other than a grantor trust for United States federal income tax purposes.
ARTICLE IV
SPONSOR AND DEBENTURE ISSUERS
SECTION 4.1 Sponsor's Purchase of Common Securities.
----------------------------------------
On the Closing Date and on any other date Preferred
Securities and Common Securities are sold pursuant to the over-allotment
option granted in the Purchase Agreement, the Sponsor will purchase all of the
Common Securities issued by the Trust, in an amount at least equal to 3% of
the capital of the Trust, at the same time as the Preferred Securities are
sold.
SECTION 4.2 Responsibilities of the Debenture Issuers.
------------------------------------------
In connection with the issue and sale of the Preferred
Securities, the Debenture Issuers shall have the exclusive right and
responsibility to engage in the following activities:
(a) to prepare the Offering Memorandum and any
amendment thereto and to prepare for filing by the Trust with the Commission
the Shelf Registration Statement, including any amendments thereto;
(b) to determine the States and foreign jurisdictions in
which to take appropriate action to qualify or register for sale all or part
of the Preferred Securities and to do any and all such acts, other than
actions that must be taken by the Trust, and advise the Trust of actions it
must take, and prepare for execution and filing any documents to be executed
and filed by the Trust, as the
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Debenture Issuers deem necessary or advisable in order to comply with the
applicable laws of any such States and foreign jurisdictions;
(c) to prepare for filing by the Trust an application to
PORTAL and to the New York Stock Exchange or any other national stock exchange
or The Nasdaq National Market for listing or quotation of the Preferred
Securities and the Common Stock issuable on conversion;
(d) to prepare for filing by the Trust with the Commission a
registration statement on Form 8-A relating to the registration of the
Preferred Securities and the Common Stock issuable on conversion under Section
12(b) of the Exchange Act, including any amendments thereto; and
(e) to negotiate the terms of the Purchase Agreement,
Registration Rights Agreement and other related agreements providing for the
sale of the Preferred Securities.
ARTICLE V
TRUSTEES
SECTION 5.1 Number of Trustees.
-------------------
The number of Trustees shall be four (4), two of which shall
initially be Regular Trustees, and:
(a) at any time before the issuance of any Securities,
the Sponsor may, by written instrument, increase or decrease the number of
Trustees; and
(b) after the issuance of any Securities, the number of
Trustees may be increased or decreased by vote of the Holders of a Majority in
liquidation amount of the Common Securities voting as a class at a meeting of
the Holders of the Common Securities;
provided, however, that the number of Trustees shall in no event be less than
three (3); provided further that (1) one Trustee, the Delaware Trustee, in the
case of a natural person, shall be a person who is a resident of the State of
Delaware or that, if not a natural person, is an entity which has its
principal place of business in the State of Delaware; (2) there shall be at
least one Regular Trustee who is an employee or officer of, or is affiliated
with the Sponsor; and (3) one Trustee shall be the Property Trustee for so
long as this Declaration is required to qualify as an indenture under the
Trust Indenture Act, and such Trustee may also serve as Delaware Trustee if it
meets the applicable requirements.
SECTION 5.2 Delaware Trustee.
-----------------
If required by the Business Trust Act, one Trustee (the
"Delaware Trustee") shall be:
(a) a natural person who is resident of the State of
Delaware; or
(b) if not a natural person, an entity which has its
principal place of business in the, State of Delaware, and otherwise meets the
requirements of applicable law,
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provided that, if the Property Trustee has its principal place of business in
the State of Delaware and otherwise meets the requirements of applicable law,
then the Property Trustee shall also be the Delaware Trustee and Section 3.11
shall have no application.
SECTION 5.3 Property Trustee; Eligibility.
------------------------------
(a) There shall at all times be one Trustee which shall
act as Property Trustee which shall:
(i) not be an Affiliate of either of the
Debenture Issuers;
(ii) be a corporation organized and doing business
under the laws of the United States of America or any State or
Territory thereof or of the District of Columbia, or a corporation or
Person permitted by the Commission to act as an institutional trustee
under the Trust Indenture Act, authorized under such laws to exercise
corporate trust powers, having a combined capital and surplus of at
least 50 million U.S. dollars ($50,000,000), and subject to
supervision or examination by Federal, State, Territorial or District
of Columbia authority. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements
of the supervising or examining authority referred to above, then for
the purposes of this Section 5.3(a)(ii), the combined capital and
surplus of such corporation shall be deemed to be its combined
capital and surplus as set forth in its most recent report of
condition so published; and
(iii) if the Trust is excluded from the definition
of an Investment Company solely by means of Rule 3a-5 and to the
extent Rule 3a-5 requires a trustee having certain qualifications to
hold title to the "eligible assets" of the trust, the Property
Trustee shall possess those qualifications.
(b) If at any time the Property Trustee shall cease to be
eligible to so act under Section 5.3(a) and 5.3(c), the Property Trustee shall
immediately resign in the manner and with the effect set forth in Section
5.6(c) and 5.6(d).
(c) If the Property Trustee has or shall acquire any
"conflicting interest" within the meaning of ss. 310(b) of the Trust Indenture
Act, the Property Trustee and the Holder of the Common Securities (as if it
were the obligor referred to in ss. 310(b) of the Trust Indenture Act) shall
in all respects comply with the provisions of ss. 310(b) of the Trust
Indenture Act.
(d) The Preferred Securities Guarantee shall be deemed to be
specifically described in this Declaration for purposes of clause (i) of the
first provision contained in Section 310(b) of the Trust Indenture Act.
(e) The initial Property Trustee shall be set forth in
Section 5.5 hereof.
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SECTION 5.4 Qualifications of Regular Trustees and Delaware Trustee Generally.
------------------------------------------------------------------
Each Regular Trustee and the Delaware Trustee (unless the
Property Trustee also acts as Delaware Trustee) shall be either a natural
person who is at least 21 years of age or a legal entity that shall act
through one or more Authorized Officers.
SECTION 5.5 Initial Trustees.
-----------------
(a) The initial Regular Trustees shall be:
Philip E. Rowley
Willa M. Perlman
The initial Delaware Trustee shall be:
The Bank of New York (Delaware)
The initial Property Trustee shall be:
The Bank of New York
SECTION 5.6 Appointment, Removal and Resignation of Trustees.
-------------------------------------------------
(a) Subject to Section 5.6(b), Trustees may be
appointed or removed without cause at any time:
(i) until the issuance of any Securities, by
written instrument executed by the Debenture Issuers; and
(ii) after the issuance of any Securities.
(b) The Trustee that acts as Property Trustee shall not be
removed in accordance with Section 5.6(a) until a Successor Property Trustee
has been appointed and has accepted such appointment by written instrument
executed by such Successor Property Trustee and delivered to the Regular
Trustees and the Sponsor; and
(c) The Trustee that acts as Delaware Trustee shall not be
removed in accordance with Section 5.6(a) until a successor Trustee possessing
the qualifications to act as Delaware Trustee under Sections 5.2 and 5.4 (a
"Successor Delaware Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor Delaware Trustee
and delivered to the Regular Trustees and the Sponsor.
(d) A Trustee appointed to office shall hold office until
his successor shall have been appointed or until his death, removal or
resignation. Any Trustee may resign from office (without need for prior or
subsequent accounting) by an instrument in writing signed by the Trustee and
delivered to the Sponsor and the Trust, which resignation shall take effect
upon such delivery or upon such later date as is specified therein; provided,
however, that:
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(i) No such resignation of the Trustee that
acts as the Property Trustee shall be effective:
(A) until a Successor Property Trustee has
been appointed and has accepted such appointment by
instrument executed by such Successor Property
Trustee and delivered to the Trust, the Sponsor and
the resigning Property Trustee; or
(B) until the assets of the Trust have
been completely liquidated and the proceeds thereof
distributed to the holders of the Securities; and
(ii) no such resignation of the Trustee that acts
as the Delaware Trustee shall be effective until a Successor Delaware
Trustee has been appointed and has accepted such appointment by
instrument executed by such Successor Delaware Trustee and delivered
to the Trust, the Sponsor and the resigning Delaware Trustee.
(e) The Holders of the Common Securities shall use their
best efforts to promptly appoint a Successor Property Trustee, Successor
Delaware Trustee, or, if there is one Regular Trustee, a Regular Trustee, as
the case may be, if the Property Trustee or the Delaware Trustee or such sole
Regular Trustee delivers an instrument of resignation in accordance with this
Section 5.6.
(f) If no Successor Property Trustee or Successor Delaware
Trustee shall have been appointed and accepted appointment as provided in this
Section 5.6 within 60 days after delivery pursuant to this Section 5.6 of an
instrument of resignation or removal, the Property Trustee or Delaware Trustee
resigning or being removed, as applicable, may petition any court of competent
jurisdiction for appointment of a Successor Property Trustee or Successor
Delaware Trustee. Such court may thereupon, after prescribing such notice, if
any, as it may deem proper and prescribe, appoint a Successor Property Trustee
or Successor Delaware Trustee, as the case may be.
(g) No Property Trustee or Delaware Trustee shall be liable
for the acts or omissions to act of any Successor Property Trustee or
Successor Delaware Trustee, as the case may be.
SECTION 5.7 Vacancies among Trustees.
-------------------------
If a Trustee ceases to hold office for any reason and the
number of Trustees is not reduced pursuant to Section 5.1, or if the number of
Trustees is increased pursuant to Section 5.1, a vacancy shall occur. A
resolution certifying the existence of such vacancy by the Regular Trustees
or, if there are more than two, a majority of the Regular Trustees shall be
conclusive evidence of the existence of such vacancy. The vacancy shall be
filled with a Trustee appointed in accordance with Section 5.6.
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SECTION 5.8 Effect of Vacancies.
--------------------
The death, resignation, retirement, removal, bankruptcy,
dissolution, liquidation, incompetence or incapacity to perform the duties of
a Trustee shall not operate to annul the Trust. Whenever a vacancy in the
number of Regular Trustees shall occur, until such vacancy is filled by the
appointment of a Regular Trustee in accordance with Section 5.6, the Regular
Trustees in office, regardless of their number, shall have all the powers
granted to the Regular Trustees and shall discharge all the duties imposed
upon the Regular Trustees by this Declaration.
SECTION 5.9 Meetings.
---------
If there is more than one Regular Trustee, meetings of the
Regular Trustees shall be held from time to time upon the call of any Regular
Trustee. Regular meetings of the Regular Trustees may be held at a time and
place fixed by resolution of the Regular Trustees. Notice of any in-person
meetings of the Regular Trustees shall be hand delivered or otherwise
delivered in writing (including by facsimile, with a hard copy by overnight
courier) not less than 48 hours before such meeting. Notice of any telephonic
meetings of the Regular Trustees or any committee thereof shall be hand
delivered or otherwise delivered in writing (including by facsimile, with a
hard copy by overnight courier) not less than 24 hours before a meeting.
Notices shall contain a brief statement of the time, place and anticipated
purposes of the meeting. The presence (whether in person or by telephone) of a
Regular Trustee at a meeting shall constitute a waiver of notice of such
meeting except where a Regular Trustee attends a meeting for the express
purpose of objecting to the transaction of any activity on the ground that the
meeting has not been lawfully called or convened. Unless provided otherwise in
this Declaration, any action of the Regular Trustees may be taken at a meeting
by vote of a majority of the Regular Trustees present (whether in person or by
telephone) and eligible to vote with respect to such matter, provided that a
Quorum is present, or without a meeting by the unanimous written consent of
the Regular Trustees. In the event there is only one Regular Trustee, any and
all action of such Regular Trustee shall be evidenced by a written consent of
such Regular Trustee.
SECTION 5.10 Delegation of Power.
--------------------
(a) Any Regular Trustee may, by power of attorney consistent
with applicable law, delegate to any other natural person over the age of 21
his or her power for the purpose of executing any documents contemplated in
Section 3.6, including any registration statement or amendment thereto filed
with the Commission, or making any other governmental filing; and
(b) the Regular Trustees shall have power to delegate from
time to time to such of their number or to officers of the Trust the doing of
such things and the execution of such instruments either in the name of the
Trust or the names of the Regular Trustees or otherwise as the Regular
Trustees may deem expedient, to the extent such delegation is not prohibited
by applicable law or contrary to the provisions of the Trust, as set forth
herein.
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SECTION 5.11 Merger, Conversion, Consolidation or Succession to Business.
------------------------------------------------------------
Any corporation into which the Property Trustee or the
Delaware Trustee, as the case may be, may be merged or converted or with which
either may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Property Trustee or the Delaware
Trustee, as the case may be, shall be a party, or any corporation succeeding
to all or substantially all the corporate trust business of the Property
Trustee or the Delaware Trustee, as the case may be, shall be the successor of
the Property Trustee or the Delaware Trustee, as the case may be, hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on
the part of any of the parties hereto.
ARTICLE VI
DISTRIBUTIONS
SECTION 6.1 Distributions.
--------------
Holders shall receive Distributions (as defined herein) in
accordance with the applicable terms of the relevant Holder's Securities.
Distributions shall be made on the Preferred Securities and the Common
Securities in accordance with the preferences set forth in their respective
terms. If and to the extent that the Debenture Issuers make a payment of
interest (including Compounded Interest (as defined in the Indenture),
Additional Interest (as defined in the Indenture) and Liquidated Damages),
premium and/or principal on the Debentures held by the Property Trustee (the
amount of any such payment being a "Payment Amount"), the Property Trustee
shall and is directed, to the extent funds are available for that purpose, to
make a distribution (a "Distribution") of the Payment Amount to Holders.
ARTICLE VII
ISSUANCE OF SECURITIES
SECTION 7.1 General Provisions Regarding Securities.
----------------------------------------
(a) The Regular Trustees shall, on behalf of the Trust,
issue one class of convertible preferred securities, representing undivided
beneficial interests in the assets of the Trust (the "Preferred Securities"),
having such terms (the "Terms") as are set forth in Annex I and one class of
convertible common securities, representing undivided beneficial interests in
the assets of the Trust (the "Common Securities"), having such terms as are
set forth in Annex I. The Trust shall issue no securities or other interests
in the assets of the Trust other than the Preferred Securities and the Common
Securities. The Trust shall issue no Securities in bearer form.
(b) The consideration received by the Trust for the issuance
of the Securities shall constitute a contribution to the capital of the Trust
and shall not constitute a loan to the Trust.
(c) Upon issuance of the Securities as provided in this
Declaration, the Securities so issued shall be deemed to be validly issued,
fully paid and nonassessable.
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(d) Every Person, by virtue of having become a Holder or a
Preferred Security Beneficial Owner in accordance with the terms of this
Declaration, shall be deemed to have expressly assented and agreed to the
terms of, and shall be bound by, this Declaration.
(e) The Securities shall have no preemptive rights.
SECTION 7.2 Execution and Authentication.
-----------------------------
(a) The Securities shall be signed on behalf of the Trust by
a Regular Trustee. In case any Regular Trustee of the Trust who shall have
signed any of the Securities shall cease to be such Regular Trustee before the
Securities so signed shall be delivered by the Trust, such Securities
nevertheless may be delivered as though the person who signed such Securities
had not ceased to be such Regular Trustee; and any Securities may be signed on
behalf of the Trust by such persons who, at the actual date of execution of
such Security, shall be the Regular Trustees of the Trust, although at the
date of the execution and delivery of the Declaration any such person was not
such a Regular Trustee.
(b) One Regular Trustee shall sign the Preferred Securities
for the Trust by manual or facsimile signature. Unless otherwise determined by
the Trust, such signature shall, in the case of Common Securities, be a manual
signature.
A Preferred Security shall not be valid until authenticated
by the manual signature of an authorized signatory of the Property Trustee.
The signature shall be conclusive evidence that the Preferred Security has
been authenticated under this Declaration.
Upon a written order of the Trust signed by one Regular
Trustee, the Property Trustee shall authenticate the Preferred Securities for
original issue in paragraph 5 of the Securities. The aggregate number of
Preferred Securities outstanding at any time shall not exceed the number set
forth in the Terms in Annex I hereto except as provided in Section 7.6.
The Property Trustee may appoint an authenticating agent
acceptable to the Trust to authenticate Preferred Securities. An
authenticating agent may authenticate Preferred Securities whenever the
Property Trustee may do so. Each reference in this Declaration to
authentication by the Property Trustee includes authentication by such agent.
An authenticating agent has the same rights as the Property Trustee to deal
with the Debenture Issuers or an Affiliate thereof.
SECTION 7.3 Form and Dating.
----------------
The Preferred Securities and the Property Trustee's
certificate of authentication shall be substantially in the form of Exhibit
A-1 and the Common Securities shall be substantially in the form of Exhibit
A-2, each of which is hereby incorporated in and expressly made a part of this
Declaration. Certificates may be printed, lithographed or engraved or may be
produced in any other manner as is reasonably acceptable to the Regular
Trustees, as evidenced by their execution thereof. The Securities may have
letters, numbers, notations or other marks of identification or designation
and such legends or endorsements required by law, stock exchange rule,
agreements to which the Trust is subject, if any, or usage (provided that any
such notation, legend or endorsement is in a
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form acceptable to the Trust). The Trust at the direction of the Sponsor
shall furnish any such legend not contained in Exhibit A-1 to the Property
Trustee in writing. Each Preferred Security shall be dated the date of its
authentication. The terms and provisions of the Securities set forth in
Annex I and the forms of Securities set forth in Exhibits A-1 and A-2 are part
of the terms of this Declaration and to the extent applicable, the Property
Trustee and the Sponsor, by their execution and delivery of this Declaration,
expressly agree to such terms and provisions and to be bound thereby.
(a) Global Securities. The Preferred Securities are being
offered and sold by the Trust pursuant to a Purchase Agreement relating to the
Preferred Securities, dated August 14, 1996 among the Trust, the Debenture
Issuers and the Initial Purchasers named therein (the "Purchase Agreement").
Securities offered and sold to Qualified Institutional
Buyers ("QIBs") in reliance on Rule 144A under the Securities Act ("Rule
144A") as provided in the Purchase Agreement, shall be issued in the form of
one or more, permanent global Securities in definitive, fully registered form
without distribution coupons with the appropriate global legends and
Restricted Securities Legend set forth in Exhibit A-1 hereto (each, a "Rule
144A Global Preferred Security"), which shall be deposited on behalf of the
purchasers of the Preferred Securities represented thereby with the Property
Trustee, at its New York office, as custodian for the Depositary, and
registered in the name of a nominee of the Depositary, duly executed by the
Trust and authenticated by the Property Trustee as hereinafter provided. The
number of Preferred Securities represented by the Rule 144A Global Preferred
Security may from time to time be increased or decreased by adjustments made
on the records of the Property Trustee and the Depositary or its nominee as
hereinafter provided.
(b) Book-Entry Provisions. This Section 7.3(b) shall apply
only to the Rule 144A Global Preferred Securities and such other Preferred
Securities in global form as may be authorized by the Trust to be deposited
with or on behalf of the Depositary.
The Trust shall execute and the Property Trustee shall, in
accordance with this Section 7.3, authenticate and make available for delivery
initially one or more Rule 144A Global Preferred Securities that (a) shall be
registered in the name of Cede & Co. or another nominee of such Depositary and
(b) shall be delivered by the Trustee to such Depositary or pursuant to such
Depositary's written instructions or held by the Property Trustee as custodian
for the Depositary.
Members of, or participants in, the Depositary
("Participants") shall have no rights under this Declaration with respect to
any Rule 144A Global Preferred Security held on their behalf by the Depositary
or by the Property Trustee as the custodian of the Depositary or under such
Rule 144A Global Preferred Security, other than as pursuant to the terms of
any agreement such Depositary shall have with the Participants, and the
Depositary may be treated by the Trust, the Property Trustee and any agent of
the Trust or the Property Trustee as the absolute owner of such Rule 144A
Global Preferred Security for all purposes whatsoever. Notwithstanding the
foregoing, nothing herein shall prevent the Trust, the Property Trustee or any
agent of the Trust or the Property Trustee from giving effect to any written
certification, proxy or other authorization furnished by the Depositary or
impair, as between the Depositary and its Participants, the operation of
customary
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practices of such Depositary governing the exercise of the rights of
a holder of a beneficial interest in any Rule 144A Global Preferred Security.
(c) Certificated Securities. Except as provided in Section
7.9, owners of beneficial interests in the Rule 144A Global Preferred Security
will not be entitled to receive physical delivery of certificated Preferred
Securities. Preferred Securities offered and sold in reliance on Regulation S
under the Securities Act ("Regulation S"), as provided in the Purchase
Agreement, shall be issued initially in the form of individual certificates in
definitive, fully registered form without distribution coupons and shall bear
the Restricted Securities Legend set forth in Exhibit A-1 hereto (the
"Regulation S Definitive Preferred Securities"). Purchasers of Securities who
are institutional "accredited investors" (as defined in Rule 501(a)(1), (2),
(3) or (7) under the Securities Act) and did not purchase Preferred Securities
in reliance on Regulation S under the Securities Act will receive Preferred
Securities in the form of individual certificates in definitive, fully
registered form without distribution coupons and with the Restricted
Securities Legend set forth in Exhibit A-1 hereto ("Restricted Definitive
Preferred Securities"); provided, however, that upon transfer of such
Restricted Definitive Preferred Securities to a QIB, such Restricted
Definitive Preferred Securities will, unless the Rule 144A Global Preferred
Security has previously been exchanged, be exchanged for an interest in a Rule
144A Global Security pursuant to the provisions at Section 9.2. Restricted
Definitive Preferred Securities will bear the Restricted Securities Legend set
forth on Exhibit A-1 unless removed in accordance with this Section 7.3 or
Section 9.2.
SECTION 7.4 Registrar, Paying Agent and Conversion Agent.
---------------------------------------------
The Trust shall maintain in the Borough of Manhattan, City
of New York, State of New York or in the city of London, England, as the case
may be, (i) an office or agency where Preferred Securities may be presented
for registration of transfer or exchange ("Registrar"), (ii) an office or
agency where Preferred Securities may be presented for payment ("Paying
Agent") and an office or agency where Securities may be presented for
conversion ("Conversion Agent"). The Registrar shall keep a register of the
Preferred Securities and of their transfer and exchange. The Trust may appoint
the Registrar, the Paying Agent and the Conversion Agent and may appoint one
or more co-registrars, one or more additional paying agents and one or more
additional conversion agents in such other locations as it shall determine.
The term "Paying Agent" includes any additional paying agent and the term
"Conversion Agent" includes any additional conversion agent. The Trust may
change any Paying Agent, Registrar, co-registrar or Conversion Agent without
prior notice to any Holder. The Paying Agent shall be permitted to resign as
Paying Agent upon 30 days' written notice to the Regular Trustees. The Trust
shall notify the Property Trustee of the name and address of any Agent not a
party to this Declaration. If the Trust fails to appoint or maintain another
entity as Registrar, Paying Agent or Conversion Agent, the Property Trustee
shall act as such. The Trust or any of its Affiliates may act as Paying Agent,
Registrar or Conversion Agent. The Trust shall act as Paying Agent, Registrar,
co-registrar and Conversion Agent for the Common Securities.
The Trust initially appoints the Property Trustee as
Registrar, Paying Agent and Conversion Agent for the Preferred Securities.
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SECTION 7.5 Paying Agent to Hold Money in Trust.
------------------------------------
The Trust shall require each Paying Agent other than the
Property Trustee to agree in writing that the Paying Agent will hold in trust
for the benefit of Holders or the Property Trustee all money held by the
Paying Agent for the payment of principal or distribution on the Securities,
and will notify the Property Trustee if there are insufficient funds. While
any such insufficiency continues, the Property Trustee may require a Paying
Agent to pay all money held by it to the Property Trustee. The Trust at any
time may require a Paying Agent to pay all money held by it to the Property
Trustee and to account for any money disbursed by it. Upon payment over to the
Property Trustee, the Paying Agent (if other than the Trust or an Affiliate of
the Trust) shall have no further liability for the money. If the Trust or the
Debenture Issuers or an Affiliate of the Trust or either of the Debenture
Issuers acts as Paying Agent, it shall segregate and hold in a separate trust
fund for the benefit of the Holders all money held by it as Paying Agent.
SECTION 7.6 Replacement Securities.
-----------------------
If the holder of a Security claims that the Security has
been lost, destroyed or wrongfully taken or if such Security is mutilated and
is surrendered to the Trust or in the case of the Preferred Securities to the
Property Trustee, the Trust shall issue and the Property Trustee shall
authenticate a replacement Security if the Property Trustee's and the Trust's
requirements, as the case may be, are met. If required by the Property Trustee
or the Trust, an indemnity bond must be sufficient in the judgment of both to
protect the Trustees, the Property Trustee, the Debenture Issuers or any
authenticating agent from any loss which any of them may suffer if a Security
is replaced. The Company may charge for its expenses in replacing a Security.
In case any such mutilated, destroyed, lost or stolen
Security has become or is about to become due and payable, or is about to be
purchased by the Debenture Issuers pursuant to Article III hereof, the
Debenture Issuers in their discretion may, instead of issuing a new Security,
pay or purchase such Security, as the case may be.
Every replacement Security is an additional Security of the
Trust entitled to the same benefits hereunder as the Security being replaced.
SECTION 7.7 Outstanding Preferred Securities.
---------------------------------
The Preferred Securities outstanding at any time are all the
Preferred Securities authenticated by the Property Trustee except for those
cancelled by it, those delivered to it for cancellation and those described in
this Section as not outstanding.
If a Preferred Security is replaced, paid or purchased
pursuant to Section 7.6 hereof, it ceases to be outstanding unless the
Property Trustee receives proof satisfactory to it that the replaced, paid or
purchased Preferred Security is held by a bona fide purchaser.
If Preferred Securities are considered paid in accordance
with the terms of this Declaration, they cease to be outstanding and interest
on them ceases to accrue.
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A Preferred Security does not cease to be outstanding
because one of the Trust, one of the Debenture Issuers or an Affiliate of
either of the Debenture Issuers holds the Security.
SECTION 7.8 Preferred Securities in Treasury.
---------------------------------
In determining whether the Holders of the required amount of
Securities have concurred in any direction, waiver or consent, Preferred
Securities owned by the Trust, the Debenture Issuers or an Affiliate of the
Debenture Issuers, as the case may be, shall be disregarded and deemed not to
be outstanding, except that for the purposes of determining whether the
Property Trustee shall be fully protected in relying on any such direction,
waiver or consent, only Securities which the Property Trustee knows are so
owned shall be so disregarded.
SECTION 7.9 Temporary Securities.
---------------------
(a) Until definitive Securities are ready for delivery, the
Trust may prepare and, in the case of the Preferred Securities, the Property
Trustee shall authenticate temporary Securities. Temporary Securities shall be
substantially in the form of definitive Securities but may have variations
that the Trust considers appropriate for temporary Securities. Without
unreasonable delay, the Trust shall prepare and, in the case of the Preferred
Securities, the Property Trustee shall authenticate definitive Securities in
exchange for temporary Securities.
(b) A Global Preferred Security deposited with the
Depositary or with the Property Trustee as custodian for the Depositary
pursuant to Section 7.3 shall be transferred to the beneficial owners thereof
in the form of certificated Preferred Securities only if such transfer
complies with Section 9.2 and (i) the Depositary notifies the Company that it
is unwilling or unable to continue as Depositary for such Global Preferred
Security or if at any time such Depositary ceases to be a "clearing agency"
registered under the Exchange Act and a successor depositary is not appointed
by the Debenture Issuers within 90 days of such notice, or (ii) an Event of
Default has occurred and is continuing.
(c) Any Global Preferred Security that is transferable to
the beneficial owners thereof in the form of certificated Preferred Securities
pursuant to this Section 7.9 shall be surrendered by the Depositary to the
Property Trustee located in the Borough of Manhattan, The City of New York, to
be so transferred, in whole or from time to time in part, without charge, and
the Property Trustee shall authenticate and make available for delivery, upon
such transfer of each portion of such Global Preferred Security, an equal
aggregate liquidation amount of Securities of authorized denominations in the
form of certificated Securities. Any portion of a Global Preferred Security
transferred pursuant to this Section shall be registered in such names as the
Depositary shall direct. Any Preferred Security in the form of certificated
Preferred Securities delivered in exchange for an interest in the Restricted
Global Preferred Security shall, except as otherwise provided by Sections 7.3
and 9.1, bear the Restricted Securities Legend set forth in Exhibit A-1
hereto.
(d) Subject to the provisions of Section 7.9(c), the
registered holder of a Global Preferred Security may grant proxies and
otherwise authorize any person, including Participants
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and persons that may hold interests through Participants, to take any action
which a holder is entitled to take under this Declaration or the Securities.
(e) In the event of the occurrence of either of the events
specified in Section 7.9(b), the Trust will promptly make available to the
Property Trustee a reasonable supply of certificated Securities in definite,
fully registered form without interest coupons.
SECTION 7.10 Cancellation.
-------------
The Trust at any time may deliver Preferred Securities to
the Property Trustee for cancellation. The Registrar, Paying Agent and
Conversion Agent shall forward to the Property Trustee any Preferred
Securities surrendered to them for registration of transfer, redemption,
conversion, exchange or payment. The Property Trustee shall promptly cancel
all Preferred Securities, surrendered for registration of transfer,
redemption, conversion, exchange, payment, replacement or cancellation and
shall dispose of cancelled Preferred Securities as the Trust directs. The
Trust may not issue new Preferred Securities to replace Preferred Securities
that it has paid or that have been delivered to the Property Trustee for
cancellation (other than pursuant to Section 7.6) or that any Holder has
converted.
ARTICLE VIII
TERMINATION OF TRUST
SECTION 8.1 Termination of Trust.
---------------------
(a) The Trust shall terminate:
(i) upon the bankruptcy of the Sponsor;
(ii) upon the filing of a certificate of
dissolution or its equivalent with respect to the Sponsor, the filing
of a certificate of cancellation with respect to the Trust after
having obtained the consent of at least a Majority in liquidation
amount of the Securities, voting together as a single class, to file
such certificate of cancellation, or the revocation of the charter of
the Sponsor and the expiration of 90 days after the date of
revocation without a reinstatement thereof;
(iii) upon the entry of a decree of judicial
dissolution of the Sponsor or the Trust;
(iv) when all of the Securities shall have been
called for redemption and the amounts necessary for redemption
thereof, including any Additional Interest, Compounded Interest and
Liquidated Damages, shall have been paid to the Holders in accordance
with the terms of the Securities;
(v) upon the occurrence and continuation of a Tax
Event pursuant to which the Trust shall have been dissolved in
accordance with the terms of the Securities and
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all of the Debentures endorsed thereon shall have been distributed to
the Holders of Securities in exchange for all of the Preferred
Securities;
(vi) the expiration of the term of the Trust on
August 20, 2025; or
(vii) before the issuance of any Securities,
with the consent of all the Regular Trustees and the Sponsor.
(b) As soon as is practicable after the occurrence of an
event referred to in Section 8.1(a), the Trustees shall file a certificate of
cancellation with the Secretary of State of the State of Delaware.
(c) The provisions of Section 3.9 and Article X shall
survive the termination of the Trust.
ARTICLE IX
TRANSFER AND EXCHANGE
SECTION 9.1 General.
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(a) Where Preferred Securities are presented to the
Registrar or a co-registrar with a request to register a transfer or to
exchange them for an equal number of Preferred Securities represented by
different certificates, the Registrar shall register the transfer or make the
exchange if its requirements for such transactions are met. To permit
registrations of transfers and exchanges, the Trust shall issue and the
Property Trustee shall authenticate Preferred Securities at the Registrar's
request.
(b) Securities may only be transferred, in whole or in part,
in accordance with the terms and conditions set forth in this Declaration, in
the terms of the Securities and in accordance with applicable securities laws.
Any transfer or purported transfer of any Security not made in accordance with
this Declaration shall be null and void.
Subject to this Article IX, the Debenture Issuers and any
Related Party may only transfer Common Securities to the Debenture Issuers or
a Related Party of one of the Debenture Issuers; provided that, any such
transfer is subject to the condition precedent that the transferor obtain the
written opinion of nationally recognized independent counsel experienced in
such matters that such transfer would not cause more than an insubstantial
risk that:
(i) the Trust would not be classified for
United States federal income tax purposes as a grantor trust; and
(ii) the Trust would be an Investment Company
or the transferee would become an Investment Company.
(c) The Regular Trustees shall provide for the registration
of Securities and of transfers of Securities, which will be effected without
charge but only upon payment (with such indemnity as the Regular Trustees may
require) in respect of any tax or other governmental charges
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that may be imposed in relation to it. Upon surrender for registration of
transfer of any Securities, the Regular Trustees shall cause one or more new
Securities to be issued in the name of the designated transferee or
transferees. Every Security surrendered for registration of transfer shall be
accompanied by a written instrument of transfer in form satisfactory to the
Regular Trustees duly executed by the Holder or such Holder's attorney duly
authorized in writing. Each Security surrendered for registration of transfer
shall be canceled by the Regular Trustees. A transferee of a Security shall be
entitled to the rights and subject to the obligations of a Holder hereunder
upon the receipt by such transferee of a Security. By acceptance of a Security,
each transferee shall be deemed to have agreed to be bound by this Declaration.
(d) The Trust shall not be required (i) to issue, register
the transfer of, or exchange, Preferred Securities during a period beginning
at the opening of business 15 days before the day of any selection of
Preferred Securities for redemption set forth in the terms of the Preferred
Securities and ending at the close of business on the day of selection, or
(ii) to register the transfer or exchange of any Preferred Security so
selected for redemption in whole or in part, except the unredeemed portion of
any Preferred Security being redeemed in part.
SECTION 9.2 Transfer Procedures and Restrictions.
-------------------------------------
(a) General. Except in connection with the resale thereof
pursuant to a Shelf Registration Statement contemplated by and in accordance
with the terms of the Registration Rights Agreement, if Preferred Securities
are issued upon the transfer, exchange or replacement of Preferred Securities
bearing the Restricted Securities Legend set forth in Exhibit A-1 hereto
("Restricted Securities"), or if a request is made to remove such Restricted
Securities Legend on Preferred Securities, the Preferred Securities so issued
shall bear the Restricted Securities Legend, or the Restricted Securities
Legend shall not be removed, as the case may be, unless there is delivered to
the Trust and the Property Trustee such satisfactory evidence, which may
include an opinion of counsel licensed to practice law in the State of New
York, as may be reasonably required by the Company, that neither the legend
nor the restrictions on transfer set forth therein are required to ensure that
transfers thereof comply with the provisions of Rule 144A, Rule 144 or
Regulation S under the Securities Act or, with respect to Restricted
Securities, that such Securities are not "restricted" within the meaning of
Rule 144 under the Securities Act. Upon provision of such satisfactory
evidence, the Property Trustee, at the written direction of the Trust, shall
authenticate and deliver Preferred Securities that do not bear the legend.
(b) Transfers After Effectiveness of Shelf Registration
Statement. During the period of effectiveness of a Shelf Registration
Statement for any Preferred Securities, all requirements pertaining to legends
on such Preferred Security will cease to apply, and beneficial interests in a
Preferred Security in global form without legends will be available to
transferees of such Preferred Securities (but not prior to the applicable
transfer), upon exchange of the transferring holder's Restricted Definitive
Preferred Security or directions to transfer such Holder's beneficial interest
in the Rule 144A Global Preferred Security, as the case may be. No such
transfer or exchange of a Restricted Definitive Preferred Security or of an
interest in the Rule 144A Global Preferred Security shall be effective unless
the transferor delivers to the Trust a certificate in the form of Exhibit D
hereto as to compliance by such person with the provisions of the Registration
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Rights Agreement applicable thereto. After the effectiveness of the Shelf
Registration Statement, the Trust shall issue and the Property Trustee, upon
instruction from the Trust, shall authenticate a Preferred Security in global
form without the Restricted Securities Legend (the "Exchanged Global Preferred
Security") to deposit with the Depositary to evidence transfers of (i)
beneficial interests from the Rule 144A Global Preferred Security, (ii)
Restricted Definitive Preferred Securities and (iii) Unrestricted Definitive
Preferred Securities.
(c) Regulation S Definitive Preferred Security to
Unrestricted Definitive Preferred Security; Termination of Restricted Period.
Following the termination of the "restricted period" with respect to the
issuance of the Preferred Securities, Regulation S Definitive Preferred
Securities may be exchanged for an interest in a Preferred Security in
definitive, fully registered form without distribution coupons, but without
the Restricted Securities Legend (an "Unrestricted Definitive Preferred
Security"), that is free from any restriction on transfer (other than such as
are solely attributable to any Holder's status). Unrestricted Definitive
Preferred Securities will bear a CUSIP number different from that of the
Exchanged Global Preferred Securities and transfers or exchanges from an
Unrestricted Definitive Preferred Security or Regulation S Definitive
Preferred Security to an Exchanged Preferred Security must be effected
pursuant to Section 9.2(b).
(d) Transfer and Exchange of Definitive Preferred
Securities. When Definitive Preferred Securities are presented to the
Registrar or co-Registrar
(x) to register the transfer of such Definitive
Preferred Securities; or
(y) to exchange such Definitive Preferred Securities
for an equal number of Definitive Preferred Securities of another number,
the Registrar or co-registrar shall register the transfer or make the exchange
as requested if its reasonable requirements (including any applicable
requirements of law) for such transaction are met; provided, however, that the
Definitive Preferred Securities surrendered for transfer or exchange:
(i) shall be duly endorsed or accompanied by a
written instrument of transfer in form reasonably satisfactory to the
Trust and the Registrar or co-registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing; and
(ii) in the case of Definitive Preferred Securities
that are Restricted Definitive Preferred Securities, are being
transferred or exchanged pursuant to an effective registration
statement under the Securities Act or, prior to the time of the
effectiveness of such registration statement, pursuant to clause (A)
or (B) below, and are accompanied by the following additional
information and documents, as applicable:
(A) if such Restricted Preferred
Securities are being delivered to the Registrar by a Holder
for registration in the name of such Holder, without
transfer, a certification from such Holder to that effect
(in the form set forth on the reverse of the Preferred
Security); or
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(B) if such Restricted Preferred
Securities are being transferred pursuant to an exemption
from registration in accordance with Rule 144 or Regulation
S under the Securities Act: (i) a certification to that
effect (in the form set forth on the reverse of the
Preferred Security) and (ii) if the Trust or Registrar so
requests, evidence reasonably satisfactory to them as to the
compliance with the restrictions set forth in the Restricted
Securities Legend.
Definitive Preferred Securities that are transferred to QIBs
in accordance with Rule 144A under the Securities Act must take delivery of
their interests as the Preferred Securities in the form of a beneficial
interest in the Rule 144A Global Preferred Security in accordance with Section
9.2(e).
(e) Restrictions on Transfer of a Definitive Preferred
Security for a Beneficial Interest in a Global Preferred Security. A
Definitive Preferred Security may not be exchanged for a beneficial interest
in a Global Preferred Security except upon satisfaction of the requirements
set forth below. Upon receipt by the Property Trustee of a Definitive
Preferred Security, duly endorsed or accompanied by appropriate instruments of
transfer, in form satisfactory to the Property Trustee, together with:
(i) if such Definitive Preferred Security is a
Restricted Preferred Security, certification, in the form set forth
on the reverse of the Preferred Security, that such Definitive
Preferred Security is being transferred to a QIB in accordance with
Rule 144A under the Securities Act; and
(ii) whether or not such Definitive Preferred
Security is a Restricted Preferred Security, written instructions
directing the Property Trustee to make, or to direct the Depositary
to make, an adjustment on its books and records with respect to such
Global Preferred Security to reflect an increase in the number of the
Preferred Securities represented by the Global Preferred Security,
then the Property Trustee shall cancel such Definitive Preferred Security and
cause, or direct the Depositary to cause, the aggregate number of Preferred
Securities represented by the Global Preferred Security to be increased
accordingly. If no Global Preferred Securities are then outstanding, the Trust
shall issue and the Property Trustee shall authenticate, upon written order of
any Regular Trustee, an appropriate number of Preferred Securities in global
form.
(f) Transfer and Exchange of Global Preferred Securities.
The transfer and exchange of Global Preferred Securities or beneficial
interests therein shall be effected through the Depositary, in accordance with
this Declaration (including applicable restrictions on transfer set forth
herein, if any) and the procedures of the Depositary therefor.
(g) Transfer of a Beneficial Interest in a Global
Preferred Security for a Definitive Preferred Security.
(i) Any person having a beneficial interest in a
Global Preferred Security that is being transferred or exchanged
pursuant to clause (A) or (B) below, and not
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pursuant to an effective registration statement, may upon request,
and if accompanied by the information specified below, exchange such
beneficial interest for a Definitive Preferred Security representing
the same number of Preferred Securities. Upon receipt by the Property
Trustee from the Depositary or its nominee on behalf of any Person
having a beneficial interest in a Global Preferred Security of
written instructions or such other form of instructions as is
customary for the Depositary or the person designated by the
Depositary as having such a beneficial interest in a Restricted
Preferred Security and the following additional information and
documents (all of which may submitted by facsimile):
(A) if such beneficial interest is being
transferred to the person designated by the Depositary as
being the owner of a beneficial interest in a Global
Preferred Security, a certification from such Person to that
effect (in the form set forth on the reverse of the
Preferred Security); or
(B) if such beneficial interest is being
transferred pursuant to an exemption from registration in
accordance with Rule 144 or Regulation S under the
Securities Act: (i) a certification to that effect from the
transferee or transferor (in the form set forth on the
reverse of the Preferred Security) and (ii) if the Property
Trustee or Registrar so requests, evidence reasonably
satisfactory to them as to the compliance with the
restrictions set forth in the legend set forth in Section
9.2(j),
then the Property Trustee or the Securities Custodian, at the
direction of the Property Trustee, will cause, in accordance with the
standing instructions and procedures existing between the Depositary
and the Securities Custodian, the aggregate principal amount of the
Global Preferred Security to be reduced on its books and records and,
following such reduction, the Trust will execute and the Property
Trustee will authenticate and deliver to the transferee a Definitive
Preferred Security.
(ii) Definitive Preferred Securities issued in
exchange for a beneficial interest in a Global Preferred Security
pursuant to this Section 9.2(g) shall be registered in such names and
in such authorized denominations as the Depositary, pursuant to
instructions from its Participants or indirect Participants or
otherwise, shall instruct the Property Trustee. The Property Trustee
shall deliver such Preferred Securities to the persons in whose names
such Preferred Securities are so registered in accordance with the
instructions of the Depositary.
Beneficial interests in the Rule 144A Global
Security may not be exchanged for a Definitive Preferred Security
except a Regulation S Definitive Preferred Security and except as
provided in Section 9.2(i).
(h) Restrictions on Transfer and Exchange of Global
Preferred Securities. Notwithstanding any other provisions of this Declaration
(other than the provisions set forth in subsection (i) of this Section 9.2), a
Global Preferred Security may not be transferred as a whole except by the
Depositary to a nominee of the Depositary or another nominee of the Depositary
or by the Depositary or any such nominee to a successor Depositary or a
nominee of such successor Depositary.
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Definitive Preferred Securities that are transferred to QIBs
in accordance with Rule 144A under the Securities Act prior to the
effectiveness of a registration statement under the Securities Act must take
delivery of their interests as the Preferred Securities in the form of a
beneficial interest in the Rule 144A Global Preferred Security in accordance
with Section 9.2(e).
(i) Authentication of Definitive Preferred Securities.
If at any time:
(i) the Depositary notifies the Trust that the
Depositary is unwilling or unable to continue as Depositary for the
Global Preferred Securities and a successor Depositary for the Global
Preferred Securities is not appointed by the Trust at the direction
of the Sponsor within 90 days after delivery of such notice; or
(ii) the Trust, in its sole discretion, notifies
the Property Trustee in writing that it elects to cause the issuance
of Definitive Preferred Securities under this Declaration,
then the Trust will execute, and the Property Trustee, upon receipt of a
written order of the Trust signed by one Regular Trustee requesting the
authentication and delivery of Definitive Preferred Securities to the Persons
designated by the Trust, will authenticate and deliver Definitive Preferred
Securities, in an aggregate principal amount equal to the principal amount of
Global Preferred Securities, in exchange for such Global Preferred Securities.
(j) Legend.
(i) Except as permitted by the following paragraph
(ii), each Preferred Security certificate evidencing the Global
Preferred Securities and the Definitive Preferred Securities (and all
Preferred Securities issued in exchange therefor or substitution
thereof) shall bear a legend (the "Restricted Securities Legend") in
substantially the following form:
THIS SECURITY, ANY CONVERTIBLE DEBENTURE
ISSUED IN EXCHANGE FOR THIS SECURITY AND ANY COMMON STOCK
ISSUED ON CONVERSION THEREOF HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY
NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED,
SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR
UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE
HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO
OFFER, SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO
THE DATE WHICH IS THREE YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH GOLDEN
BOOKS FAMILY ENTERTAINMENT, INC. (THE "COMPANY"), GOLDEN
BOOKS PUBLISHING COMPANY ("GOLDEN BOOKS PUBLISHING" AND,
TOGETHER WITH THE COMPANY, THE
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"OBLIGORS") OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF
THIS SECURITY (OR ANY PREDECESSOR OF THIS SECURITY) (THE
"RESALE RESTRICTION TERMINATION DATE") ONLY (A) TO THE
OBLIGORS, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES
ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A"), TO A PERSON IT REASONABLY
BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN
RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE
ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS
GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS
THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL
"ACCREDITED INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH
(a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE SECURITIES ACT
THAT ITS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR
THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR,"
FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER
OR SALE IN CONNECTION WITH, ANY DISTRIBUTION IN VIOLATION OF
THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT TO THE OBLIGORS' AND THE TRANSFER
AGENT'S RIGHT PRIOR TO ANY SUCH OFFER, SALE OR TRANSFER (i)
PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE DELIVERY
OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER
INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH
OF THE FOREGOING CASES, TO REQUIRE THAT A CERTIFICATE OF
TRANSFER IN THE FORM APPEARING ON THIS SECURITY IS COMPLETED
AND DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT, THIS
LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER
THE RESALE RESTRICTION TERMINATION DATE.
(ii) Upon any sale or transfer of a Restricted
Preferred Security (including any Restricted Preferred Security
represented by a Global Preferred Security) pursuant to an effective
registration statement under the Securities Act or pursuant to Rule
144 under the Securities Act after such registration statement ceases
to be effective:
(A) in the case of any Restricted
Preferred Security that is a Definitive Preferred Security,
the Registrar shall permit the Holder thereof to exchange
such Restricted Preferred Security for a Definitive
Preferred Security that does not bear the Restricted
Securities Legend and rescind any restriction on the
transfer of such Restricted Preferred Security; and
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(B) in the case of any Restricted
Preferred Security that is represented by a Global Preferred
Security, the Registrar shall permit the Holder thereof to
exchange such Restricted Preferred Security (in connection
with the sale of a Preferred Security pursuant to the
Registration Rights Agreement) for another Global Preferred
Security that does not bear the Restricted Securities
Legend.
(k) Cancellation or Adjustment of Global Preferred Security.
At such time as all beneficial interests in a Global Preferred Security have
either been exchanged for Definitive Preferred Securities to the extent
permitted by the Declaration or redeemed, repurchased or canceled in
accordance with the terms of this Declaration, such Global Preferred Security
shall be returned to the Depositary for cancellation or retained and canceled
by the Property Trustee. At any time prior to such cancellation, if any
beneficial interest in a Global Preferred Security is exchanged for Definitive
Preferred Securities, Preferred Securities represented by such Global
Preferred Security shall be reduced and an adjustment shall be made on the
books and records of the Property Trustee (if it is then the Securities
Custodian for such Global Preferred Security) with respect to such Global
Preferred Security, by the Property Trustee or the Securities Custodian, to
reflect such reduction.
(l) Obligations with Respect to Transfers and Exchanges
of Preferred Securities.
(i) To permit registrations of transfers and
exchanges, the Trust shall execute and the Property Trustee shall
authenticate Definitive Preferred Securities and Global Preferred
Securities at the Registrar's or a co-Registrar's request.
(ii) Registrations of transfers or exchanges will
be effected without charge, but only upon payment (with such
indemnity as the Trust or the Sponsor may require) in respect of any
tax or other governmental charge that may be imposed in relation to
it.
(iii) The Registrar or a co-registrar shall not be
required to register the transfer of or exchange of (a) any
Definitive Preferred Security selected for redemption in whole or in
part pursuant to Article III, except the unredeemed portion of any
Definitive Preferred Security being redeemed in part, or (b) any
Preferred Security for a period beginning 15 Business Days before the
mailing of a notice of an offer to repurchase or redeem Preferred
Securities or 15 Business Days before a quarterly distribution date.
(iv) Prior to the due presentation for
registrations of transfer of any Preferred Security, the Trust, the
Property Trustee, the Paying Agent, the Registrar or any co-registrar
may deem and treat the person in whose name a Preferred Security is
registered as the absolute owner of such Preferred Security for the
purpose of receiving Distributions on such Preferred Security and for
all other purposes whatsoever, and none of the Trust, the Property
Trustee, the Paying Agent, the Registrar or any co-registrar shall be
affected by notice to the contrary.
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(v) All Preferred Securities issued upon any
transfer or exchange pursuant to the terms of this Declaration shall
evidence the same security and shall be entitled to the same benefits
under this Declaration as the Preferred Securities surrendered upon
such transfer or exchange.
(m) No Obligation of the Property Trustee.
(i) The Property Trustee shall have no
responsibility or obligation to any beneficial owner of a Global
Preferred Security, a Participant in the Depositary or other Person
with respect to the accuracy of the records of the Depositary or its
nominee or of any Participant thereof, with respect to any ownership
interest in the Preferred Securities or with respect to the delivery
to any Participant, beneficial owner or other Person (other than the
Depositary) of any notice (including any notice of redemption) or the
payment of any amount, under or with respect to such Preferred
Securities. All notices and communications to be given to the Holders
and all payments to be made to Holders under the Preferred Securities
shall be given or made only to or upon the order of the registered
Holders (which shall be the Depositary or its nominee in the case of
a Global Preferred Security). The rights of beneficial owners in any
Global Preferred Security shall be exercised only through the
Depositary subject to the applicable rules and procedures of the
Depositary. The Property Trustee may conclusively rely and shall be
fully protected in relying upon information furnished by the
Depositary or any agent thereof with respect to its Participants and
any beneficial owners.
(ii) The Property Trustee and Registrar shall have
no obligation or duty to monitor, determine or inquire as to
compliance with any restrictions on transfer imposed under this
Declaration or under applicable law with respect to any transfer of
any interest in any Preferred Security (including any transfers
between or among Depositary Participants or beneficial owners in any
Global Preferred Security) other than to require delivery of such
certificates and other documentation or evidence as are expressly
required by, and to do so if and when expressly required by, the
terms of this Declaration, and to examine the same to determine
substantial compliance as to form with the express requirements
hereof.
SECTION 9.3 Deemed Security Holders.
------------------------
The Trustees may treat the Person in whose name any
Certificate shall be registered on the books and records of the Trust as the
sole holder of such Certificate and of the Securities represented by such
Certificate for purposes of receiving Distributions and for all other purposes
whatsoever and, accordingly, shall not be bound to recognize any equitable or
other claim to or interest in such Certificate or in the Securities
represented by such Certificate on the part of any Person, whether or not the
Trust shall have actual or other notice thereof.
SECTION 9.4 Book Entry Interests.
---------------------
Global Preferred Securities shall initially be registered on
the books and records of the Trust in the name of Cede & Co., the nominee of
the Depositary, and no Preferred Security Beneficial Owner will receive a
definitive Preferred Security Certificate representing such Preferred
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Security Beneficial Owner's interests in such Global Preferred Securities,
except as provided in Section 9.2. Unless and until definitive, fully
registered Preferred Securities Certificates have been issued to the Preferred
Security Beneficial Owners pursuant to Section 9.2:
(a) the provisions of this Section 9.4 shall be in full
force and effect;
(b) the Trust and the Trustees shall be entitled to deal
with the Depositary for all purposes of this Declaration (including the
payment of Distributions on the relevant Global Preferred Securities and
receiving approvals, votes or consents hereunder) as the Holder of the
Preferred Securities and the sole holder of the Global Preferred Securities
and shall have no obligation to the Preferred Security Beneficial Owners;
(c) to the extent that the provisions of this Section 9.4
conflict with any other provisions of this Declaration, the provisions of this
Section 9.4 shall control; and
(d) the rights of the Preferred Security Beneficial Owners
shall be exercised only through the Depositary and shall be limited to those
established by law and agreements between such Preferred Security Beneficial
Owners and the Depositary and/or the Participants and receive and transmit
payments of Distributions on the Global Certificates to such Participants. The
Depositary will make book entry transfers among the Participants.
SECTION 9.5 Notices to Clearing Agency.
---------------------------
Whenever a notice or other communication to the Preferred
Security Holders is required under this Declaration, the Regular Trustees
shall, in the case of any Global Preferred Security, give all such notices and
communications specified herein to be given to the Preferred Security Holders
to the Depositary, and shall have no notice obligations to the Preferred
Security Beneficial Owners.
SECTION 9.6 Appointment of Successor Clearing Agency.
-----------------------------------------
If the Depository elects to discontinue its services as
securities depositary with respect to the Preferred Securities, the Regular
Trustees may, in their sole discretion, appoint a successor Clearing Agency
with respect to such Preferred Securities.
ARTICLE X
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 10.1 Liability.
----------
(a) Except as expressly set forth in this Declaration or as
required under applicable law, the Securities Guarantees and the terms of the
Securities, the Debenture Issuers shall not be:
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(i) personally liable for the return of any portion
of the capital contributions (or any return thereon) of the Holders
of the Securities which shall be made solely from assets of the
Trust; and
(ii) be required to pay to the Trust or to any
Holder of Securities any deficit upon dissolution of the Trust or
otherwise.
(b) The Holder of the Common Securities shall be liable for
all of the debts and obligations of the Trust (other than with respect to the
Securities) to the extent not satisfied out of the Trust's assets.
(c) Pursuant to ss. 3803(a) of the Business Trust Act, the
Holders of the Preferred Securities shall be entitled to the same limitation
of personal liability extended to stockholders of private corporations for
profit organized under the General Corporation Law of the State of Delaware.
SECTION 10.2 Exculpation.
------------
(a) No Indemnified Person shall be liable, responsible or
accountable in damages or otherwise to the Trust or any Covered Person for any
loss, damage or claim incurred by reason of any act or omission performed or
omitted by such Indemnified Person in good faith on behalf of the Trust and in
a manner such Indemnified Person reasonably believed to be within the scope of
the authority conferred on such Indemnified Person by this Declaration or by
law, except that an Indemnified Person shall be liable for any such loss,
damage or claim incurred by reason of such Indemnified Person's gross
negligence (or, in the case of the Property Trustee, negligence) or willful
misconduct with respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in
relying in good faith upon the records of the Trust and upon such information,
opinions, reports or statements presented to the Trust by any Person as to
matters the Indemnified Person reasonably believes are within such other
Person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Trust, including information, opinions,
reports or statements as to the value and amount of the assets, liabilities,
profits, losses, or any other facts pertinent to the existence and amount of
assets from which Distributions to Holders of Securities might properly be
paid.
SECTION 10.3 Fiduciary Duty.
---------------
(a) To the extent that, at law or in equity, an Indemnified
Person has duties (including fiduciary duties) and liabilities relating
thereto to the Trust or to any other Covered Person, an Indemnified Person
acting under this Declaration shall not be liable to the Trust or to any other
Covered Person for its good faith reliance on the provisions of this
Declaration. The provisions of this Declaration, to the extent that they
restrict the duties and liabilities of an Indemnified Person otherwise
existing at law or in equity (other than the duties imposed on the Property
Trustee under the Trust Indenture Act), are agreed by the parties hereto to
replace such other duties and liabilities of such Indemnified Person to the
fullest extent permitted.
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(b) Unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or
arises between an Indemnified Person and any Covered Person; or
(ii) whenever this Declaration or any other
agreement contemplated herein or therein provides that an Indemnified
Person shall act in a manner that is, or provides terms that are,
fair and reasonable to the Trust or any Holder of Securities,
the Indemnified Person shall resolve such conflict of interest, take such
action or provide such terms, considering in each case the relative interest
of each party (including its own interest) to such conflict, agreement,
transaction or situation and the benefits and burdens relating to such
interests, any customary or accepted industry practices, and any applicable
generally accepted accounting practices or principles. In the absence of bad
faith by the Indemnified Person, the resolution, action or term so made, taken
or provided by the Indemnified Person shall not constitute a breach of this
Declaration or any other agreement contemplated herein or of any duty or
obligation of the Indemnified Person at law or in equity or otherwise.
(c) Whenever in this Declaration an Indemnified Person
is permitted or required to make a decision:
(i) in its "discretion" or under a grant of similar
authority, the Indemnified Person shall be entitled to consider such
interests and factors as it desires, including its own interests, and
shall have no duty or obligation to give any consideration to any
interest of or factors affecting the Trust or any other Person; or
(ii) in its "good faith" or under another express
standard, the Indemnified Person shall act under such express
standard and shall not be subject to any other or different standard
imposed by this Declaration or by applicable law.
SECTION 10.4 Indemnification.
----------------
(a) (i) The Debenture Issuers shall indemnify, to the full
extent permitted by law, any Company Indemnified Person who was or is
a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (other than an action by or
in the right of the Trust) by reason of the fact that he is or was a
Company Indemnified Person against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Trust,
and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination
of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the Company
Indemnified Person did not act in good faith and in a manner which he
reasonably believed to be in or
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not opposed to the best interests of the Trust, and, with respect to
any criminal action or proceeding, had reasonable cause to believe
that his conduct was unlawful.
(ii) The Debenture Issuers shall indemnify, to the
full extent permitted by law, any Company Indemnified Person who was
or is a party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the Trust
to procure a judgment in its favor by reason of the fact that he is
or was a Company Indemnified Person against expenses (including
attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Trust and except that
no such indemnification shall be made in respect of any claim, issue
or matter as to which such Company Indemnified Person shall have been
adjudged to be liable to the Trust unless and only to the extent that
the Court of Chancery of Delaware or the court in which such action
or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity
for such expenses which such Court of Chancery or such other court
shall deem proper.
(iii) To the extent that a Company Indemnified
Person shall be successful on the merits or otherwise (including
dismissal of an action without prejudice or the settlement of an
action without admission of liability) in defense of any action, suit
or proceeding referred to in paragraphs (i) and (ii) of this Section
10.4(a), or in defense of any claim, issue or matter therein, he
shall be indemnified, to the full extent permitted by law, against
expenses (including attorneys' fees) actually and reasonably incurred
by him in connection therewith.
(iv) Any indemnification under paragraphs (i) and
(ii) of this Section 10.4(a) (unless ordered by a court) shall be
made by the Debenture Issuers only as authorized in the specific case
upon a determination that indemnification of the Company Indemnified
Person is proper in the circumstances because he has met the
applicable standard of conduct set forth in paragraphs (i) and (ii).
Such determination shall be made (1) by the Regular Trustees by a
majority vote of a quorum consisting of such Regular Trustees who
were not parties to such action, suit or proceeding, (2) if such a
quorum is not obtainable, or, even if obtainable, if a quorum of
disinterested Regular Trustees so directs, by independent legal
counsel in a written opinion, or (3) by the Common Security Holder of
the Trust.
(v) Expenses (including attorneys' fees) incurred
by a Company Indemnified Person in defending a civil, criminal,
administrative or investigative action, suit or proceeding referred
to in paragraphs (i) and (ii) of this Section 10.4(a) shall be paid
by the Debenture Issuers in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking by or on
behalf of such Company Indemnified Person to repay such amount if it
shall ultimately be determined that he is not entitled to be
indemnified by the Debenture Issuers as authorized in this Section
10.4(a). Notwithstanding the foregoing, no advance shall be made by
the Debenture Issuers if a
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determination is reasonably and promptly made (i) by the Regular
Trustees by a majority vote of a quorum of disinterested Regular
Trustees, (ii) if such a quorum is not obtainable, or, even if
obtainable, if a quorum of disinterested Regular Trustees so directs,
by independent legal counsel in a written opinion or (iii) the Common
Security Holder of the Trust, that, based upon the facts known to the
Regular Trustees, counsel or the Common Security Holder at the time
such determination is made, such Company Indemnified Person acted in
bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the Trust, or, with respect to
any criminal proceeding, that such Company Indemnified Person
believed or had reasonable cause to believe his conduct was unlawful.
In no event shall any advance be made in instances where the Regular
Trustees, independent legal counsel or Common Security Holder
reasonably determine that such person deliberately breached his duty
to the Trust or its Common or Preferred Security Holders.
(vi) The indemnification and advancement of
expenses provided by, or granted pursuant to, the other paragraphs of
this Section 10.4(a) shall not be deemed exclusive of any other
rights to which those seeking indemnification and advancement of
expenses may be entitled under any agreement, vote of stockholders or
disinterested directors of the Debenture Issuers or Preferred
Security Holders of the Trust or otherwise, both as to action in his
official capacity and as to action in another capacity while holding
such office. All rights to indemnification under this Section 10.4(a)
shall be deemed to be provided by a contract between the Debenture
Issuers and each Company Indemnified Person who serves in such
capacity at any time while this Section 10.4(a) is in effect. Any
repeal or modification of this Section 10.4(a) shall not adversely
affect any rights or obligations then existing.
(vii) The Debenture Issuers or the Trust may
purchase and maintain insurance on behalf of any person who is or was
a Company Indemnified Person against any liability asserted against
him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Debenture Issuers would have the
power to indemnify him against such liability under the provisions of
this Section 10.4(a)
(viii) For purposes of this Section 10.4(a),
references to "the Trust" shall include, in addition to the resulting
or surviving entity, any constituent entity (including any
constituent of a constituent) absorbed in a consolidation or merger,
so that any person who is or was a director, trustee, officer or
employee of such constituent entity, or is or was serving at the
request of such constituent entity as a director, trustee, officer,
employee or agent of another entity, shall stand in the same position
under the provisions of this Section 10.4(a) with respect to the
resulting or surviving entity as he would have with respect to such
constituent entity if its separate existence had continued.
(ix) The indemnification and advancement of
expenses provided by, or granted pursuant to, this Section 10.4(a)
shall, unless otherwise provided when authorized or ratified,
continue as to a person who has ceased to be a Company Indemnified
Person and shall inure to the benefit of the heirs, executors and
administrators of such a person.
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(b) The Debenture Issuers agree to indemnify the (i)
Property Trustee, (ii) the Delaware Trustee, (iii) any Affiliate of the
Property Trustee and the Delaware Trustee, and (iv) any officers, directors,
shareholders, members, partners, employees, representatives, custodians,
nominees or agents of the Property Trustee and the Delaware Trustee (each of
the Persons in (i) through (iv) being referred to as a "Fiduciary Indemnified
Person") for, and to hold each Fiduciary Indemnified Person harmless against,
any and all loss, liability or expense including taxes (other than taxes based
on the income of such Fiduciary Indemnified Person) incurred without
negligence or bad faith on its part, arising out of or in connection with the
acceptance or administration or the trust or trusts hereunder, including the
costs and expenses (including reasonable legal fees and expenses) of defending
itself against or investigating any claim or liability in connection with the
exercise or performance of any of its powers or duties hereunder. The
obligation to indemnify as set forth in this Section 10.4(b) shall survive the
satisfaction and discharge of this Declaration.
SECTION 10.5 Outside Businesses.
-------------------
Any Covered Person, the Debenture Issuers, the Delaware
Trustee and the Property Trustee may engage in or possess an interest in other
business ventures of any nature or description, independently or with others,
similar or dissimilar to the business of the Trust, and the Trust and the
Holders of Securities shall have no rights by virtue of this Declaration in
and to such independent ventures or the income or profits derived therefrom,
and the pursuit of any such venture, even if competitive with the business of
the Trust, shall not be deemed wrongful or improper. No Covered Person, the
Debenture Issuers, the Delaware Trustee or the Property Trustee shall be
obligated to present any particular investment or other opportunity to the
Trust even if such opportunity is of a character that, if presented to the
Trust, could be taken by the Trust, and any Covered Person, the Debenture
Issuers, the Delaware Trustee and the Property Trustee shall have the right to
take for its own account (individually or as a partner or fiduciary) or to
recommend to others any such particular investment or other opportunity. Any
Covered Person, the Delaware Trustee and the Property Trustee may engage or be
interested in any financial or other transaction with the Debenture Issuers or
any Affiliate of the Debenture Issuers, or may act as depositary for, trustee
or agent for, or act on any committee or body of holders of, securities or
other obligations of the Debenture Issuers or its Affiliates.
ARTICLE XI
ACCOUNTING
SECTION 11.1 Fiscal Year.
------------
The fiscal year ("Fiscal Year") of the Trust shall be the
calendar year, or such other year as is required by the Code.
SECTION 11.2 Certain Accounting Matters.
---------------------------
(a) At all times during the existence of the Trust, the
Regular Trustees shall keep, or cause to be kept, full books of account,
records and supporting documents, which shall reflect in reasonable detail,
each transaction of the Trust. The books of account shall be maintained on the
accrual method of accounting, in accordance with generally accepted accounting
principles,
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consistently applied. The Trust shall use the accrual method of
accounting for United States federal income tax purposes. The books of account
and the records of the Trust shall be examined by and reported upon as of the
end of each Fiscal Year by a firm of independent certified public accountants
selected by the Regular Trustees.
(b) The Regular Trustees shall cause to be prepared and
delivered to each of the Holders of Securities, within 90 days after the end
of each Fiscal Year of the Trust, annual financial statements of the Trust,
including a balance sheet of the Trust as of the end of such Fiscal Year, and
the related statements of income or loss;
(c) The Regular Trustees shall cause to be duly prepared and
delivered to each of the Holders of Securities, any annual United States
federal income tax information statement, required by the Code, containing
such information with regard to the Securities held by each Holder as is
required by the Code and the Treasury Regulations. Notwithstanding any right
under the Code to deliver any such statement at a later date, the Regular
Trustees shall endeavor to deliver all such statements within 30 days after
the end of each Fiscal Year of the Trust.
(d) The Regular Trustees shall cause to be duly prepared and
filed with the appropriate taxing authority, an annual United States federal
income tax return, on a Form 1041 or such other form required by United States
federal income tax law, and any other annual income tax returns required to be
filed by the Regular Trustees on behalf of the Trust with any state or local
taxing authority.
SECTION 11.4 Banking.
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The Trust shall maintain one or more bank accounts in the
name and for the sole benefit of the Trust; provided, however, that all
payments of funds in respect of the Debentures held by the Property Trustee
shall be made directly to the Property Trustee Account and no other funds of
the Trust shall be deposited in the Property Trustee Account. The sole
signatories for such accounts shall be designated by the Regular Trustees;
provided, however, that the Property Trustee shall designate the signatories
for the Property Trustee Account.
SECTION 11.4 Withholding.
------------
The Trust and the Regular Trustees shall comply with all
withholding requirements under United States federal, state and local law. The
Trust shall request, and the Holders shall provide to the Trust, such forms or
certificates as are necessary to establish an exemption from withholding with
respect to each Holder, and any representations and forms as shall reasonably
be requested by the Trust to assist it in determining the extent of, and in
fulfilling, its withholding obligations. The Regular Trustee shall file
required forms with applicable jurisdictions and, unless an exemption from
withholding is properly established by a Holder, shall remit amounts withheld
with respect to the Holder to applicable jurisdictions. To the extent that the
Trust is required to withhold and pay over any amounts to any authority with
respect to distributions or allocations to any Holder, the amount withheld
shall be deemed to be a distribution in the amount of the withholding to the
Holder. In the event of any claimed overwithholding, Holders shall be limited
to an action against the applicable jurisdiction. If the amount required to be
withheld was not
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withheld from actual Distributions made, the Trust may reduce subsequent
Distributions by the amount of such withholding.
ARTICLE XII
AMENDMENTS AND MEETINGS
SECTION 12.1 Amendments.
-----------
(a) Except as otherwise provided in this Declaration or by
any applicable terms of the Securities, this Declaration may only be amended
by a written instrument approved and executed by:
(i) the Regular Trustees (or, if there are
more than two Regular Trustees a majority of the Regular Trustees);
(ii) if the amendment affects the rights,
powers, duties, obligations or immunities of the Property Trustee,
the Property Trustee; and
(iii) if the amendment affects the rights,
powers, duties, obligations or immunities of the Delaware Trustee,
the Delaware Trustee;
(b) no amendment shall be made, and any such purported
amendment shall be void and ineffective:
(i) unless, in the case of any proposed amendment,
the Property Trustee shall have first received an Officers'
Certificate from each of the Trust and the Sponsor that such
amendment is permitted by, and conforms to, the terms of this
Declaration (including the terms of the Securities);
(ii) unless, in the case of any proposed amendment
which affects the rights, powers, duties, obligations or immunities
of the Property Trustee, the Property Trustee shall have first
received:
(A) an Officers' Certificate from each of
the Trust and the Sponsor that such amendment is permitted
by, and conforms to, the terms of this Declaration
(including the terms of the Securities); and
(B) an opinion of counsel (who may be
counsel (but who need not be "in-house" counsel) to the
Sponsor or the Trust) that such amendment is permitted by,
and conforms to, the terms of this Declaration (including
the terms of the Securities); and
(iii) to the extent the result of such amendment
would be to:
(A) cause the Trust to fail to continue
to be classified for purposes of United States federal
income taxation as a grantor trust;
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(B) reduce or otherwise adversely
affect the powers of the Property Trustee in contravention
of the Trust Indenture Act; or
(C) cause the Trust to be deemed to be
an Investment Company that is required to be registered
under the Investment Company Act;
(c) at such time after the Trust has issued any Securities
that remain outstanding, any amendment that would adversely affect the rights,
privileges or preferences of any Holder of Securities may be effected only
with such additional requirements as may be set forth in the terms of such
Securities;
(d) Section 9.1(c) and this Section 12.1 shall not be
amended without the consent of all of the Holders of the Securities;
(e) Article IV shall not be amended without the consent
of the Holders of a majority in liquidation amount of the Common Securities;
(f) the rights of the holders of the Common Securities under
Article V to increase or decrease the number of, and appoint and remove
Trustees shall not be amended without the consent of the Holders of a Majority
in liquidation amount of the Common Securities; and
(g) notwithstanding Section 12.1(c), this Declaration
may be amended without the consent of the Holders of the Securities to:
(i) cure any ambiguity;
(ii) correct or supplement any provision in
this Declaration that may be defective or inconsistent with
any other provision of this Declaration;
(iii) add to the covenants, restrictions or
obligations of the Sponsor; and
(iv) conform to any change in Rule 3a-5 or written
change in interpretation or application of Rule 3a-5 by any
legislative body, court, government agency or regulatory authority
which amendment does not have a material adverse effect on the
rights, preferences or privileges of the Holders.
SECTION 12.2 Meetings of the Holders of Securities; Action by Written Consent.
-----------------------------------------------------------------
(a) Meetings of the Holders of any class of Securities may
be called at any time by the Regular Trustees (or as provided in the terms of
the Securities) to consider and act on any matter on which Holders of such
class of Securities are entitled to act under the terms of this Declaration,
the terms of the Securities or the rules of any national stock exchange, The
Nasdaq National Market or inter-dealer quotation system on which the Preferred
Securities are listed or admitted for trading. The Regular Trustees shall call
a meeting of the Holders of such class if directed to do so by the Holders of
at least 10% in liquidation amount of such class of Securities then
outstanding. Such direction shall be given by delivering to the Regular
Trustees one or more calls in a writing stating that the signing Holders of
Securities wish to call a meeting and indicating
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the general or specific purpose for which the meeting is to be called. Any
Holders of Securities calling a meeting shall specify in writing the
Certificates held by the Holders of Securities exercising the right to call
a meeting and only those Securities represented by the Certificates so
specified shall be counted for purposes of determining whether the required
percentage set forth in the second sentence of this paragraph has been met.
(b) Except to the extent otherwise provided in the terms of
the Securities, the following provisions shall apply to meetings of Holders of
Securities:
(i) notice of any such meeting shall be given to
all the Holders of Securities having a right to vote thereat at least
7 days and not more than 60 days before the date of such meeting.
Whenever a vote, consent or approval of the Holders of Securities is
permitted or required under this Declaration or the rules of any
stock exchange, over the counter market or inter-dealer quotation
system on which the Preferred Securities are listed or admitted for
trading, such vote, consent or approval may be given at a meeting of
the Holders of Securities. Any action that may be taken at a meeting
of the Holders of Securities may be taken without a meeting if a
consent in writing setting forth the action so taken is signed by the
Holders of Securities owning not less than the minimum amount of
Securities in liquidation amount that would be necessary to authorize
or take such action at a meeting at which all Holders of Securities
having a right to vote thereon were present and voting. Prompt notice
of the taking of action without a meeting shall be given to the
Holders of Securities entitled to vote who have not consented in
writing. The Regular Trustees may specify that any written ballot
submitted to the Holders for the purpose of taking any action without
a meeting shall be returned to the Trust within the time specified by
the Regular Trustees;
(ii) each Holder of a Security may authorize any
Person to act for it by proxy on all matters in which a Holder of
Securities is entitled to participate, including waiving notice of
any meeting, or voting or participating at a meeting. No proxy shall
be valid after the expiration of 11 months from the date thereof
unless otherwise provided in the proxy. Every proxy shall be
revocable at the pleasure of the Holder of Securities executing it.
Except as otherwise provided herein, all matters relating to the
giving, voting or validity of proxies shall be governed by the
General Corporation Law of the State of Delaware relating to proxies,
and judicial interpretations thereunder, as if the Trust were a
Delaware corporation and the Holders of the Securities were
stockholders of a Delaware corporation;
(iii) each meeting of the Holders of the Securities
shall be conducted by the Regular Trustees or by such other Person
that the Regular Trustees may designate; and
(iv) unless the Business Trust Act, this
Declaration, the terms of the Securities, the Trust Indenture Act, or
the listing rules of any national stock exchange, The Nasdaq National
Market, over-the-counter market or inter-dealer quotation system on
which the Preferred Securities are then listed or trading provide
otherwise, the Regular Trustees, in their sole discretion, shall
establish all other provisions relating to meetings of Holders of
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Securities, including notice of the time, place or purpose of any
meeting at which any matter is to be voted on by any Holders of
Securities, waiver of any such notice, action by consent without a
meeting, the establishment of a record date, quorum requirements,
voting in person or by proxy or any other matter with respect to the
exercise of any such right to vote.
ARTICLE XIII
REPRESENTATIONS OF PROPERTY TRUSTEE AND DELAWARE TRUSTEE
SECTION 13.1 Representations and Warranties of Property Trustee.
---------------------------------------------------
The Property Trustee represents and warrants to the Trust
and to the Sponsor at the date of this Declaration, and each Successor
Property Trustee represents and warrants to the Trust and the Sponsor at the
time of the Successor Property Trustee's acceptance of its appointment as
Property Trustee that:
(a) the Property Trustee is a banking corporation with trust
powers, duly organized, validly existing and in good standing under the laws
of New York, with trust power and authority to execute and deliver, and to
carry out and perform its obligations under the terms of, this Declaration.
(b) The execution, delivery and performance by the Property
Trustee of the Declaration has been duly authorized by all necessary corporate
action on the part of the Property Trustee. The Declaration has been duly
executed and delivered by the Property Trustee, and constitutes a legal, valid
and binding obligation of the Property Trustee, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, reorganization,
moratorium, insolvency, and other similar laws affecting creditors' rights
generally and to general principles of equity and the discretion of the court
(regardless of whether the enforcement of such remedies is considered in a
proceeding in equity or at law).
(c) The execution, delivery and performance of the
Declaration by the Property Trustee does not conflict with or constitute a
breach of the certificate of incorporation or By-laws of the Property Trustee.
(d) At the Closing Date, the Property Trustee will be the
record holder of the Debentures and the Property Trustee has not knowingly
created any liens or encumbrances on such Debentures.
(e) No consent, approval or authorization of, or
registration with or notice to, any New York State or Federal banking
authority is required for the execution, delivery or performance by the
Property Trustee of the Declaration.
SECTION 13.2 Representations and Warranties of Delaware Trustee.
---------------------------------------------------
The Delaware Trustee represents and warrants to the Trust
and to the Sponsor at the date of this Declaration and at the time of Closing,
and each Successor Delaware Trustee represents
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and warrants to the Trust and the Sponsor at the time of the Successor
Delaware Trustee's acceptance of its appointment as Delaware Trustee that:
(a) The Delaware Trustee is a duly organized, validly
existing and in good standing under the laws of the State of Delaware, with
trust power and authority to execute and deliver, and to carry out and perform
its obligations under the terms of, the Declaration.
(b) The execution, delivery and performance by the Delaware
Trustee of the Declaration has been duly authorized by all necessary corporate
action on the part of the Delaware Trustee. The Declaration has been duly
executed and delivered by the Delaware Trustee, and constitutes a legal, valid
and binding obligation of the Delaware Trustee, enforceable against it in
accordance with its terms, subject to applicable bankruptcy, reorganization,
moratorium, insolvency, and other similar laws affecting creditors' rights
generally and to general principles of equity and the discretion of the court
(regardless of whether the enforcement of such remedies is considered in a
proceeding in equity or at law).
(c) The execution, delivery and performance of the
Declaration by the Delaware Trustee does not conflict with or constitute a
breach of the certificate of incorporation or By-laws of the Delaware Trustee.
(d) No consent, approval or authorization of, or
registration with or notice to, any Delaware State or Federal banking
authority is required for the execution, delivery or performance by the
Delaware Trustee of this Declaration.
(e) The Delaware Trustee is an entity which has its principal
place of business in the
State of Delaware.
(f) The Delaware Trustee has been authorized to perform its
obligations under the
Certificate of Trust and the Declaration.
ARTICLE XIV
REGISTRATION RIGHTS
SECTION 14.1 Registration Rights.
--------------------
The Holders of the Preferred Securities, the Debentures and
the Preferred Securities Guarantee and the shares of Common Stock of the
Company issuable upon conversion of the Debentures (collectively, the
"Registrable Securities") are entitled to the benefits of the Registration
Rights Agreement. Pursuant to the Registration Rights Agreement, the Debenture
Issuers has agreed for the benefit of the Holders of Registrable Securities
that (i) they will, at their cost, within 60 days after the date of issuance
of the Registrable Securities, file a shelf registration statement (the "Shelf
Registration Statement") with the Commission with respect to resales of the
Registrable Securities, (ii) it will use its best efforts to cause such Shelf
Registration Statement to be declared effective by the Commission within 150
days after the date of issuance of the Registrable Securities and (iii) the
Debenture Issuers will use their respective best efforts to maintain such
Shelf Registration Statement continuously effective under the Securities Act
until the third anniversary of
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the effectiveness of the Shelf Registration Statement or such earlier date as
is provided in the Registration Rights Agreement (the "Effectiveness Period").
If (i) on or prior to 60 days following the date of original
issuance of the Registrable Securities, a Shelf Registration Statement has not
been filed with the Commission, or (ii) on or prior to the 150th day following
the issuing of the Registrable Securities, such Shelf Registration Statement
is not declared effective (each, a "Registration Default"), Liquidated Damages
will accrue on the Debentures and, accordingly, additional distributions will
accrue on the Preferred Securities, in each case from and including the day
following such Registration Default. Liquidated Damages will be paid quarterly
in arrears, with the first quarterly payment due on the first interest or
distribution payment date, as applicable, following the date on which such
Liquidated Damages begin to accrue, and will accrue at a rate per annum equal
to an additional one-quarter of one percent (0.25%) of the principal amount or
liquidation amount, as applicable, to and including the 90th day following
such Registration Default and one-half of one percent (0.50%) thereof from and
after the 91st day following such Registration Default. Upon (x) the filing of
the Shelf Registration Statement after the 60-day period described in clause
(i) above or (y) the effectiveness of the Shelf Registration Statement after
the 150-day period described in clause (ii) above, the interest rate borne by
the Securities and the distribution rate borne by the Preferred Securities,
from and after the date of such filing or effectiveness, as the case may be,
will be reduced to the original interest rate and distribution rate,
respectively. In the event that the Shelf Registration Statement ceases to be
effective during the Effectiveness Period for more than 60 days, whether or
not consecutive, during any 12-month period, then the interest rate borne by
the Debentures and the distribution rate borne by the Preferred Securities
will each increase by an additional one-half of one percent (0.50%) per annum
from such 61st day, until such time as the Shelf Registration Statement again
becomes effective.
During the Effectiveness Period, the Trust and the Debenture
Issuers shall notify DTC and the Paying Agent(s) with respect to the
Securities then outstanding within three business days after each Registration
Default and each lapse in effectiveness of a Shelf Registration Statement. Any
Liquidated Damages due and payable hereunder shall be paid in the same manner
as payments of interest on the Securities. Any Liquidated Damages due and
payable hereunder shall be payable on each payment date to the record Holder
of Securities entitled to receive the payment to be paid on such date, such
date to be deferred until the end of any interest payment deferral period
permitted under the terms of the Securities.
ARTICLE XV
MISCELLANEOUS
SECTION 15.1 Notices.
--------
All notices provided for in this Declaration shall be in
writing, duly signed by the party giving such notice, and shall be delivered,
sent by facsimile or mailed by first class mail, as follows:
58
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(a) if given to the Trust, in care of the Regular Trustees
at the Trust's mailing address set forth below (or such other address as the
Trust may give notice of to the Holders of the Securities):
c/o Golden Books Family Entertainment, Inc.
850 Third Avenue
New York, New York 10022
Attention: Chief Financial Officer
(b) if given to the Property Trustee, at the mailing address
set forth below (or such other address as the Property Trustee may give notice
of to the Holders of the Securities):
The Bank of New York
101 Barclay Street
New York, New York 10286
(c) if given to the Delaware Trustee, at the mailing address
set forth below (or such other address as the Delaware Trustee may give notice
of to the Holders of the Securities):
The Bank of New York (Delaware)
White Clay Center
Route 273
Newark, Delaware 19711
(d) if given to the Holder of the Common Securities, at the
mailing address of the Sponsor set forth below (or such other address as the
Holder of the Common Securities may give notice to the Trust):
Golden Books Family Entertainment, Inc.
850 Third Avenue
New York, New York 10022
Attention: Chief Financial Officer
(e) if given to any other Holder, at the address set
forth on the books and records of the Trust or the Registrar, as applicable.
All such notices shall be deemed to have been given when
received in person, telecopied with receipt confirmed, or mailed by first
class mail, postage prepaid except that if a notice or other document is
refused delivery or cannot be delivered because of a changed address of which
no notice was given, such notice or other document shall be deemed to have
been delivered on the date of such refusal or inability to deliver.
SECTION 15.2 Governing Law.
--------------
This Declaration and the rights of the parties hereunder
shall be governed by and interpreted in accordance with the laws of the State
of Delaware and all rights and remedies shall be governed by such laws without
regard to principles of conflict of laws.
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SECTION 15.3 Intention of the Parties.
-------------------------
It is the intention of the parties hereto that the Trust be
classified for United States federal income tax purposes as a grantor trust.
The provisions of this Declaration shall be interpreted to further this
intention of the parties.
SECTION 15.4 Headings.
---------
Headings contained in this Declaration are inserted for
convenience of reference only and do not affect the interpretation of this
Declaration or any provision hereof.
SECTION 15.5 Successors and Assigns.
-----------------------
Whenever in this Declaration any of the parties hereto is
named or referred to, the successors and assigns of such party shall be deemed
to be included, and all covenants and agreements in this Declaration by the
Sponsor, the Debenture Issuers and the Trustees shall bind and inure to the
benefit of their respective successors and assigns, whether so expressed.
SECTION 15.6 Partial Enforceability.
-----------------------
If any provision of this Declaration, or the application of
such provision to any Person or circumstance, shall be held invalid, the
remainder of this Declaration, or the application of such provision to persons
or circumstances other than those to which it is held invalid, shall not be
affected thereby.
SECTION 15.7 Counterparts.
-------------
This Declaration may contain more than one counterpart of
the signature page and this Declaration may be executed by the affixing of the
signature of each of the parties to one of such counterpart signature pages.
All of such counterpart signature pages shall be read as though one, and they
shall have the same force and effect as though all of the signers had signed a
single signature page.
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IN WITNESS WHEREOF, the undersigned has caused these
presents to be executed as of the day and year first above written.
GOLDEN BOOKS FINANCING TRUST
/s/ Willa M. Perlman
---------------------------------
Willa M. Perlman
as Regular Trustee
/s/ Philip E. Rowley
---------------------------------
Philip E. Rowley,
as Regular Trustee
THE BANK OF NEW YORK (DELAWARE),
as Delaware Trustee
By: /s/ Jacqueline R. McSwiggan
-----------------------------
Name: Jaqueline R. McSwiggan
Title: Secretary
THE BANK OF NEW YORK, as Property
Trustee
By: /s/ Byron Merino
-----------------------------
Name: Byron Merino
Title: Assistant Treasurer
GOLDEN BOOKS FAMILY ENTERTAINMENT,
INC., as Sponsor
By: /s/ Philip E. Rowley
-----------------------------
Name: Philip E. Rowley
Title: Chief Financial Officer
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ANNEX I
TERMS OF
8 3/4% CONVERTIBLE PREFERRED SECURITIES
8 3/4% CONVERTIBLE COMMON SECURITIES
Pursuant to Section 7.1 of the Amended and Restated
Declaration of Trust, dated as of August 20, 1996 (as amended from time to
time, the "Declaration"), the designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Preferred Securities and the
Common Securities are set out below (each capitalized term used but not defined
herein has the meaning set forth in the Declaration or, if not defined in such
Declaration, as defined in the Offering Memorandum referred to below):
1. Designation and Number.
(a) "Preferred Securities." 2,000,000 Preferred Securities of the Trust
with an aggregate liquidation amount with respect to the assets of
the Trust of One Hundred Million Dollars ($100,000,000), plus up to
an additional 300,000 Preferred Securities of the Trust with an
aggregate liquidation amount with respect to the assets of the Trust
of Fifteen Million Dollars ($15,000,000) solely to cover
over-allotments, as provided for in the Purchase Agreement (the
"Additional Preferred Securities"), and a liquidation amount with
respect to the assets of the Trust of $50 per preferred security, are
hereby designated for the purposes of identification only as "8 3/4%
Convertible Preferred Securities (liquidation amount $50 per
Convertible Preferred Security)" (the "Preferred Securities"). The
Preferred Security Certificates evidencing the Preferred Securities
shall be substantially in the form of Exhibit A-1 to the Declaration,
with such changes and additions thereto or deletions therefrom as may
be required by ordinary usage, custom or practice or to conform to
the rules of any stock exchange, inter-dealer quotation system or
other organization on which the Preferred Securities are listed or
accepted for trading.
(b) "Common Securities." 61,856 Common Securities of the Trust with an
aggregate liquidation amount with respect to the assets of the Trust
of three million ninety two thousand eight hundred dollars
($3,092,800) plus up to an additional 9,279 Common Securities of the
Trust with an aggregate liquidation amount with respect to the assets
of the Trust of four hundred sixty three thousand nine hundred fifty
Dollars ($463,950) to meet the capital requirements of the Trust in
the event of an issuance of Additional Preferred Securities, and a
liquidation amount with respect to the assets of the Trust of $50 per
Common Security, are hereby designated for the purposes of
identification only as "8 3/4% Convertible Common Securities
(liquidation amount $50 per Convertible Common Security)" (the
"Common Securities"). The Common Security Certificates evidencing the
Common Securities
<PAGE>
shall be substantially in the form of Exhibit A-2 to the Declaration,
with such changes and additions thereto or deletions therefrom as may
be required by ordinary usage, custom or practice.
2. Distributions.
(a) Distributions payable on each Security will be fixed at a rate per
annum of 8 3/4% (the "Coupon Rate") of the stated liquidation amount
of $50 per Security, such rate being the rate of interest payable on
the Debentures to be held by the Property Trustee. Distributions in
arrears for more than one quarter will bear interest thereon
compounded quarterly at the Coupon Rate (to the extent permitted by
applicable law). The term "Distributions" as used herein includes any
such interest including any Additional Interest, Compounded Interest
and Liquidated Damages payable unless otherwise stated. A
Distribution is payable only to the extent that payments are made in
respect of the Debentures held by the Property Trustee and to the
extent the Property Trustee has funds available therefor. The amount
of Distributions payable for any period will be computed for any full
quarterly Distribution period on the basis of a 360-day year of
twelve 30-day months, and for any period shorter than a full
quarterly Distribution period for which Distributions are computed,
Distributions will be computed on the basis of the actual number of
days elapsed.
(b) Distributions on the Securities will be cumulative, will accrue from
the date of initial issuance and will be payable quarterly in
arrears, on the following dates, which dates correspond to the
interest payment dates on the Debentures: February 20, May 20, August
20 and November 20, commencing on November 20, 1996, when, as and if
available for payment by the Property Trustee, except as otherwise
described below. The Debenture Issuers has the right under the
Indenture to defer payments of interest by extending the interest
payment period from time to time on the Debentures for successive
periods not exceeding 20 consecutive quarters (each an "Extension
Period"), during which Extension Period no interest shall be due and
payable on the Debentures; provided, that no Extension Period shall
last beyond the date of -------- maturity of the Debentures. As a
consequence of such extension, Distributions will also be deferred.
Despite such deferral, quarterly Distributions will continue to
accrue with interest thereon (to the extent permitted by applicable
law) at the Coupon Rate compounded quarterly during any such
Extension Period. Prior to the termination of any such Extension
Period, the Debenture Issuers may further extend such Extension
Period; provided, that such Extension -------- Period together with
all such previous and further extensions thereof may not exceed 20
consecutive quarters and that such Extension Period may not extend
beyond the maturity date of the Debentures. Payments of accrued
Distributions will be payable to Holders as they appear on the books
and records of the Trust on the first record date after the end of
the Extension Period. Upon the termination of any Extension Period
and the payment of all amounts then due, the Debenture Issuers may
commence a new Extension Period, subject to the above requirements.
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<PAGE>
(c) Distributions on the Securities will be payable to the Holders
thereof as they appear on the books and records of the Trust on the
relevant record dates. The relevant record dates shall be the day
immediately preceding the relevant payment date; provided, however,
that, if any Preferred Securities are held in certificated form, the
relevant record date for each payment date shall be 15 days prior to
such payment date. Subject to any applicable laws and regulations and
the provisions of the Declaration, each such payment in respect of
the Preferred Securities being held in book-entry form through The
Depository Trust Company (the "Depositary") will be made as described
under the heading "Description of the Preferred Securities --
Book-Entry Only Issuance -- The Depository Trust Company" in the
Offering Memorandum. The relevant record dates for the Common
Securities shall be the same record dates as for the Preferred
Securities. Distributions payable on any Securities that are not
punctually paid on any Distribution payment date, as a result of the
Debenture Issuers having failed to make a payment under the
Debentures, will cease to be payable to the Person in whose name such
Securities are registered on the relevant record date, and such
defaulted Distribution will instead be payable to the Person in whose
name such Securities are registered on the special record date or
other specified date determined in accordance with the Indenture. If
any date on which Distributions are payable on the Securities is not
a Business Day, then payment of the Distribution payable on such date
will be made on the next succeeding day that is a Business Day (and
without any distribution or other payment in respect of any such
delay) except that, if such Business Day is in the next succeeding
calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect
as if made on such date.
(d) In the event of an election by the Holder to convert its Securities
through the Conversion Agent into Common Stock of the Debenture
Issuers pursuant to the terms of the Securities as forth in this
Annex I to the Declaration, no payment, allowance or adjustment shall
be made with respect to accumulated and unpaid Distributions on such
Securities, or be required to be made; provided that Holders of
Securities at the close of business on any record date for the
payment of Distributions will be entitled to receive the
Distributions payable on such Securities on the corresponding payment
date notwithstanding the conversion of such Securities into Common
Stock of the Debenture Issuers following such record date.
(e) In the event that there is any money or other property held by or for
the Trust that is not accounted for hereunder, such property shall be
distributed Pro Rata (as defined herein) among the Holders of the
Securities.
3. Liquidation Distribution Upon Dissolution.
In the event of any voluntary or involuntary dissolution,
winding-up or termination of the Trust (each a "Liquidation"), the then Holders
of the Securities on the date of the Liquidation will be entitled to receive
out of the assets of the Trust available for distribution to Holders of
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<PAGE>
Securities after satisfaction of liabilities of creditors, distributions in an
amount equal to the aggregate of the stated liquidation amount of $50 per
Security plus accrued and unpaid Distributions thereon to the date of payment
(such amount being the "Liquidation Distribution"), unless, in connection with
such Liquidation, Debentures in an aggregate principal amount equal to the
aggregate stated liquidation amount of such Securities, with an interest rate
equal to the Coupon Rate of, and bearing accrued and unpaid interest in an
amount equal to the accrued and unpaid Distributions on, such Securities, shall
be distributed on a Pro Rata basis to the Holders of the Securities.
If, upon any such Liquidation, the Liquidation Distribution
can be paid only in part because the Trust has insufficient assets available to
pay in full the aggregate Liquidation Distribution, then the amounts payable
directly by the Trust on the Securities shall be paid on a Pro Rata basis in
accordance with paragraph 10 below.
4. Redemption and Distribution.
(a) Upon the repayment of the Debentures in whole or in part, whether at
maturity or upon redemption (either at the option of the Debenture
Issuers or pursuant to a Tax Event), the proceeds from such repayment
or payment shall be simultaneously applied to redeem Securities
having an aggregate liquidation amount equal to the aggregate
principal amount of the Debentures so repaid or redeemed at a
redemption price equal to the redemption price of such repaid or
redeemed Debentures, together with accrued and unpaid Distributions
thereon through the date of the redemption, payable in cash (the
"Redemption Price"). Holders will be given not less than 30 nor more
than 60 days' notice of such redemption. Upon the repayment of the
Debentures at maturity or upon any acceleration, earlier redemption
or otherwise, the proceeds from such repayment will be applied to
redeem the Securities, in whole, upon not less than 30 nor more than
60 days' notice.
(b) If fewer than all the outstanding Securities are to be so redeemed,
the Common Securities and the Preferred Securities will be redeemed
Pro Rata and the Preferred Securities to be redeemed will be as
described in paragraph 4(f)(ii) below.
(c) If, at any time, a Tax Event or an Investment Company Event (each as
defined below and each a "Special Event") shall occur and be
continuing the Regular Trustees shall, unless the Debentures are
redeemed in the limited circumstances in relation to a Tax Event
described in this Section 4(c), dissolve the Trust and, after
satisfaction of creditors of the Trust, if any, cause Debentures held
by the Property Trustee, having an aggregate principal amount equal
to the aggregate stated liquidation amount of, with an interest rate
identical to the Coupon Rate of, and accrued and unpaid Distributions
on, and having the same record date for payment as the Securities, to
be distributed to the Holders of the Securities in liquidation of
such Holders' interest in the Trust on a Pro Rata basis, within 90
days following the occurrence of such Special Event (the "90 Day
Period"); provided, however, that in the case of a Tax Event, such
dissolution and distribution shall be conditioned on
I-4
<PAGE>
the Regular Trustees' receipt of an opinion of a nationally
recognized independent tax counsel experienced in such matters (a "No
Recognition Opinion"), which opinion may rely on published revenue
rulings of the Internal Revenue Service, to the effect that the
Holders of the Preferred Securities will not recognize any income,
gain or loss for United States federal income tax purposes as a
result of such dissolution and distribution of Debentures, and
provided, further, that if at the time there is available to the
Trust the opportunity to eliminate, within the 90 Day Period, the
Special Event by taking some ministerial action, such as filing a
form or making an election, or pursuing some other similar reasonable
measure which in the sole judgment of the Sponsor, has or will cause
no adverse effect on the Trust, the Sponsor or the Holders of the
Securities and will involve no material cost ("Ministerial Action"),
the Trust will pursue such Ministerial Action in lieu of dissolution.
If in the event of a Tax Event, (i) after receipt of a Tax Event
Opinion (as defined hereinafter) by the Trust, the Regular Trustees
have received an opinion (a "Redemption Tax Opinion") of a nationally
recognized independent tax counsel experienced in such matters that,
as a result of a Tax Event, there is more than an insubstantial risk
that the Debenture Issuers would be precluded from deducting the
interest on the Debentures for United States federal income tax
purposes even if the Debentures were distributed to the Holders of
Securities in liquidation of such Holders' interest in the Trust as
described in this paragraph 4(c), or (ii) after receipt of a Tax
Event Opinion, the Regular Trustees shall have been informed by such
tax counsel that a No Recognition Opinion cannot be delivered to the
Trust, the Debenture Issuers shall have the right, upon not less than
30 nor more than 60 days' notice, to redeem the Debentures in whole
(but not in part) for cash within 90 days following the occurrence of
such Tax Event, and promptly following such redemption, the
Securities shall be redeemed at the Redemption Price on a Pro Rata
basis at $50 per Security plus accrued and unpaid distributions;
provided, however, that if at the time there is available to the
Debenture Issuers or the Trust the opportunity to eliminate, within
such 90 Day Period, the Tax Event by taking some Ministerial Action
which has no adverse effect on the Trust, the Holders of Securities
or the Debenture Issuers, the Trust or the Debenture Issuers will
pursue such Ministerial Action in lieu of redemption.
"Tax Event" means that the Regular Trustees shall have received
an opinion of a nationally recognized independent tax counsel
experienced in such matters (a "Dissolution Tax Opinion") to the
effect that, as a result of (a) any amendment to, or change
(including any announced prospective change) in, the laws (or any
regulations thereunder) of the United States or any political
subdivision or taxing authority thereof or therein, (b) any amendment
to, or change in, an interpretation or application of any such laws
or regulations by any legislative body, court, governmental agency or
regulatory authority (including the enactment of any legislation and
the publication of any judicial decision or regulatory
determination), (c) any interpretation or pronouncement that provides
for a position with respect to
I-5
<PAGE>
such laws or regulations that differs from the theretofore generally
accepted position or (d) any action taken by any governmental agency
or regulatory authority, which amendment or change is enacted,
promulgated, issued or announced or which interpretation or
pronouncement is issued or announced or which action is taken, in
each case after the date of the Offering Memorandum (collectively, a
"Change in Tax Law"), there is more than an insubstantial risk that
(i) the Trust is, or will be within 90 days of the date thereof,
subject to United States federal income tax with respect to interest
accrued or received on the Debentures, (ii) the Trust is, or will be
within 90 days of the date thereof, subject to more than a de minimis
amount of other taxes, duties or other governmental charges, or (iii)
interest payable by the Debenture Issuers to the Trust on the
Debentures is not, or within 90 days of the date thereof will not be,
deductible by the Debenture Issuers for United States federal income
tax purposes. Notwithstanding anything in the previous sentence to
the contrary, a Tax Event shall not include any Change in Tax Law
that requires the Debenture Issuers for United States federal income
tax purposes to defer taking a deduction for any original issue
discount ("OID") that accrues with respect to the Debentures until
the interest payment related to such OID is paid by the Debenture
Issuers in money; provided, that such Change in Tax Law does not
create more than an insubstantial risk that the Debenture Issuers
will be prevented from taking a deduction for OID accruing with
respect to the Debentures at a date that is no later than the date
the interest payment related to such OID is actually paid by the
Debenture Issuers in money.
"Investment Company Event" means that the Regular Trustees shall
have received an opinion of a nationally recognized independent
counsel experienced in practice under the Investment Company Act (an
"Investment Company Event Opinion") that, as a result of an
occurrence of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative
body, court, governmental agency or regulatory authority (a "Change
in 1940 Act Law"), there is more than an insubstantial risk that the
Trust is or will be considered an Investment Company which is
required to be registered under the Investment Company Act, which
Change in 1940 Act Law becomes effective on or after the date of the
Offering Memorandum.
On the date fixed for any distribution of Debentures, upon
dissolution of the Trust: (i) the Securities will no longer be deemed
to be outstanding and (ii) certificates representing Securities will
be deemed to represent beneficial interests in Debentures having an
aggregate principal amount equal to the stated liquidation amount,
and bearing accrued and unpaid interest equal to accrued and unpaid
Distributions, on such Securities until such certificates are
presented to the Debenture Issuers or its agent for transfer or
reissuance.
(d) The Trust may not redeem fewer than all the outstanding Securities
unless all accrued and unpaid Distributions have been paid on all
Securities for all quarterly Distribution periods terminating on or
before the date of redemption.
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<PAGE>
(e) If the Debentures are distributed to the Holders of the Securities,
pursuant to the terms of the Indenture, the Debenture Issuers will
use their best efforts to have the Debentures listed on The Nasdaq
National Market or on such other exchange as the Preferred Securities
were listed immediately prior to the distribution of the Debentures.
(f) "Redemption or Distribution Procedures."
(i) Notice of any redemption of Securities, or notice of
distribution of Debentures in exchange for the Securities (a
"Redemption/Distribution Notice"), will be given by the Trust by
mail to each Holder of Securities to be redeemed or exchanged
not fewer than 30 nor more than 60 days before the date fixed
for redemption or exchange thereof which, in the case of a
redemption, will be the date fixed for redemption of the
Debentures. For purposes of the calculation of the date of
redemption or exchange and the dates on which notices are given
pursuant to this paragraph 4(f)(i), a Redemption/Distribution
Notice shall be deemed to be given on the day such notice is
first mailed by first-class mail, postage prepaid, to Holders of
Securities. Each Redemption/Distribution Notice shall be
addressed to the Holders of Securities at the address of each
such Holder appearing in the books and records of the Trust. No
defect in the Redemption/Distribution Notice or in the mailing
of either thereof with respect to any Holder shall affect the
validity of the redemption or exchange proceedings with respect
to any other Holder.
(ii) In the event that fewer than all the outstanding Securities are
to be redeemed, the Securities to be redeemed shall be redeemed
Pro Rata from each Holder of Preferred Securities, it being
understood that, in respect of Preferred Securities registered
in the name of and held of record by the Depositary or its
nominee (or any successor Clearing Agency or its nominee), the
distribution of the proceeds of such redemption will be made to
each Clearing Agency Participant (or Person on whose behalf such
nominee holds such securities) in accordance with the procedures
applied by such agency or nominee.
(iii) If Securities are to be redeemed and the Trust gives a
Redemption/ Distribution Notice, which notice may only be issued
if the Debentures are redeemed as set out in this paragraph 4
(which notice will be irrevocable), then (A) with respect to
Preferred Securities held in book-entry form, by 12:00 noon, New
York City time, on the redemption date, provided that either of
the Debenture Issuers has paid the Property Trustee a sufficient
amount of cash in connection with the related redemption or
maturity of the Debentures, the Trust will deposit irrevocably
with the Depositary or its nominee (or successor Clearing Agency
or its nominee) funds sufficient to pay the applicable
Redemption Price with respect to such Preferred
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Securities and will give the Depositary irrevocable instructions
and authority to pay the applicable Redemption Price to the
Holders of such Preferred Securities represented by the Global
Certificates, and (B) with respect to Preferred Securities
issued in certificated form and Common Securities, provided that
the Debenture Issuers has paid the Property Trustee a sufficient
amount of cash in connection with the related redemption or
maturity of the Debentures, the Trust will irrevocably deposit
with the Paying Agent funds sufficient to pay the amount payable
on redemption to the Holders of such Securities upon surrender
of their certificates. If a Redemption/Distribution Notice shall
have been given and funds deposited as required, then on the
date of such deposit, all rights of Holders of such Securities
so called for redemption will cease, except the right of the
Holders of such Securities to receive the redemption price, but
without interest on such redemption price. Neither the Regular
Trustees nor the Trust shall be required to register or cause to
be registered the transfer of any Securities that have been so
called for redemption. If any date fixed for redemption of
Securities is not a Business Day, then payment of the amount
payable on such date will be made on the next succeeding day
that is a Business Day (without any interest or other payment in
respect of any such delay) except that, if such Business Day
falls in the next calendar year, such payment will be made on
the immediately preceding Business Day, in each case with the
same force and effect as if made on such date fixed for
redemption. If payment of the redemption price in respect of any
Securities is improperly withheld or refused and not paid either
by the Trust or by the Sponsor as guarantor pursuant to the
relevant Securities Guarantee, Distributions on such Securities
will continue to accrue at the then applicable rate, from the
original redemption date to the date of payment, in which case
the actual payment date will be considered the date fixed for
redemption for purposes of calculating the amount payable upon
redemption (other than for purposes of calculating any premium).
(iv) In the event of any redemption in part, the Trust shall not be
required to (i) issue, register the transfer of or exchange of
any Preferred Security during a period beginning at the opening
of business 15 days before any selection for redemption of
Preferred Securities and ending at the close of business on the
earliest date in which the relevant notice of redemption is
deemed to have been given to all holders of Preferred Securities
to be so redeemed and (ii) register the transfer of or exchange
of any Preferred Securities so selected for redemption, in whole
or in part, except for the unredeemed portion of any Preferred
Securities being redeemed in part.
(v) Redemption/Distribution Notices shall be sent by the Regular
Trustees on behalf of the Trust to (A) in the case of Preferred
Securities held in book-entry form, the Depositary and, in the
case of Securities held in certificated
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form, the Holders of such certificates and (B) in respect of the
Common Securities, the Holder thereof.
(vi) Subject to the foregoing and applicable law (including, without
limitation, United States federal securities laws), the Sponsor
or any of its subsidiaries may at any time and from time to time
purchase outstanding Preferred Securities by tender, in the open
market or by private agreement.
5. Conversion Rights.
The Holders of Securities shall have the right at any time prior to
the Business Day immediately preceding the date of repayment of such
Securities, whether at maturity or upon redemption (either at the
option of the Company or pursuant to a Tax Event), at their option,
to cause the Conversion Agent to convert Securities, on behalf of the
converting Holders, into shares of Common Stock of the Company in the
manner described herein on and subject to the following terms and
conditions:
(a) The Securities will be convertible at the office of the Conversion
Agent into fully paid and nonassessable shares of Common Stock of the
Company pursuant to the Holder's direction to the Conversion Agent to
exchange such Securities for a portion of the Debentures theretofore
held by the Trust on the basis of one Security per $50 principal
amount of Debentures, and immediately convert such amount of
Debentures into fully paid and nonassessable shares of Common Stock
of the Company at an initial conversion rate of 3.8462 shares of
Common Stock of the Company per $50 principal amount of Debentures
(which is equivalent to a conversion price of $13 per share of Common
Stock of the Company, subject to certain adjustments set forth in the
terms of the Debentures (as so adjusted, "Conversion Price")).
(b) In order to convert Securities into Common Stock of the Company the
Holder shall submit to the Conversion Agent at the office referred to
above an irrevocable request to convert Securities on behalf of such
Holder (the "Conversion Request"), together, if the Securities are in
certificated form, with such certificates. The Conversion Request
shall (i) set forth the number of Securities to be converted and the
name or names, if other than the Holder, in which the shares of
Common Stock of the Company should be issued and (ii) direct the
Conversion Agent (a) to exchange such Securities for a portion of the
Debentures held by the Trust (at the rate of exchange specified in
the preceding paragraph) and (b) to immediately convert such
Debentures on behalf of such Holder, into Common Stock of the Company
(at the conversion rate specified in the preceding paragraph). The
Conversion Agent shall notify the Trust of the Holder's election to
exchange Securities for a portion of the Debentures held by the Trust
and the Trust shall, upon receipt of such notice, deliver to the
Conversion Agent the appropriate principal amount of Debentures for
exchange in accordance with this Section. The Conversion Agent shall
thereupon notify the Company of the Holder's election to
I-9
<PAGE>
convert such Debentures into shares of Common Stock of the Company.
Holders of Securities at the close of business on a Distribution
record date will be entitled to receive the Distribution payable on
such securities on the corresponding Distribution payment date
notwithstanding the conversion of such Securities following such
record date but prior to such distribution payment date. Except as
provided above, neither the Trust nor the Debenture Issuers will
make, or be required to make, any payment, allowance or adjustment
upon any conversion on account of any accumulated and unpaid
Distributions accrued on the Securities (including any Additional
Interest, Compounded Interest and Liquidation Damages accrued
thereon) surrendered for conversion, or on account of any accumulated
and unpaid dividends on the shares of Common Stock of the Company
issued upon such conversion. The Company shall make no payment or
allowance for distributions on the shares of Common Stock of the
Company issued upon such conversion, except to the extent that such
shares of Common Stock of the Company are held of record on the
record date for any such distributions and except as provided in
Section 1209 of the Indenture. Securities shall be deemed to have
been converted immediately prior to the close of business on the day
on which a Notice of Conversion relating to such Securities is
received by the Trust in accordance with the foregoing provision (the
"Conversion Date"). The Person or Persons entitled to receive the
Common Stock of the Company issuable upon conversion of the
Debentures shall be treated for all purposes as the record holder or
holders of such Common Stock of the Company at such time. As promptly
as practicable on or after the Conversion Date, the Company shall
issue and deliver at the office of the Conversion Agent a certificate
or certificates for the number of full shares of Common Stock of the
Company issuable upon such conversion, together with the cash
payment, if any, in lieu of any fraction of any share to the Person
or Persons entitled to receive the same, unless otherwise directed by
the Holder in the notice of conversion, and the Conversion Agent
shall distribute such certificate or certificates to such Person or
Persons.
(c) Each Holder of a Security by his acceptance thereof appoints The Bank
of New York as "Conversion Agent" for the purpose of effecting the
conversion of Securities in accordance with this Section. In
effecting the conversion and transactions described in this Section,
the Conversion Agent shall be acting as agent of the Holders of
Securities directing it to effect such conversion transactions. The
Conversion Agent is hereby authorized (i) to exchange Securities from
time to time for Debentures held by the Trust in connection with the
conversion of such Securities in accordance with this Section and
(ii) to convert all or a portion of the Debentures into Common Stock
of the Company and thereupon to deliver such shares of Common Stock
of the Company in accordance with the provisions of this Section and
to deliver to the Trust a new Debenture or Debentures for any
resulting unconverted principal amount.
(d) No fractional shares of Common Stock of the Company will be issued as
a result of conversion, but in lieu thereof, such fractional interest
will be paid in cash (based on
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<PAGE>
the last reported sale price of the Common Stock of the Company on
the date such Securities are surrendered for conversion) by the
Debenture Issuers to the Trust, which in turn will make such payment
to the Holder or Holders of Securities so converted.
(e) The Company shall at all times reserve and keep available out of its
authorized and unissued Common Stock of the Company, solely for
issuance upon the conversion of the Debentures, free from any
preemptive or other similar rights, such number of shares of Common
Stock of the Company as shall from time to time be issuable upon the
conversion of all the Debentures then outstanding. Notwithstanding
the foregoing, the Company shall be entitled to deliver upon
conversion of Debentures, shares of Common Stock of the Company
reacquired and held in the treasury of the Company (in lieu of the
issuance of authorized and unissued shares of Common Stock of the
Company), so long as any such treasury shares are free and clear of
all liens, charges, security interests or encumbrances. Any shares of
Common Stock of the Company issued upon conversion of the Debentures
shall be duly authorized, validly issued and fully paid and
nonassessable. The Trust shall deliver the shares of Common Stock of
the Company received upon conversion of the Debentures to the
converting Holder free and clear of all liens, charges, security
interests and encumbrances, except for United States withholding
taxes. Each of the Debenture Issuers and the Trust shall prepare and
shall use its best efforts to obtain and keep in force such
governmental or regulatory permits or other authorizations as may be
required by law, and shall comply with all applicable requirements as
to registration or qualification of the Common Stock of the Company
(and all requirements to list the Common Stock of the Company
issuable upon conversion of Debentures that are at the time
applicable), in order to enable the Company to lawfully issue Common
Stock of the Company to the Trust upon conversion of the Debentures
and the Trust to lawfully deliver the Common Stock of the Company to
each Holder upon conversion of the Securities.
(f) The Debenture Issuers will pay any and all taxes that may be payable
in respect of the issue or delivery of shares of Common Stock of the
Company on conversion of Debentures and the delivery of the shares of
Common Stock of the Company by the Trust upon conversion of the
Securities. The Debenture Issuers shall not, however, be required to
pay any tax which may be payable in respect of any transfer involved
in the issue and delivery of shares of Common Stock of the Company in
a name other than that in which the Securities so converted were
registered, and no such issue or delivery shall be made unless and
until the person requesting such issue has paid to the Trust the
amount of any such tax, or has established to the satisfaction of the
Trust that such tax has been paid.
(g) Nothing in the preceding Paragraph (f) shall limit the requirement of
the Trust to withhold taxes pursuant to the terms of the Securities
or set forth in this Annex I to the Declaration or to the Declaration
itself or otherwise require the Property Trustee or the Trust to pay
any amounts on account of such withholdings.
I-11
<PAGE>
6. Voting Rights - Preferred Securities.
(a) Except as provided under paragraphs 6(b) and 7, in the Business Trust
Act and as otherwise required by law and the Declaration, the Holders
of the Preferred Securities will have no voting rights.
Subject to the requirements set forth in this paragraph, the Holders
of a majority in liquidation amount of the Preferred Securities,
voting separately as a class, may direct the time, method, and place
of conducting any proceeding for any remedy available to the Property
Trustee, or direct the exercise of any trust or power conferred upon
the Property Trustee under the Declaration, including the right to
direct the Property Trustee, as holder of the Debentures, to (i)
exercise the remedies available to it under the Indenture as a holder
of the Debentures, (ii) waive any past default and its consequences
that is waivable under the Indenture, (iii) exercise any right to
rescind or annul a declaration that the principal of all the
Debentures shall be due and payable, or (iv) consent to any
amendment, modification, or termination of the Indenture or the
Debentures where such consent shall be required; provided, however,
that where a consent or action under the Indenture would require the
consent or act of the Holders of greater than a majority of the
Holders in principal amount of Debentures affected thereby (a "Super
Majority"), the Property Trustee may only give such consent or take
such action at the written direction of the Holders of at least the
proportion in liquidation amount of the Preferred Securities which
the relevant Super Majority represents of the aggregate principal
amount of the Debentures outstanding. The Property Trustee shall be
under no obligation to revoke any action previously authorized or
approved by a vote of the Holders of the Preferred Securities. Other
than with respect to directing the time, method and place of
conducting any remedy available to the Property Trustee or the
Debenture Trustee as set forth above, the Property Trustee shall be
under no obligation to take any action in accordance with the
directions of the Holders of the Preferred Securities under this
paragraph unless the Property Trustee has obtained an opinion of
independent tax counsel to the effect that for the purposes of United
States federal income tax the Trust will not be classified as other
than a grantor trust on account of such action and each Holder will
be treated as owning an undivided beneficial interest in the
Debentures. If the Property Trustee fails to enforce its rights under
the Debentures after a Holder of Preferred Securities has made a
written request, such Holder of Preferred Securities may directly
institute a legal proceeding against the Debenture Issuers to enforce
the Property Trustee's rights under the Debentures without first
instituting any legal proceeding against the Property Trustee or any
other Person. Notwithstanding the foregoing, if a Declaration Event
of Default has occurred and is continuing and such event is
attributable to the failure of the Debenture Issuers to pay interest
or principal on the Debentures on the date such interest or principal
is otherwise payable (or in the case of redemption on the redemption
date), then a holder of Preferred Securities may directly institute a
proceeding for enforcement of payment to such holder (a "Direct
Action") of the principal of or interest on the Debenture having a
principal amount equal to the
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<PAGE>
aggregate liquidation amount of the Preferred Securities of such
holder on or after the respective due date specified in the
Debentures. Except as provided in the preceding sentence, the holders
of Preferred Securities will not be able to exercise directly any
other remedy available to the holders of the Debentures. In
connection with such Direct Action, the Debenture Issuers will be
subrogated to the rights of such holder of Preferred Securities under
the Declaration to the extent of any payment made by the Debenture
Issuers to such holder of Preferred Securities in such Direct Action.
Any required approval or direction of Holders of Preferred Securities
may be given at a separate meeting of Holders of Preferred Securities
convened for such purpose, at a meeting of all of the Holders of
Securities in the Trust or pursuant to written consent. The Regular
Trustees will cause a notice of any meeting at which Holders of
Preferred Securities are entitled to vote, or of any matter upon
which action by written consent of such Holders is to be taken, to be
mailed to each Holder of record of Preferred Securities. Each such
notice will include a statement setting forth the following
information (i) the date of such meeting or the date by which such
action is to be taken, (ii) a description of any resolution proposed
for adoption at such meeting on which such Holders are entitled to
vote or of such matter upon which written consent is sought and (iii)
instructions for the delivery of proxies or consents.
No vote or consent of the Holders of the Preferred Securities will be
required for the Trust to redeem and cancel Preferred Securities or
to distribute the Debentures in accordance with the Declaration and
the terms of the Securities.
Notwithstanding that Holders of Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any
of the Preferred Securities that are owned by the Sponsor or any
Affiliate of the Sponsor controlled by the Sponsor shall not be
entitled to vote or consent and shall, for purposes of such vote or
consent, be treated as if such Preferred Securities were not
outstanding.
7. Voting Rights - Common Securities.
(a) Except as provided under paragraphs 7(b), (c) and 8, in the
Business Trust Act and as otherwise required by law and the
Declaration, the Holders of the Common Securities will have no
voting rights.
(b) The Holders of the Common Securities are entitled, in accordance
with Article V of the Declaration, to vote to appoint, remove or
replace any Trustee or to increase or decrease the number of
Trustees.
(c) Subject to Section 3.9 of the Declaration and only after the
Event of Default with respect to the Preferred Securities has
been cured, waived, or otherwise eliminated and subject to the
requirements of the second to last sentence of this paragraph,
the Holders of a Majority in liquidation amount of the Common
Securities, voting
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<PAGE>
separately as a class, may direct the time, method, and place of
conducting any proceeding for any remedy available to the
Property Trustee, or exercising any trust or power conferred
upon the Property Trustee under the Declaration, including (i)
directing the time, method, place of conducting any proceeding
for any remedy available to the Debenture Trustee, or exercising
any trust or power conferred on the Debenture Trustee with
respect to the Debentures, (ii) waiving any past default and its
consequences that is waivable under Section 513 of the
Indenture, (iii) exercising any right to rescind or annul a
declaration that the principal of all the Debentures shall be
due and payable, or (iv) consenting to any amendment,
modification, or termination of the Indenture or the Debentures
where such consent shall be required; provided that, where a
consent or action under the Indenture would require the consent
or act of the Holders of greater than a majority in principal
amount of Debentures affected thereby (a "Super Majority"), the
Property Trustee may only give such consent or take such action
at the written direction of the Holders of at least the
proportion in liquidation amount of the Common Securities which
the relevant Super Majority represents of the aggregate
principal amount of the Debentures outstanding. Pursuant to this
paragraph 7(c), the Property Trustee shall not revoke any action
previously authorized or approved by a vote of the Holders of
the Preferred Securities. Other than with respect to directing
the time, method and place of conducting any remedy available to
the Property Trustee or the Debenture Trustee as set forth
above, the Property Trustee shall be under no obligation to take
any action in accordance with the directions of the Holders of
the Common Securities under this paragraph unless the Property
Trustee has obtained an opinion of independent tax counsel to
the effect that for the purposes of United States federal income
tax the Trust will not be classified as other than a grantor
trust on account of such action and each Holder will be treated
as owning an undivided beneficial interest in the Debentures. If
the Property Trustee fails to enforce its rights under the
Debentures after a Holder of Common Securities has made a
written request, such Holder of Common Securities may institute
a legal proceeding directly against the Debenture Issuers or any
other Person to enforce the Property Trustee's rights under the
Debentures, without first instituting any legal proceeding
against the Property Trustee or any other Person.
Any approval or direction of Holders of Common Securities may be
given at a separate meeting of Holders of Common Securities
convened for such purpose, at a meeting of all of the Holders of
Securities in the Trust or pursuant to written consent. The
Regular Trustees will cause a notice of any meeting at which
Holders of Common Securities are entitled to vote, or of any
matter upon which action by written consent of such Holders is
to be taken, to be mailed to each Holder of record of Common
Securities. Each such notice will include a statement setting
forth (i) the date of such meeting or the date by which such
action is to be taken, (ii) a description of any resolution
proposed for adoption at such meeting on which such Holders are
entitled to vote or of such matter upon which written consent is
sought and (iii) instructions for the delivery of proxies or
consents.
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<PAGE>
No vote or consent of the Holders of the Common Securities
will be required for the Trust to redeem and cancel Common
Securities or to distribute the Debentures in accordance with
the Declaration and the terms of the Securities.
8. Registration Rights.
The Holders of the Preferred Securities, the Debentures, the
Preferred Securities Guarantee and the shares of Common Stock of the Company
issuable upon conversion of the Debentures (collectively, the "Registrable
Securities") are entitled to the benefits of a Registration Rights Agreement
dated August 20, 1996. Pursuant to the Registration Rights Agreement, the
Debenture Issuers has agreed for the benefit of the Holders of Registrable
Securities that (i) they will, at their cost, within 60 days after the date of
issuance of the Registrable Securities, file a shelf registration statement
(the "Shelf Registration Statement") with the Commission with respect to
resales of the Registrable Securities, (ii) they will use their best efforts to
cause such Shelf Registration Statement to be declared effective by the
Commission within 150 days after the date of issuance of the Registrable
Securities and (iii) they will use their best efforts to maintain such Shelf
Registration Statement continuously effective under the Securities Act until
the third anniversary of the effectiveness of the Shelf Registration Statement
or such earlier date as is provided in the Registration Rights Agreement (the
"Effectiveness Period").
If (i) on or prior to 60 days following the date of original
issuance of the Registrable Securities, a Shelf Registration Statement has not
been filed with the Commission, or (ii) on or prior to the 150th day following
the issuance of the Registrable Securities, such Shelf Registration Statement
is not declared effective (each, a "Registration Default"), additional interest
("Liquidated Damages") will accrue on the Debentures and, accordingly,
additional distributions will accrue on the Preferred Securities, in each case
from and including the day following such Registration Default. Liquidated
Damages will be paid quarterly in arrears, with the first quarterly payment due
on the first interest or distribution payment date, as applicable, following
the date on which such Liquidated Damages begin to accrue, and will accrue at a
rate per annum equal to an additional one-quarter of one percent (0.25%) of the
principal amount or liquidation amount, as applicable, to and including the
90th day following such Registration Default and one-half of one percent
(0.50%) thereof from and after the 91st day following such Registration
Default. Upon (x) the filing of the Shelf Registration Statement after the
60-day period described in clause (i) above or (y) the effectiveness of the
Shelf Registration Statement after the 150-day period described in clause (ii)
above, the interest rate borne by the Debentures and the distribution rate
borne by the Preferred Securities from the date of such filing or
effectiveness, as the case may be, will be reduced to the original interest
rate and distribution rate. In the event that the Shelf Registration Statement
ceases to be effective during the Effectiveness Period for more than 60 days,
whether or not consecutive, during any 12-month period, then the interest rate
borne by the Debentures and the distribution rate borne by the Preferred
Securities will each increase by an additional one-half of one percent (0.50%)
per annum from such 61st day, as applicable, until such time as the Shelf
Registration Statement again becomes effective.
I-15
<PAGE>
9. Amendments to Declaration and Indenture.
(a) In addition to any requirements under Section 12.1 of the
Declaration, if any proposed amendment to the Declaration
provides for, or the Regular Trustees otherwise propose to
effect, (i) any action that would adversely affect the powers,
preferences or special rights of the Securities, whether by way
of amendment to the Declaration or otherwise, or (ii) the
dissolution, winding-up or termination of the Trust, other than
as described in Section 8.1 of the Declaration, then the Holders
of Securities as a class, will be entitled to vote on such
amendment or proposal (but not on any other amendment or
proposal) and such amendment or proposal shall not be effective
except with the approval of the Holders of at least a Majority
in liquidation amount of the Securities affected thereby, voting
together as a single class; provided, however, if any amendment
or proposal referred to in clause (i) above would adversely
affect only the Preferred Securities or only the Common
Securities, then only the affected class will be entitled to
vote on such amendment or proposal and such amendment or
proposal shall not be effective except with the approval of a
Majority in liquidation amount of such class of Securities.
(b) In the event the consent of the Property Trustee as the holder
of the Debentures is required under the Indenture with respect
to any amendment, modification or termination on the Indenture
or the Debentures, the Property Trustee shall request the
written direction of the Holders of the Securities with respect
to such amendment, modification or termination and shall vote
with respect to such amendment, modification or termination as
directed by a Majority in liquidation amount of the Securities
voting together as a single class; provided, however, that where
a consent under the Indenture would require the consent of the
holders of greater than a majority in aggregate principal amount
of the Debentures (a "Super Majority"), the Property Trustee may
only give such consent at the written direction of the Holders
of at least the same proportion in aggregate stated liquidation
preference of the Securities; provided, further, that the
Property Trustee shall not take any action in accordance with
the directions of the Holders of the Securities under this
paragraph 8(b) unless the Property Trustee has obtained an
opinion of a nationally recognized independant tax counsel to
the effect that for the purposes of United States federal income
tax the Trust will not be classified as other than a grantor
trust on account of such action.
10. Pro Rata.
A reference in these terms of the Securities to any payment,
distribution or treatment as being "Pro Rata" shall mean pro rata to each
Holder of Securities according to the aggregate liquidation amount of the
Securities held by the relevant Holder in relation to the aggregate liquidation
amount of all Securities outstanding unless, in relation to a payment, an Event
of Default under the Declaration has occurred and is continuing, in which case
any funds available to make such payment shall be paid first to each Holder of
the Preferred Securities pro rata according to the aggregate liquidation amount
of Preferred Securities held by the relevant Holder relative to
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<PAGE>
the aggregate liquidation amount of all Preferred Securities outstanding, and
only after satisfaction of all amounts owed to the Holders of the Preferred
Securities, to each Holder of Common Securities pro rata according to the
aggregate liquidation amount of Common Securities held by the relevant Holder
relative to the aggregate liquidation amount of all Common Securities
outstanding.
11. Ranking.
The Preferred Securities rank pari passu and payment thereon
shall be made Pro Rata with the Common Securities except that, where an Event
of Default occurs and is continuing under the Indenture in respect of the
Debentures held by the Property Trustee, the rights of Holders of the Common
Securities to payment in respect of Distributions and payments upon
liquidation, redemption and otherwise are subordinated to the rights to payment
of the Holders of the Preferred Securities.
12. Acceptance of Securities Guarantee and Indenture.
Each Holder of Preferred Securities and Common Securities, by
the acceptance thereof, agrees to the provisions of the Preferred Securities
Guarantee and the Common Securities Guarantee, respectively, including the
subordination provisions therein and to the provisions of the Indenture.
13. No Preemptive Rights.
The Holders of the Securities shall have no preemptive
rights.
14. Miscellaneous.
These terms constitute a part of the Declaration.
The Debenture Issuers will provide a copy of the Declaration,
the Preferred Securities Guarantee or the Common Securities Guarantee (as may
be appropriate), and the Indenture to a Holder without charge on written
request to the Sponsor at its principal place of business.
I-17
<PAGE>
EXHIBIT A-1
FORM OF PREFERRED SECURITY
[FORM OF FACE OF SECURITY]
[Include if Preferred Security is in global form and the
Depository Trust Company is the U. S. Depositary -- UNLESS THIS CERTIFICATE IS
PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A
NEW YORK CORPORATION ("DTC"), NEW YORK, NEW YORK, TO THE COMPANY OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR
TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC)
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY
PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN
INTEREST HEREIN.]
[Include if Preferred Security is in global form -- TRANSFERS
OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT NOT IN
PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE
AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS
MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE DECLARATION REFERRED
TO BELOW.]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS.
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS
EXEMPT FROM, OR NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT. THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL
OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS THREE YEARS
AFTER THE LATER OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.(THE "COMPANY"), GOLDEN BOOKS PUBLISHING
COMPANY, INC. ("GOLDEN BOOKS PUBLISHING" AND, TOGETHER WITH THE COMPANY, THE
"OBLIGORS") OR ANY AFFILIATE OF THE OBLIGORS WAS THE OWNER OF THIS SECURITY (OR
ANY PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION TERMINATION DATE")
ONLY (A) TO THE OBLIGORS, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR
RESALE PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A
PERSON IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS
A1-1
<PAGE>
DEFINED IN RULE 144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS
BEING MADE IN RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO
NON-U.S. PERSONS THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF
REGULATION S UNDER THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED
INVESTOR" WITHIN THE MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE
501 UNDER THE SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN
ACCOUNT, OR FOR THE ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR
INVESTMENT PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION
WITH, ANY DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO
ANOTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT TO THE OBLIGORS' AND THE TRANSFER AGENT'S RIGHT PRIOR
TO ANY SUCH OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSES (D), (E) OR (F) TO
REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER
INFORMATION SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING
CASES, TO REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS
SECURITY IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT.
THIS LEGEND WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE
RESTRICTION TERMINATION DATE.
Certificate Number Number of Preferred Securities
[CUSIP NO. [ ]]
[ISIN NO. [ ]]
Preferred Securities
of
Golden Books Financing Trust
8 3/4% Convertible Preferred Securities
(liquidation amount $50 per Convertible Preferred Security)
Golden Books Financing Trust, a statutory business trust
formed under the laws of the State of Delaware (the "Trust"), hereby certifies
that __________________________________ (the "Holder") is the registered owner
of preferred securities of the Trust representing undivided beneficial
interests in the assets of the Trust designated the 8 3/4% Convertible
Preferred Securities (liquidation amount $50 per Convertible Preferred
Security) (the "Preferred Securities"). The
A1-2
<PAGE>
Preferred Securities are transferable on the books and records of the Trust, in
person or by a duly authorized attorney, upon surrender of this certificate
duly endorsed and in proper form for transfer. The designation, rights,
privileges, restrictions, preferences and other terms and provisions of the
Preferred Securities represented hereby are issued and shall in all respects be
subject to the provisions of the Amended and Restated Declaration of Trust of
the Trust dated as of August 20, 1996, as the same may be amended from time to
time (the "Declaration"), including the designation of the terms of the
Preferred Securities as set forth in Annex I to the Declaration. Capitalized
terms used herein but not defined shall have the meaning given them in the
Declaration. The Holder is entitled to the benefits of the Preferred Securities
Guarantee to the extent provided therein. The Sponsor will provide a copy of
the Declaration, the Preferred Securities Guarantee and the Indenture to a
Holder without charge upon written request to the Trust at its principal place
of business.
Reference is hereby made to select provisions of the
Preferred Securities set forth on the reverse hereof, which select provisions
shall for all purposes have the same effect as if set forth at this place.
Upon receipt of this certificate, the Holder is bound by the
Declaration and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States
federal income tax purposes, the Debentures as indebtedness and the Preferred
Securities as evidence of indirect beneficial ownership in the Debentures.
A1-3
<PAGE>
Unless the Property Trustee's Certificate of Authentication
hereon has been properly executed, these Preferred Securities shall not be
entitled to any benefit under the Declaration or be valid or obligatory for any
purpose.
IN WITNESS WHEREOF, the Trust has executed this certificate
this ___ day of August, 1996.
GOLDEN BOOKS FINANCING TRUST
By: ________________________________
Name:
Title: Regular Trustee
PROPERTY TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Preferred Securities referred to in the
within-mentioned Declaration.
Dated: __________ , ______
THE BANK OF NEW YORK,
as Property Trustee
By: _______________________
Authorized Signatory
A1-4
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Preferred Security will be
fixed at a rate per annum of 8 3/4% (the "Coupon Rate") of the stated
liquidation amount of $50 per Preferred Security, such rate being the rate of
interest payable on the Debentures to be held by the Property Trustee.
Distributions in arrears for more than one quarter will bear interest thereon
compounded quarterly at the Coupon Rate (to the extent permitted by applicable
law). The term "Distributions" as used herein includes such cash distributions
and any such interest payable unless otherwise stated. A Distribution is
payable only to the extent that payments are made in respect of the Debentures
held by the Property Trustee and to the extent the Property Trustee has funds
available therefor. The amount of Distributions payable for any period will be
computed for any full quarterly Distribution period on the basis of a 360-day
year of twelve 30-day months, and for any period shorter than a full quarterly
Distribution period for which Distributions are computed, Distributions will be
computed on the basis of the actual number of days elapsed per 30-day month.
Except as otherwise described below, distributions on the
Preferred Securities will be cumulative, will accrue from the date of original
issuance and will be payable quarterly in arrears, on February 20, May 20,
August 20 and November 20 of each year, commencing on November 20, 1996, which
payment dates shall correspond to the interest payment dates on the Debentures,
to Holders of record on the day immediately preceding such payment date;
provided, however, that, if any Preferred Securities are held in certificated
form, the relevant record date for each payment date shall be 15 days prior to
such payment date. The Debenture Issuers have the right under the Indenture to
defer payments of interest by extending the interest payment period from time
to time on the Debentures for successive periods not exceeding 20 consecutive
quarters (each an "Extension Period") during which Extension Period no interest
shall be due and payable on the Debentures; provided, that no Extension Period
shall extend beyond the date of maturity of the Debentures. As a consequence of
such extension, Distributions will also be deferred. Despite such extension,
quarterly Distributions will continue to accrue with interest thereon (to the
extent permitted by applicable law) at the Coupon Rate compounded quarterly
during any such Extension Period. Prior to the termination of any such
Extension Period, the Debenture Issuers may further extend such Extension
Period; provided, that such Extension Period together with all such previous
and further extensions thereof may not exceed 20 consecutive quarters. Payments
of accrued Distributions will be payable to Holders as they appear on the books
and records of the Trust on the first record date after the end of the
Extension Period. Upon the termination of any Extension Period and the payment
of all amounts then due, the Debenture Issuers may commence a new Extension
Period, subject to the above requirements.
The Preferred Securities shall be redeemable as provided in
the Declaration.
The Preferred Securities shall be convertible into shares of
Common Stock of Golden Books Family Entertainment, Inc., through (i) the
exchange of Preferred Securities for a portion of the Debentures and (ii) the
immediate conversion of such Debentures into Common Stock of Golden Books
Family Entertainment, Inc., in the manner and according to the terms set forth
in the Declaration.
A1-5
<PAGE>
CONVERSION REQUEST
To: The Bank of New York,
as Property Trustee of
Golden Books Financing Trust
The undersigned owner of these Preferred Securities hereby
irrevocably exercises the option to convert these Preferred Securities, or the
portion below designated, into Common Stock of GOLDEN BOOKS FAMILY
ENTERTAINMENT, INC. (the "Golden Books Common Stock") in accordance with the
terms of the Amended and Restated Declaration of Trust (the "Declaration"),
dated as of August 20, 1996, by Willa M. Perlman and Philip E. Rowley, as
Regular Trustees, The Bank of New York (Delaware), as Delaware Trustee, The
Bank of New York, as Property Trustee, Golden Books Family Entertainment, Inc.,
as Sponsor, and by the Holders, from time to time, of individual beneficial
interests in the Trust to be issued pursuant to the Declaration. Pursuant to
the aforementioned exercise of the option to convert these Preferred
Securities, the undersigned hereby directs the Conversion Agent (as that term
is defined in the Declaration) to (i) exchange such Preferred Securities for a
portion of the Debentures (as that term is defined in the Declaration) held by
the Trust (at the rate of exchange specified in the terms of the Preferred
Securities set forth as Annex I to the Declaration) and (ii) immediately
convert such Debentures, on behalf of the undersigned, into Golden Books Common
Stock (at the conversion rate specified in the terms of the Preferred
Securities set forth as Annex I to the Declaration).
The undersigned does also hereby direct the Conversion Agent
that the shares issuable and deliverable upon conversion, together with any
check in payment for fractional shares, be issued in the name of and delivered
to the undersigned, unless a different name has been indicated in the
assignment below. If shares are to be issued in the name of a person other than
the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto.
A1-6
<PAGE>
Any holder, upon the exercise of its conversion rights in
accordance with the terms of the Declaration and the Preferred Securities,
agrees to be bound by the terms of the Registration Rights Agreement relating
to the Golden Books Common Stock issuable upon conversion of the Preferred
Securities.
Date: ____________, ____
in whole __ in part __
Number of Preferred Securities to be
converted:
--------------------------
If a name or names other than the
undersigned, please indicate in the
spaces below the name or names in
which the shares of Golden Books
Common Stock are to be issued, along
with the address or addresses of such
person or persons:
-------------------------------
-------------------------------
-------------------------------
-------------------------------
-------------------------------
-------------------------------
Signature (for conversion only)
Please Print orTypewrite Name
and Address, Including Zip
Code, and Social Security or Other
Identifying Number:
-------------------------------
-------------------------------
-------------------------------
Signature Guarantee :*
-------
- --------
* (Signature must be guaranteed by an "eligible guarantor institution" that
is, a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Registrar, which requirements include
membership or participation in the Securities Transfer Agents Medallion
Program ("STAMP") or such
(footnote continued on the next page)
A1-7
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred
Security Certificate to:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
agent to transfer this Preferred Security Certificate on the books of the
Trust. The agent may substitute another to act for him or her.
Date: _______________________
Signature: __________________
(Sign exactly as your name appears on the other side of this Preferred Security
Certificate)
Signature Guarantee: *
- -------------------------------------------------------------------------------
other "signature guarantee program" as may be determined by the Registrar
in addition to, or in substitution for, STAMP, all in accordance with the
Securities Exchange Act of 1934, as amended.)
* (Signature must be guaranteed by an "eligible guarantor institution" that
is, a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Registrar, which requirements include
membership or participation in the Securities Transfer Agents Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.)
A1-8
<PAGE>
EXHIBIT A-2
FORM OF COMMON SECURITY
[FORM OF FACE OF SECURITY]
THIS COMMON SECURITY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE OFFERED, SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EXEMPTION FROM REGISTRATION OR AN
EFFECTIVE REGISTRATION STATEMENT.
OTHER THAN AS PROVIDED IN THE DECLARATION (AS DEFINED
HEREIN), THIS SECURITY MAY NOT BE OFFERED, SOLD, PLEDGED OR OTHERWISE
TRANSFERRED EXCEPT TO A RELATED PARTY (AS DEFINED IN THE DECLARATION) OF GOLDEN
BOOKS FAMILY ENTERTAINMENT, INC.
Certificate Number Number of Common Securities
Common Securities
of
Golden Books Financing Trust
8 3/4% Convertible Common Securities
(liquidation amount $50 per Convertible Common Security)
Golden Books Financing Trust, a statutory business trust formed under the
laws of the State of Delaware (the "Trust"), hereby certifies that
- ------------------------------------------------------------------------------
(the "Holder") is the registered owner of common securities of the Trust
representing undivided beneficial interests in the assets of the Trust
designated the 8 3/4% Convertible Common Securities (liquidation amount $50 per
Convertible Common Security) (the "Common Securities"). The Common Securities
are transferable on the books and records of the Trust, in person or by a duly
authorized attorney, upon surrender of this certificate duly endorsed and in
proper form for transfer. The designation, rights, privileges, restrictions,
preferences and other terms and provisions of the Common Securities represented
hereby are issued and shall in all respects be subject to the provisions of the
Amended and Restated Declaration of Trust of the Trust dated as of August 20,
1996, as the same may be amended from time to time (the "Declaration"),
including the designation of the terms of the Common Securities as set forth in
Annex I to the Declaration. Capitalized terms
A2-1
<PAGE>
used herein but not defined shall have the meaning given them in the
Declaration. The Holder is entitled to the benefits of the Common Securities
Guarantee to the extent provided therein. The Sponsor will provide a copy of
the Declaration, the Common Securities Guarantee and the Indenture to a Holder
without charge upon written request to the Sponsor at its principal place of
business.
Reference is hereby made to select provisions of the Common
Securities set forth on the reverse hereof, which select provisions shall for
all purposes have the same effect as if set forth at this place.
Upon receipt of this certificate, the Sponsor is bound by the
Declaration and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat for United States
federal income tax purposes the Debentures as indebtedness and the Common
Securities as evidence of indirect beneficial ownership in the Debentures.
A2-2
<PAGE>
IN WITNESS WHEREOF, the Trust has executed this certificate
this ____day of August, 1996.
GOLDEN BOOKS FINANCING TRUST
By: ________________________________
Name:
Title: Regular Trustee
A2-3
<PAGE>
[FORM OF REVERSE OF SECURITY]
Distributions payable on each Common Security will be fixed
at a rate per annum of 8 3/4% (the "Coupon Rate") of the stated liquidation
amount of $50 per Common Security, such rate being the rate of interest payable
on the Debentures to be held by the Property Trustee. Distributions in arrears
for more than one quarter will bear interest thereon compounded quarterly at
the Coupon Rate (to the extent permitted by applicable law). The term
"Distributions" as used herein includes such cash distributions and any such
interest payable unless otherwise stated. A Distribution is payable only to the
extent that payments are made in respect of the Debentures held by the Property
Trustee and to the extent the Property Trustee has funds available therefor.
The amount of Distributions payable for any period will be computed for any
full quarterly Distribution period on the basis of a 360-day year of twelve
30-day months, and for any period shorter than a full quarterly Distribution
period for which Distributions are computed, Distributions will be computed on
the basis of the actual number of days elapsed per 30-day month.
Except as otherwise described below, distributions on the
Common Securities will be cumulative, will accrue from the date of original
issuance and will be payable quarterly in arrears, on February 20, May 20,
August 20 and November 20 of each year, commencing on November 20, 1996, which
payment dates shall correspond to the interest payment dates on the Debentures,
to Holders of record on the day immediately preceding such Interest Payment
Date; provided, however, that, if any Preferred Securities are held in
certificated form, the relevant record date for each payment date shall be 15
days prior to such payment date. The Debenture Issuers have the right under the
Indenture to defer payments of interest by extending the interest payment
period from time to time on the Debentures for successive periods not exceeding
20 consecutive quarters (each an "Extension Period") during which Extension
Period no interest shall be due and payable on the Debentures; provided, that
no Extension Period shall last beyond the date of maturity of the Debentures.
As a consequence of such extension, Distributions will also be deferred.
Despite such extension, quarterly Distributions will continue to accrue with
interest thereon (to the extent permitted by applicable law) at the Coupon Rate
compounded quarterly during any such Extension Period. Prior to the termination
of any such Extension Period, the Debenture Issuers may further extend such
Extension Period; provided, that such Extension Period together with all such
previous and further extensions thereof may not exceed 20 consecutive quarters.
Payments of accrued Distributions will be payable to Holders as they appear on
the books and records of the Trust on the first record date after the end of
the Extension Period. Upon the termination of any Extension Period and the
payment of all amounts then due, the Debenture Issuers may commence a new
Extension Period, subject to the above requirements.
The Common Securities shall be redeemable as provided in the
Declaration.
The Common Securities shall be convertible into shares of
Common Stock of Golden Books Family Entertainment, Inc., through (i) the
exchange of Common Securities for a portion of the Debentures and (ii) the
immediate conversion of such Debentures into Common Stock of Golden Books
Family Entertainment, Inc., in the manner and according to the terms set forth
in the Declaration.
A2-4
<PAGE>
CONVERSION REQUEST
To: The Bank of New York,
as Property Trustee of
Golden Books Financing Trust
The undersigned owner of these Common Securities hereby
irrevocably exercises the option to convert these Common Securities, or the
portion below designated, into Common Stock of GOLDEN BOOKS FAMILY
ENTERTAINMENT, INC. (the "Golden Books Common Stock") in accordance with the
terms of the Amended and Restated Declaration of Trust (the "Declaration"),
dated as of August 20, 1996, by Philip E. Rowley and Willa M. Perlman, as
Regular Trustees, The Bank of New York (Delaware), as Delaware Trustee, The
Bank of New York, as Property Trustee, Golden Books Family Entertainment, Inc.,
as Sponsor, and by the Holders, from time to time, of individual beneficial
interests in the Trust to be issued pursuant to the Declaration. Pursuant to
the aforementioned exercise of the option to convert these Common Securities,
the undersigned hereby directs the Conversion Agent (as that term is defined in
the Declaration) to (i) exchange such Common Securities for a portion of the
Debentures (as that term is defined in the Declaration) held by the Trust (at
the rate of exchange specified in the terms of the Common Securities set forth
as Annex I to the Declaration) and (ii) immediately convert such Debentures on
behalf of the undersigned, into Golden Books Common Stock (at the conversion
rate specified in the terms of the Common Securities set forth as Annex I to
the Declaration).
The undersigned does also hereby direct the Conversion Agent
that the shares issuable and deliverable upon conversion, together with any
check in payment for fractional shares, be issued in the name of and delivered
to the undersigned, unless a different name has been indicated in the
assignment below.
A2-5
<PAGE>
If shares are to be issued in the name of a person other than
the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto.
Date: ____________, ____
in whole __ in part __
Number of Preferred Securities to be
converted:___________________________
If a name or names other than the
undersigned, please indicate in the
spaces below the name or names in
which the shares of Golden Books
Common Stock are to be issued, along
with the address or addresses of such
person or persons:
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
Signature (for conversion only)
Please Print or Typewrite Name and
Address, Including Zip Code, and Social
Security or Other Identifying Number:
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
Signature Guarantee : **
-----------------------------------------------
- -----------------------------
** (Signature must be guaranteed by an "eligible guarantor institution" that
is, a bank, stockbroker, savings and loan association or credit union
meeting the requirements of the Registrar, which requirements include
membership or participation in the Securities Transfer Agents Medallion
Program ("STAMP") or such other "signature guarantee program" as may be
determined by the Registrar in addition to, or in substitution for, STAMP,
all in accordance with the Securities Exchange Act of 1934, as amended.)
A2-6
<PAGE>
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security
Certificate to:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Insert assignee's social security or tax identification number)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Insert address and zip code of assignee)
and irrevocably appoints
-------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
agent to transfer this Common Security Certificate on the books of the Trust.
The agent may substitute another to act for him or her.
Date: _______________________
Signature: __________________
(Sign exactly as your name appears on the other side of this Preferred Security
Certificate) Signature Guarantee** :
Signature Guarantee : **
------------------------------------------------------
- --------
* (Signature must be guaranteed by an "eligible guarantor institution"
that is, a bank, stockbroker, savings and loan association or credit
union meeting the requirements of the Registrar, which requirements
include membership or participation in the Securities Transfer Agents
Medallion Program ("STAMP") or such other "signature guarantee
program" as may be determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Securities
Exchange Act of 1934, as amended.)
** (Signature must be guaranteed by an "eligible guarantor institution"
that is, a bank, stockbroker, savings and loan association or credit
union meeting the requirements of the Registrar, which requirements
include membership or participation in the Securities Transfer Agents
Medallion Program ("STAMP") or such other "signature guarantee
program" as may be determined by the Registrar in addition to, or in
substitution for, STAMP, all in accordance with the Securities
Exchange Act of 1934, as amended.)
A2-7
<PAGE>
EXHIBIT D
FORM OF TRANSFEROR CERTIFICATE FOR TRANSFER DURING THE
EFFECTIVENESS OF A SHELF REGISTRATION STATEMENT
THE BANK OF NEW YORK, AS PROPERTY TRUSTEE
101 BARCLAY STREET
NEW YORK, NEW YORK 10286
Re: GOLDEN BOOKS FINANCING TRUST
Reference is hereby made to the Amended and Restated Declaration of Trust
dated as of August 20, 1996 (the "Declaration"), by Willa M. Perlman and
Philip E. Rowley, as Regular Trustees, The Bank of New York (Delaware), as
Delaware Trustee, The Bank of New York, as Property Trustee and Golden Books
Family Entertainment, Inc. as Sponsor. Capitalized terms used but not defined
herein shall have the meanings given them in the Declaration.
This letter relates to Preferred Securities which are held
in the form of [THE RULE 144A GLOBAL PREFERRED SECURITY WITH THE DEPOSITARY
(CUSIP NO. )][A RESTRICTED DEFINITIVE PREFERRED SECURITY (CUSIP NO. )] in the
name of [NAME OF TRANSFEROR] (the "Transferor") to effect the transfer of such
Preferred Securities in exchange for an equivalent beneficial interest in the
Exchanged Global Preferred Security.
In connection with such request, and in respect of such
Preferred Securities, the Transferor does hereby certify that (i) such
Preferred Securities are being transferred in accordance with and pursuant to
an effective registration statement under the Securities Act of 1933, as
amended (the "Act"), and in accordance with any applicable securities laws of
any state of the United States and (ii) the Transferor has complied with its
obligations to provide information to the Issuer, as required by the
Registration Rights Agreement, and with its obligations, if any, under the Act
with regard to the delivery of a prospectus.
[NAME OF TRANSFEROR]
By:
------------------------------
Name:
Title:
Dated: ________________
cc: Chief Financial Officer,
Golden Books Family Entertainment, Inc.
67
<PAGE>
- -----------------------------------------------------------------------------
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
AND
GOLDEN BOOKS PUBLISHING COMPANY, INC.
TOGETHER, AS ISSUER
TO
THE BANK OF NEW YORK
AS TRUSTEE
----------------
INDENTURE
DATED AS OF AUGUST 20, 1996
----------------
$103,092,800
(SUBJECT TO INCREASE TO UP TO $118,556,750 IN
THE EVENT AN OVER-ALLOTMENT OPTION IS EXERCISED)
8 3/4% CONVERTIBLE DEBENTURES DUE 2016
- --------------------------------------------------------------------------------
<PAGE>
Golden Books Family Entertainment, Inc.
and Golden Books Publishing Company
Certain Sections of this Indenture relating to
Sections 310 through 318 of the
Trust Indenture Act of 1939:
Trust Indenture Indenture
Act Section Section
ss. 310(a)(1)............................................... 609
(a)(2)............................................... 609
(a)(3)............................................... Not Applicable
(a)(4)............................................... Not Applicable
(b).................................................. 608, 610
ss. 311(a).................................................. 613
(b).................................................. 613
ss. 312(a).................................................. 701
702(a)
(b).................................................. 702(b)
(c).................................................. 702(c)
ss. 313(a).................................................. 703(a)
(a)(4)............................................... 101
(b).................................................. 703(a)
(c).................................................. 703(a)
(d).................................................. 703(b)
ss. 314(a).................................................. 704
(b).................................................. Not Applicable
(c)(1)............................................... 102
(c)(2)............................................... 102
(c)(3)............................................... Not Applicable
(d).................................................. Not Applicable
(e).................................................. 102
ss. 315(a).................................................. 601
(b).................................................. 602
(c).................................................. 601
(d).................................................. 601
(e).................................................. 514
ss. 316(a).................................................. 101
(a)(1)(A)............................................ 502
512
(a)(1)(B)............................................ 513
(a)(2)............................................... Not Applicable
(b).................................................. 508
(c).................................................. 104(c)
<PAGE>
ss. 317(a)(1)............................................... 503
(a)(2)............................................... 504
(b).................................................. 1003
ss. 318(a).................................................. 107
- --------------
Note: This reconciliation and tie shall not, for any purpose, be
deemed to be a part of the Indenture.
(ii)
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
RECITALS OF THE COMPANY ............................................................................... 1
ARTICLE ONE
Definitions and Other Provisions of General Application
SECTION 1.01 Definitions.................................................................... 2
SECTION 1.02. Compliance Certificates and Opinions........................................... 9
SECTION 1.03. Form of Documents Delivered to Trustee......................................... 9
SECTION 1.04. Acts of Holders; Record Dates.................................................. 10
SECTION 1.05. Notices, Etc., to Trustee and the Company...................................... 11
SECTION 1.06. Notice to Holders; Waiver...................................................... 11
SECTION 1.07. Conflict with Trust Indenture Act.............................................. 12
SECTION 1.08. Effect of Headings and Table of Contents....................................... 12
SECTION 1.09. Successors and Assigns......................................................... 12
SECTION 1.10. Separability Clause............................................................ 12
SECTION 1.11. Benefits of Indenture.......................................................... 12
SECTION 1.12. Governing Law.................................................................. 12
SECTION 1.13. Legal Holidays................................................................. 13
ARTICLE TWO
Security Forms
SECTION 2.01. Forms Generally................................................................ 13
SECTION 2.02. Initial Issuance to Property Trustee........................................... 13
ARTICLE THREE
The Securities
SECTION 3.01. Title and Terms................................................................ 15
SECTION 3.02. Denominations.................................................................. 16
SECTION 3.03. Execution, Authentication, Delivery and Dating................................. 16
SECTION 3.04. Temporary Securities........................................................... 17
SECTION 3.05. Registration, Registration of Transfer and Exchange............................ 17
SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Securities............................... 19
SECTION 3.07. Payment of Interest; Interest Rights Preserved................................. 19
SECTION 3.08. Persons Deemed Owners.......................................................... 21
SECTION 3.09. Cancellation................................................................... 21
SECTION 3.10. Right of Set Off............................................................... 21
SECTION 3.11. CUSIP Numbers.................................................................. 21
SECTION 3.12. Option to Extend Interest Payment Period....................................... 22
SECTION 3.13. Paying Agent, Security Registrar and Conversion Agent.......................... 23
SECTION 3.14. Global Security................................................................ 23
</TABLE>
(iii)
<PAGE>
<TABLE>
<CAPTION>
ARTICLE FOUR
Satisfaction and Discharge
<S> <C> <C>
SECTION 4.01. Satisfaction and Discharge of Indenture........................................ 25
SECTION 4.02. Application of Trust Money..................................................... 25
ARTICLE FIVE
Remedies
SECTION 5.01. Events of Default.............................................................. 26
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment............................. 27
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by Trustee................ 28
SECTION 5.04. Trustee May File Proofs of Claim............................................... 29
SECTION 5.05. Trustee May Enforce Claims Without Possession of Securities.................... 29
SECTION 5.06. Application of Money Collected................................................. 29
SECTION 5.07. Limitation on Suits............................................................ 30
SECTION 5.08. Unconditional Right of Holders to Receive Principal and Interest and
Convert........................................................................ 30
SECTION 5.09. Restoration of Rights and Remedies............................................. 30
SECTION 5.10. Rights and Remedies Cumulative................................................. 31
SECTION 5.11. Delay or Omission Not Waiver................................................... 31
SECTION 5.12. Control by Holders............................................................. 31
SECTION 5.13. Waiver of Past Defaults........................................................ 31
SECTION 5.14. Undertaking for Costs.......................................................... 32
SECTION 5.15. Waiver of Stay or Extension Laws............................................... 32
SECTION 5.16. Enforcement by Holders of Preferred Securities................................. 32
ARTICLE SIX
The Trustee
SECTION 6.01. Certain Duties and Responsibilities............................................ 33
SECTION 6.02. Notice of Defaults............................................................. 33
SECTION 6.03. Certain Rights of Trustee...................................................... 33
SECTION 6.04. Not Responsible for Recitals or Issuance of Securities......................... 34
SECTION 6.05. May Hold Securities............................................................ 34
SECTION 6.06. Money Held in Trust............................................................ 35
SECTION 6.07. Compensation and Reimbursement................................................. 35
SECTION 6.08. Disqualification; Conflicting Interests........................................ 35
SECTION 6.09. Corporate Trustee Required; Eligibility........................................ 36
SECTION 6.10. Resignation and Removal; Appointment of Successor.............................. 36
SECTION 6.11. Acceptance of Appointment by Successor......................................... 37
SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business.................... 37
</TABLE>
(iv)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 6.13. Preferential Collection of Claims Against Obligors............................. 38
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Obligors
SECTION 7.01. Obligors to Furnish Trustee Names and Addresses of Holders..................... 38
SECTION 7.02. Preservation of Information; Communications to Holders......................... 38
SECTION 7.03. Reports by Trustee............................................................. 39
SECTION 7.04. Reports by Obligors............................................................ 39
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 8.01. Obligors May Consolidate, Etc., Only on Certain Terms.......................... 40
SECTION 8.02. Successor Substituted.......................................................... 41
ARTICLE NINE
Supplemental Indentures
SECTION 9.01. Supplemental Indentures Without Consent of Holders............................. 41
SECTION 9.02. Supplemental Indentures with Consent of Holders................................ 42
SECTION 9.03. Execution of Supplemental Indentures........................................... 43
SECTION 9.04. Effect of Supplemental Indentures.............................................. 43
SECTION 9.05. Conformity with Trust Indenture Act............................................ 43
SECTION 9.06. Reference in Securities to Supplemental Indentures............................. 43
ARTICLE TEN
Covenants; Representations and Warranties
SECTION 10.01. Payment of Principal and Interest.............................................. 44
SECTION 10.02. Maintenance of Office or Agency................................................ 44
SECTION 10.03. Money for Security Payments to Be Held in Trust................................ 44
SECTION 10.04. Statement by Officers as to Default............................................ 45
SECTION 10.05. Limitation on Dividends; Transactions with Affiliates; Covenants as
to the Trust................................................................... 45
SECTION 10.06. Payment of Expenses of the Trust............................................... 46
SECTION 10.07. Registration Rights............................................................ 47
ARTICLE ELEVEN
Redemption of Securities
SECTION 11.01. Right of Redemption............................................................ 48
SECTION 11.02. Applicability of Article....................................................... 48
SECTION 11.03. Election to Redeem; Notice to Trustee.......................................... 48
SECTION 11.04. Selection by Trustee of Securities to Be Redeemed.............................. 49
</TABLE>
(v)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
SECTION 11.05. Notice of Redemption........................................................... 49
SECTION 11.06. Deposit of Redemption Price.................................................... 50
SECTION 11.07. Securities Payable on Redemption Date.......................................... 50
SECTION 11.08. Securities Redeemed in Part.................................................... 50
SECTION 11.09. Optional Redemption............................................................ 51
SECTION 11.10. Tax Event Redemption........................................................... 51
SECTION 11.11. No Sinking Fund................................................................ 52
ARTICLE TWELVE
Conversion of Securities
SECTION 12.01. Conversion Rights.............................................................. 52
SECTION 12.02. Conversion Procedures.......................................................... 53
SECTION 12.03. Conversion Price Adjustments................................................... 55
SECTION 12.04. Fundamental Change............................................................. 59
SECTION 12.05. Notice of Adjustments of Conversion Price...................................... 61
SECTION 12.06. Prior Notice of Certain Events................................................. 61
SECTION 12.07. Certain Defined Terms.......................................................... 62
SECTION 12.08. Dividend or Interest Reinvestment Plans........................................ 64
SECTION 12.09. Certain Additional Rights...................................................... 64
SECTION 12.10. Restrictions on Common Stock Issuable Upon Conversion.......................... 65
SECTION 12.11. Trustee Not Responsible for Determining Conversion Price or
Adjustments.................................................................... 65
ARTICLE THIRTEEN
Miscellaneous
SECTION 13.01. No Recourse; Immunity of Incorporators, Stockholders, Officers and
Directors...................................................................... 65
EXHIBIT A FORM OF SECURITY............................................................... 70
ANNEX A Form of Amended and Restated Declaration of Trust
among the Company, as Sponsor, The Bank of New
York, as Property Trustee, The Bank of New York
(Delaware), and Willa M. Perlman and Philip E.
Rowley as trustees, dated as of August 20, 1996.
- --------------
Note: This table of contents shall not, for any purpose, be deemed
to be a part of the Indenture.
</TABLE>
(vi)
<PAGE>
INDENTURE, dated as of August 20, 1996, between Golden Books
Family Entertainment, Inc., a corporation duly organized and existing under
the laws of the State of Delaware (herein called the "Company"), having its
principal office at 850 Third Avenue, New York, New York 10022, Golden Books
Publishing Company, Inc., a corporation duly organized and existing under the
laws of the State of Delaware (herein called "Golden Books Publishing" and,
together with the Company, the "Obligors"), having its principal executive
offices at 850 Third Avenue, New York, New York 10022, and Willa M. Perlman
and Philip E. Rowley, as Trustees (together, herein called the "Trustee").
RECITALS OF THE COMPANYRECITALS OF THE COMPANY
WHEREAS, Golden Books Financing Trust, a Delaware business
trust (the "Trust"), formed under the Amended and Restated Declaration of
Trust among Golden Books Publishing, as Sponsor, The Bank of New York, as
property trustee (the "Property Trustee"), and The Bank of New York (Delaware)
(the "Delaware Trustee") and the Trustee, dated as of August 20, 1996 (the
"Declaration"), pursuant to the Purchase Agreement (the "Purchase Agreement"),
dated August 14, 1996, among the Company, Golden Books Publishing, the Trust
and the Initial Purchasers named therein, will issue and sell up to 2,000,000
(or 2,300,000 if the over-allotment option is exercised) of its 8 3/4%
Convertible Preferred Securities (the "Preferred Securities") with a
liquidation amount of $50 per Preferred Security having an aggregate
liquidation amount with respect to the assets of the Trust of $100,000,000 (or
$115,000,000 if the over-allotment option is exercised);
WHEREAS, the Trustee of the Trust, on behalf of the Trust,
will execute and deliver to the Company or one of Company's subsidiaries
Common Securities evidencing an ownership interest in the Trust, registered in
the name of the Company or one of Company's subsidiaries, in an aggregate
amount equal to three percent of the capitalization of the Trust, equivalent
to 61,856 Common Securities (or 71,135 Common Securities if the over-allotment
option is exercised), with a liquidation amount of $50 per Common Security,
having an aggregate liquidation amount with respect to the assets of the Trust
of $3,092,800 (or $3,556,750 if the over-allotment option is exercised) (the
"Common Securities");
WHEREAS, the Trust will use the proceeds from the sale of
the Preferred Securities and the Common Securities to purchase from the
Obligors Securities (as defined below) in an aggregate principal amount of
$103,092,800 (or $118,556,750 if the over-allotment option is exercised);
WHEREAS, the Company is guaranteeing the payment of
distributions on the Preferred Securities, and payment of the Redemption Price
and payments on liquidation with respect to the Preferred Securities, to the
extent provided in the Preferred Securities Guarantee Agreement (the
"Guarantee") between the Company and The Bank of New York, as guarantee
trustee, for the benefit of the holders of the Preferred Securities from time
to time;
WHEREAS, the Obligors have duly authorized the creation of
an issue of 8 3/4% Convertible Debentures Due 2016 (the "Securities"), of
substantially the tenor and amount
<PAGE>
hereinafter set forth and to provide therefor the Obligors have duly authorized
the execution and delivery of this Indenture; and
WHEREAS, so long as the Trust is a Holder of Securities, and
any Preferred Securities are outstanding, the Declaration provides that the
holders of Preferred Securities may cause the Conversion Agent to (a) exchange
such Preferred Securities for Securities held by the Trust and (b) immediately
convert such Securities into Common Stock;
WHEREAS, all things necessary to make the Securities, when
executed by the Obligors and authenticated and delivered hereunder and duly
issued by the Obligors, the valid obligations of the Obligors, and to make
this Indenture a valid agreement of the Obligors, in accordance with their and
its terms, have been done.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of
the Securities by the Holders thereof, it is mutually agreed, for the equal
and proportionate benefit of all Holders of the Securities, as follows:
ARTICLE ONE
Definitions and Other Provisions
of General Application
SECTION 1.01 Definitions
For all purposes of this Indenture, except as otherwise
expressly provided or unless the context otherwise requires:
(1) the terms defined in this Article have the meanings
assigned to them in this Article and include the plural as well as
the singular;
(2) all other terms used herein which are defined in the
Trust Indenture Act, either directly or by reference therein, have
the meanings assigned to them therein;
(3) all accounting terms not otherwise defined herein have
the meanings assigned to them in accordance with generally accepted
accounting principles; and
(4) except as otherwise indicated, the words "herein,"
"hereof" and "hereunder" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section
or other subdivision.
"Act," when used with respect to any Holder, has the meaning
specified in Section 104(a).
"Additional Interest" has the meaning specified in
Section 301.
2
<PAGE>
"Additional Payments" means Compounded Interest and
Additional Interest, if any.
"Affiliate" of any specified Person means any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person. For the purposes of this
definition, "control" when used with respect to any specified Person means the
power to direct the management and policies of such Person, directly or
indirectly, whether through the ownership of voting securities, by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Agent" means any Registrar, Paying Agent, Conversion Agent
or co-registrar.
"Board of Directors" means, as applicable, either the board
of directors of the Company or Golden Books Publishing or any duly authorized
committee of either such board.
"Board Resolution" means a copy of a resolution certified by
the Secretary or an Assistant Secretary of the Company or Golden Books
Publishing to have been duly adopted by the applicable Board of Directors and
to be in full force and effect on the date of such certification, and
delivered to the Trustee.
"Business Day" means any day on which banking institutions
in The City of New York or in Wilmington, Delaware are authorized or required
by law to close.
"Closing Price" has the meaning specified in Clause (2) of
Section 1207.
"Commission" means the Securities and Exchange Commission,
as from time to time constituted, created under the Exchange Act, or, if at
any time after the execution of this instrument such Commission is not
existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such time.
"Common Securities" has the meaning specified in the recitals
to this Instrument.
"Common Securities Guarantee" means any guarantee that the
Company may enter into that operates, directly or indirectly, for the benefit
of holders of Common Securities of the Trust.
"Common Stock" includes any stock of any class of the
Company which has no preference in respect of dividends or of amounts payable
in the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company and which is not subject to redemption by the
Company pursuant to its terms. However, subject to the provisions of Article
Thirteen, shares issuable on conversion of Securities shall include only
shares of the class designated as Common Stock of the Company at the date of
this instrument or shares of any class or classes resulting from any
reclassification or reclassifications thereof and which have no preference in
respect of dividends or of amounts payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company and which
are not subject to redemption by the Company pursuant to their terms;
provided, that if at any time there shall be more than one such resulting
class, the shares of each such class then so issuable on conversion
3
<PAGE>
shall be substantially in the proportion which the total number of shares of
such class resulting from all such reclassifications bears to the total number
of shares of all such classes resulting from all such reclassifications.
"Company" means the Person named as the "Company" in the
first paragraph of this instrument until a successor Person shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Compounded Interest" has the meaning specified in Section
312(a).
"Conversion Agent" means the Person appointed to act on
behalf of the holders of Preferred Securities in effecting the conversion of
Preferred Securities as and in the manner set forth in the Declaration and
Section 1202 hereof.
"Conversion Date" has the meaning specified in Section
1202(a).
"Corporate Trust Office" means the principal office of the
Trustee in New York, New York, at which at any particular time its corporate
trust business shall be administered and which at the date of this Indenture
is 101 Barclay Street, 21st Floor, New York, New York 10286.
"Declaration" has the meaning specified in the Recitals of
this instrument.
"Defaulted Interest" has the meaning specified in Section
307.
"Delaware Trustee" has the meaning given it in the Recitals
of this instrument.
"Depositary" means, with respect to any Securities issued in
the form of one or more Global Security, a clearing agency registered under
the Exchange Act that is dedicated to act as Depositary for the Securities.
"Direct Action" means a proceeding directly instituted by a
holder of Preferred Securities for enforcement of payment to such holder of
the principal of or interest on the Securities having a principal amount equal
to the aggregate liquidation amount of the Preferred Securities of such holder
on or after the respective due date specified in the Securities, if a
Declaration Event of Default has occurred and is continuing and such event is
attributable to the failure of the Company to pay interest or principal on the
Securities on the date such interest or principal is otherwise payable (or in
the case of redemption, on the redemption date.)
"Dissolution Event" means that, as a result of the
occurrence and continuation of a Special Event, the Trust is to be dissolved
in accordance with the Declaration and the Securities held by the Property
Trustee are to be distributed to the holders of Trust Securities issued by the
Trust pro rata in accordance with the Declaration.
"Dissolution Tax Opinion" has the meaning specified in the
Declaration.
"Effectiveness Period" has the meaning specified in Section
1007.
4
<PAGE>
"Event of Default" has the meaning specified in Section 501.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, or any successor legislation.
"Expiration Time" has the meaning specified in Section
1203(e).
"Extension Period" has the meaning specified in Section 312.
"Global Security" has the meaning specified in Section
314(a)(i).
"Guarantee" has the meaning specified in the Recitals to this
instrument.
"Holder" means a Person in whose name a Security is
registered in the Security Register.
"Indenture" means this instrument as originally executed or
as it may from time to time be supplemented or amended by one or more
indentures supplemental hereto entered into pursuant to the applicable
provisions hereof, including, for all purposes of this instrument and any such
supplemental indenture, the provisions of the Trust Indenture Act that are
deemed to be a part of and govern this instrument and any such supplemental
indenture, respectively.
"Initial Purchasers," with respect to the Preferred
Securities, means Merrill Lynch & Co., Merrill Lynch Pierce Fenner & Smith
Incorporated, Donaldson Lufkin & Jenrette Securities Corporation, and SBC
Warburg, Inc., a subsidiary of Swiss Bank Corporation.
"Interest Payment Date" has the meaning specified in Section
301.
"Investment Company Event" has the meaning specified in the
Declaration.
"Liquidated Damages" has the meaning specified in Section
1007.
"Maturity," when used with respect to any Security, means
the date on which the principal of such Security becomes due and payable as
therein or herein provided, whether at the Stated Maturity or by declaration
of acceleration, call for redemption or otherwise.
"Ministerial Action" has the meaning specified in Section
1110(b).
"90-Day Period" has the meaning specified in Section 1110(b).
"No Recognition Opinion" has the meaning specified in the
Declaration.
"Non Book-Entry Preferred Securities" has the meaning
specified in Section 314(a)(ii).
"Notice of Conversion" means the notice to be given by a
holder of Preferred Securities to the Conversion Agent directing the
Conversion Agent to exchange such Preferred
5
<PAGE>
Securities for Securities and to convert such Securities into Common Stock on
behalf of such holder.
"Obligors" has the meaning specified in the Recitals of this
Instrument.
"Obligor's Request" or "Obligor's Order" means a written
request or order delivered to the Trustee and signed in the name of either (i)
the Company by its Chairman of the Board, its Vice Chairman of the Board, its
President or a Vice President, and by its Treasurer, an Assistant Treasurer,
its Secretary or an Assistant Secretary, and delivered to the Trustee, or (ii)
Golden Books Publishing by its Chairman of the Board, its Vice Chairman of the
Board, its President or a Vice President, and by its Treasurer, an Assistant
Treasurer, its Secretary or an Assistant Secretary.
"Officers' Certificate" means a certificate signed by the
Chairman of the Board, the Vice Chairman of the Board, the President or a Vice
President, and by the Treasurer, an Assistant Treasurer, the Secretary or an
Assistant Secretary, of either Obligor, and delivered to the Trustee. One of
the officers signing an Officers' Certificate given pursuant to Section 1004
shall be the principal executive, financial or accounting officer of the
Company or Golden Books Publishing.
"Opinion of Counsel" means a written opinion of counsel, who
may be "in-house" counsel for the Company or Golden Books Publishing, and who
shall be reasonably acceptable to the Trustee.
"Outstanding," when used with respect to Securities, means,
as of the date of determination, all Securities theretofore authenticated and
delivered under this Indenture, except: (i) Securities theretofore cancelled
by the Trustee or delivered to the Trustee for cancellation; (ii) Securities
for whose payment or redemption money in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent (other than the
Obligors) in trust or set aside and segregated in trust by the Obligors (if
the Obligors shall act as Paying Agent on their own behalf) for the Holders of
such Securities; provided, that if such Securities are to be redeemed, notice
of such redemption has been duly given pursuant to this Indenture or provision
therefor satisfactory to the Trustee has been made; and (iii) Securities that
have been paid pursuant to Section 306, converted into Common Stock pursuant
to Section 1201, or in exchange for or in lieu of which other Securities have
been authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to the
Trustee proof satisfactory to it that such Securities are held by a bona fide
purchaser in whose hands such Securities are valid obligations of the
Obligors; provided, however, that, in determining whether the Holders of the
requisite principal amount of the Outstanding Securities have given any
request, demand, authorization, direction, notice, consent or waiver
hereunder, Securities owned by the Obligors or any other obligor upon the
Securities or any Affiliate of the Obligors controlled by an Obligor shall be
disregarded and deemed not to be outstanding, except that, in determining
whether the Trustee shall be protected in relying upon any such request,
demand, authorization, direction, notice, consent or waiver, only Securities
which the Trustee knows to be so owned shall be so disregarded. Securities so
owned which have been pledged in good faith may be regarded as Outstanding if
the pledgee establishes to the satisfaction of the Trustee the pledgee's right
so to act
6
<PAGE>
with respect to such Securities and that the pledgee is not the
Obligors or any other obligor upon the Securities or any Affiliate of the
Obligors controlled by an Obligor.
"Paying Agent" means any Person authorized by the Obligors
to pay the principal of or interest on any Securities on behalf of the
Obligors.
"Person" means any individual, corporation, company,
partnership, joint venture, trust, unincorporated organization or government
or any agency or political subdivision thereof.
"Predecessor Security" of any particular Security means
every previous Security evidencing all or a portion of the same debt as that
evidenced by such particular Security; and, for the purposes of this
definition, any Security authenticated and delivered under Section 306 in
exchange for or in lieu of a mutilated, destroyed, lost or stolen Security
shall be deemed to evidence the same debt as the mutilated, destroyed, lost or
stolen Security.
"Preferred Securities" has the meaning specified in the
Recitals to this instrument.
"Property Trustee" has the meaning specified in the Recitals
of this instrument.
"Purchase Agreement" has the meaning specified in the
Recitals to this instrument.
"Purchased Shares" has the meaning specified in Section
1203(e).
"Redemption Date," when used with respect to any Security to
be redeemed, means the date fixed for such redemption by or pursuant to this
Indenture.
"Redemption Price," when used with respect to any Security
to be redeemed, means the price at which it is to be redeemed pursuant to this
Indenture.
"Redemption Tax Opinion" has the meaning set forth in the
Declaration.
"Reference Date" has the meaning specified in Section
1203(c).
"Registration Default" has the meaning specified in Section
1007.
"Registration Rights Agreement" has the meaning specified in
Section 1007.
"Regular Record Date" has the meaning specified in Section
301.
"Responsible Officer," when used with respect to the
Trustee, means the chairman or any vice-chairman of the board of directors,
the chairman or any vice-chairman of the executive committee of the board of
directors, the chairman of the trust committee, the president, any vice
president, any assistant vice president, the treasurer, any assistant
treasurer, any trust officer or assistant trust officer, the controller or any
assistant controller or any other officer of the Trustee customarily
performing functions similar to those performed by any of the above designated
officers and also means, with respect to a particular corporate trust matter,
any other officer to
7
<PAGE>
whom such matter is referred because of his knowledge of and familiarity with
the particular subject.
"Restricted Securities Legend" has the meaning specified in
Section 202.
"Securities" has the meaning specified in the Recitals to
this instrument.
"Security Register" and "Security Registrar" have the
respective meanings specified in Section 305(a).
"Series B Preferred Stock" means the Company's Series B
Convertible Preferred Stock, no par value.
"Shelf Registration Statement" has the meaning specified in
Section 1007.
"Special Event" has the meaning specified in the Declaration.
"Special Record Date" for the payment of any Defaulted
Interest means a date fixed by the Trustee pursuant to Section 307.
"Stated Maturity," when used with respect to any Security or
any installment of interest thereon, means the date specified in such Security
as the fixed date on which the principal, together with any accrued and unpaid
interest (including Compounded Interest), of such Security or such installment
of interest is due and payable.
"Subsidiary" of any Person means (i) a corporation more than
50% of the outstanding Voting Stock of which is owned, directly or indirectly,
by such Person or by one or more other Subsidiaries of such Person or by such
Person and one or more Subsidiaries thereof or (ii) any other Person (other
than a corporation) in which such Person, or one or more other Subsidiaries of
such Person or such Person and one or more other Subsidiaries thereof,
directly or indirectly, has at least a majority ownership and power to direct
the policies, management and affairs thereof.
"Tax Event" has the meaning specified in the Declaration.
"Trading Day" has the meaning specified in clause (7) of
Section 1207.
"Trust" has the meaning specified in the Recitals to this
instrument.
"Trustee" means the Persons named as the "Trustee" in the
first paragraph of this instrument until a successor Trustee shall have become
such pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Trust Indenture Act" means the Trust Indenture Act of 1939
as in force at the date as of which this instrument was executed; provided,
however, that in the event the Trust Indenture Act of 1939 is amended after
such date, "Trust Indenture Act" means, to the extent required by any such
amendment, the Trust Indenture Act of 1939 as so amended.
8
<PAGE>
"Trust Securities" means Common Securities and Preferred
Securities.
"Vice President," when used with respect to the Obligors or
the Trustee, means any vice president, whether or not designated by a number
or a word or words added before or after the title "vice president."
"Voting Stock" of any Person means capital stock of such
Person which ordinarily has voting power for the election of directors (or
Persons performing similar functions) of such Person, whether at all times or
only so long as no senior class of securities has such voting power by reason
of any contingency.
SECTION 1.02. Compliance Certificates and Opinions.
Upon any application or request by the Obligors to the
Trustee to take any action under any provision of this Indenture, the Obligors
shall furnish to the Trustee such certificates and opinions as may be required
under the Trust Indenture Act or reasonably requested by the Trustee in
connection with such application or request. Each such certificate or opinion
shall be given in the form of an Officers' Certificate, if to be given by an
officer of the Obligors, or an Opinion of Counsel, if to be given by counsel,
and shall comply with the applicable requirements of the Trust Indenture Act
and any other applicable requirement set forth in this Indenture.
Every certificate or opinion with respect to compliance with
a condition or covenant provided for in this Indenture shall include
(1) a statement that each individual signing such
certificate or opinion has read such covenant or condition and the
definitions herein relating thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of each such
individual, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to whether
or not such covenant or condition has been complied with; and
(4) a statement as to whether, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 1.03. Form of Documents Delivered to Trustee.
In any case where several matters are required to be
certified by, or covered by an opinion of, any specified Person, it is not
necessary that all such matters be certified by, or covered by the opinion of,
only one such Person, or that they be so certified or covered by only one
document, but one such Person may certify or give an opinion with respect to
some matters and one or more other such Persons as to other matters, and any
such Person may certify or give an opinion as to such matters in one or
several documents.
9
<PAGE>
Any certificate or opinion of an officer of either of the
Obligors may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or opinion
of counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of
either of the Obligors stating that the information with respect to such
factual matters is in the possession of either of the Obligors, unless such
counsel knows, or in the exercise of reasonable care should know, that the
certificate or opinion or representations with respect to such matters are
erroneous.
Where any Person is required to make, give or execute two or
more applications, requests, consents, certificates, statements, opinions or
other instruments under this Indenture, they may, but need not, be
consolidated and form one instrument.
SECTION 1.04. Acts of Holders; Record Dates.
(a) Any request, demand, authorization, direction, notice,
consent, waiver or other action provided by this Indenture to be given or
taken by Holders may be embodied in and evidenced by one or more instruments
of substantially similar tenor signed by such Holders in person or by an agent
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee and, where it is hereby expressly required, to the
Company and Golden Books Publishing. Such instrument or instruments (and the
action embodied therein and evidenced thereby) are herein sometimes referred
to as the "Act" of the Holders signing such instrument or instruments. Proof
of execution of any such instrument or of a writing appointing any such agent
shall be sufficient for any purpose of this Indenture and (subject to Section
601) conclusive in favor of the Trustee and the Obligors, if made in the
manner provided in this Section.
(b) The fact and date of the execution by any Person of any
such instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized
by law to take acknowledgments of deeds, certifying that the individual
signing such instrument or writing acknowledged to him the execution thereof.
Where such execution is by a signer acting in a capacity other than his
individual capacity, such certificate or affidavit shall also constitute
sufficient proof of his authority. The fact and date of the execution of any
such instrument or writing, or the authority of the Person executing the same,
may also be proved in any other manner which the Trustee or the Obligors, as
the case may be, deems or deem sufficient.
(c) The Obligors may, in the circumstances permitted by the
Trust Indenture Act, fix any day as the record date for the purpose of
determining the Holders of Outstanding Securities entitled to give, make or
take any request, demand, authorization, direction, notice, consent, waiver or
other action, or to vote on any action, authorized or permitted to be given or
taken by Holders. If not set by the Obligors prior to the first solicitation
of a Holder made by any Person in respect of any such action, or, in the case
of any such vote, prior to such vote, the record date for any such action or
vote shall be the 30th day (or, if later, the date of the most recent list of
10
<PAGE>
Holders required to be provided pursuant to Section 701) prior to such first
solicitation or vote, as the case may be. With regard to any record date, only
the Holders on such date (or their duly designated proxies) shall be entitled
to give or take, or vote on, the relevant action.
(d) The ownership of Securities shall be proved by the
Security Register.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued
upon the registration of transfer thereof or in exchange therefor or in lieu
thereof in respect of anything done, omitted or suffered to be done by the
Trustee or the Obligors in reliance thereon, whether or not notation of such
action is made upon such Security.
(f) Without limiting the foregoing, a Holder entitled
hereunder to give or take any such action with regard to any particular
Security may do so with regard to all or any part of the principal amount of
such Security or by one or more duly appointed agents each of which may do so
pursuant to such appointment with regard to all or any different part of such
principal amount.
SECTION 1.05. Notices, Etc., to Trustee and the Company.
Any request, demand, authorization, direction, notice,
consent, waiver or Act of Holders or other document provided or permitted by
this Indenture to be made upon, given or furnished to, or filed with,
(1) the Trustee by any Holder or by the Obligors shall be
sufficient for every purpose hereunder if made, given, furnished or
filed in writing to or with the Trustee at its Corporate Trust Office,
Attention: Corporate Trust Trustee Administration, or
(2) the Obligors by the Trustee or by any Holder shall be
sufficient for every purpose hereunder (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage
prepaid, to the Obligors addressed to them at their respective
principal offices specified in the first paragraph of this instrument
or at any other address previously furnished in writing to the
Trustee by the Obligors.
SECTION 1.06. Notice to Holders; Waiver.
Where this Indenture provides for notice to Holders of any
event, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class postage prepaid, to
each Holder affected by such event, at such Holder's address as it appears in
the Security Register, not later than the latest date (if any), and not
earlier than the earliest date (if any), prescribed for the giving of such
notice. In any case where notice to Holders is given by mail, neither the
failure to mail such notice, nor any defect in any notice so mailed, to any
particular Holder shall affect the sufficiency of such notice with respect to
other Holders. Any notice when mailed to a Holder in the aforesaid manner
shall be conclusively deemed to have been received by such Holder whether or
not actually received by such Holder. Where this Indenture provides for notice
in any manner, such notice may be waived in writing by the Person entitled to
receive such notice, either before or after the event, and such waiver shall
be the equivalent of such notice.
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Waivers of notice by Holders shall be filed with the Trustee, but such filing
shall not be a condition precedent to the validity of any action taken in
reliance upon such waiver.
In case by reason of the suspension of regular mail service
or by reason of any other cause it shall be impracticable to give such notice
by mail, then such notification as shall be made with the approval of the
Trustee shall constitute a sufficient notification for every purpose
hereunder.
SECTION 1.07. Conflict with Trust Indenture Act.
If any provision hereof limits, qualifies or conflicts with
a provision of the Trust Indenture Act that is required under such Act to be a
part of and govern this Indenture, the latter provision shall control. If any
provision of this Indenture modifies or excludes any provision of the Trust
Indenture Act that may be so modified or excluded, the latter provision shall
be deemed to apply to this Indenture as so modified or to be excluded, as the
case may be.
SECTION 1.08. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of
Contents are for convenience only and shall not affect the construction
hereof.
SECTION 1.09. Successors and Assigns.
All covenants and agreements in this Indenture by the
Company shall bind its successors and assigns, whether so expressed or not;
all covenants and agreements in this Indenture by Golden Books Publishing
shall bind its successors and assigns, whether so expressed or not.
SECTION 1.10. Separability Clause.
In case any provision in this Indenture or in the Securities
shall be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
SECTION 1.11. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or
implied, shall give to any Person, other than the parties hereto and their
successors hereunder, the holders of Preferred Securities (to the extent
provided herein) and the Holders of Securities, any benefit or any legal or
equitable right, remedy or claim under this Indenture.
SECTION 1.12. GOVERNING LAW.
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD
TO ITS PRINCIPLES OF CONFLICTS OF LAWS.
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SECTION 1.13. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date
or Stated Maturity of any Security or the last date on which a Holder has the
right to convert his Securities shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of interest or principal or conversion of the Securities need not be
made on such date, but may be made on the next succeeding Business Day (except
that, if such Business Day is in the next succeeding calendar year, such
Interest Payment Date, Redemption Date or Stated Maturity, as the case may be,
shall be the immediately preceding Business Day) with the same force and
effect as if made on the Interest Payment Date or Redemption Date, or at the
Stated Maturity or on such last day for conversion, provided, that no interest
shall accrue for the period from and after such Interest Payment Date,
Redemption Date or Stated Maturity, as the case may be.
ARTICLE TWO
Security Forms
SECTION 2.01. Forms Generally.
The Securities and the Trustee's certificates of
authentication shall be substantially in the form of Exhibit A which is hereby
incorporated in and expressly made a part of this Indenture. The Securities
may have notations, legends or endorsements required by law, stock exchange
rule, agreements to which the Obligors are subject, if any, or usage (provided
that any such notation, legend or endorsement is in a form acceptable to the
Obligors). The Obligors shall furnish any such legend not contained in Exhibit
A to the Trustee in writing. Each Security shall be dated the date of its
authentication. The terms and provisions of the Securities set forth in
Exhibit A are part of the terms of this Indenture and to the extent
applicable, the Obligors and the Trustee, by their execution and delivery of
this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
The definitive Securities shall be typewritten or printed,
lithographed or engraved or produced by any combination of these methods on
steel engraved borders or may be produced in any other manner permitted by the
rules of any securities exchange on which the Securities may be listed, all as
determined by the officers executing such Securities, as evidenced by their
execution of such Securities.
SECTION 2.02. Initial Issuance to Property Trustee.
The Securities initially issued to the Property Trustee of
the Trust shall be in the form of one or more individual certificates in
definitive, fully registered form without distribution coupons and shall bear
the following legend (the "Restricted Securities Legend") unless the Company
determines otherwise in accordance with applicable law:
THIS SECURITY AND ANY COMMON STOCK ISSUED ON CONVERSION
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
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AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS
SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD,
ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF
THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE
TRANSFER SUCH SECURITY, PRIOR TO THE DATE WHICH IS THREE YEARS AFTER THE LATER
OF THE ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH GOLDEN BOOKS
FAMILY ENTERTAINMENT, INC. (THE "COMPANY"), GOLDEN BOOKS PUBLISHING COMPANY,
INC. ("GOLDEN BOOKS PUBLISHING" AND, TOGETHER WITH THE COMPANY, "THE OBLIGORS")
OR ANY AFFILIATE OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION TERMINATION DATE") ONLY
(A) TO AN OBLIGOR, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS
THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER
THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE
MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE
SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE OBLIGORS' AND THE TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO
REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY
IS COMPLETED AND DELIVERED BY THE TRANSFEROR TO THE TRANSFER AGENT. THIS LEGEND
WILL BE REMOVED UPON THE REQUEST OF A HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.
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ARTICLE THREE
The Securities
SECTION 3.01. Title and Terms.
The aggregate principal amount of Securities that may be
authenticated and delivered under this Indenture is limited to the sum of (a)
$103,092,800 and (b) such aggregate principal amount (which may not exceed
$15,463,950 aggregate principal amount) of Securities, if any, as shall be
purchased by the Trust pursuant to an over-allotment option in accordance with
the terms and provisions of the Purchase Agreement dated August 14, 1996,
among the Company, Golden Books Publishing and the Trust referred to therein,
and the Initial Purchasers except for Securities authenticated and delivered
upon registration of transfer of, or in exchange for, or in lieu of, other
Securities pursuant to Section 304, 305, 306, 906, 1108 or 1201.
The Securities shall be known and designated as the "8 3/4%
Convertible Debentures Due 2016" of the Company. Their Stated Maturity shall
be August 20, 2016, and they shall bear interest at the rate of 8 3/4% per
annum, from August 20 or from the most recent Interest Payment Date (as
defined below) to which interest has been paid or duly provided for, as the
case may be, payable quarterly (subject to deferral as set forth herein), in
arrears, on February 20, May 20, August 20 and November 20 (each an "Interest
Payment Date") of each year, commencing November 20, 1996 until the principal
thereof is paid or made available for payment, and they shall be paid to the
Person in whose name the Security is registered at the close of business on
the regular record date for such interest installment, which shall be the
close of business on the day immediately preceding such Interest Payment Date;
provided, however, that for so long as the Securities are held by the Trust or
the Property Trustee of the Trust, if any Preferred Securities (or if the
Trust is liquidated in connection with a Special Event, any Securities) are
held in certificated form, the Record Date for each Interest Payment Date
shall be 15 days prior to such Interest Payment Date (in each case, a "Regular
Record Date"). Interest will compound quarterly and will accrue at the rate of
8 3/4% per annum on any interest installment in arrears for more than one
quarter or during an extension of an interest payment period as set forth in
Section 312 hereof.
The amount of interest payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months. Except as
provided in the following sentence, the amount of interest payable for any
period shorter than a full quarterly period for which interest is computed
will be computed on the basis of the actual number of days elapsed. In the
event that any date on which interest is payable on the Securities is not a
Business Day, then payment of interest payable on such date will be made on
the next succeeding day which is a Business Day (and without any interest or
other payment in respect of any such delay), except that, if such Business Day
is in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and
effect as if made on such date.
If at any time while the Property Trustee is the Holder of
any Securities, the Trust or the Property Trustee is required to pay any
taxes, duties, assessments or governmental charges of whatever nature (other
than withholding taxes) imposed by the United States, or any other taxing
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authority, then, in any such case, the Obligors will pay as additional
interest ("Additional Interest") on the Securities held by the Property
Trustee, such amounts as shall be required so that the net amounts received
and retained by the Trust and the Property Trustee after paying any such
taxes, duties, assessments or other governmental charges will be not less than
the amounts the Trust and the Property Trustee would have received had no such
taxes, duties, assessments or other governmental charges been imposed.
The principal of and interest on the Securities shall be
payable at the office or agency in the United States maintained by the
Obligors for such purpose and at any other office or agency maintained by the
Obligors for such purpose in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that at the option of the Obligors payment
of interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register.
The Securities shall be redeemable as provided in Article
Eleven hereof.
The Securities shall be convertible as provided in Article
Twelve hereof.
SECTION 3.02. Denominations.
The Securities shall be issuable only in registered form
without coupons and only in denominations of $50 and integral multiples
thereof.
SECTION 3.03. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by
its Chairman of the Board, its Vice Chairman of the Board, its President or
one of its Vice Presidents, under its corporate seal reproduced thereon
attested by its Secretary or one of its Assistant Secretaries or its Treasurer
or one of its Assistant Treasurers. The signature of any of these officers on
the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of the Company shall bind
the Company, notwithstanding that such individuals or any of them have ceased
to hold such offices prior to the authentication and delivery of such
Securities or did not hold such offices at the date of such Securities.
The Securities shall be executed on behalf of Golden Books
Publishing by its Chairman of the Board, its Vice Chairman of the Board, its
President or one of its Vice Presidents, under its corporate seal reproduced
thereon attested by its Secretary or one of its Assistant Secretaries or its
Treasurer or one of its Assistant Treasurers. The signature of any of these
officers on the Securities may be manual or facsimile.
Securities bearing the manual or facsimile signatures of
individuals who were at any time the proper officers of Golden Books
Publishing shall bind Golden Books Publishing, notwithstanding that such
individuals or any of them have ceased to hold such offices prior to the
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authentication and delivery of such Securities or did not hold such offices at
the date of such Securities.
At any time and from time to time after the execution and
delivery of this Indenture, either of the Obligors may deliver Securities
executed by each of the Obligors to the Trustee for authentication, together
with an Obligor's Order for the authentication and delivery of such
Securities; and the Trustee in accordance with such Obligor's Order shall
authenticate and make available for delivery such Securities as provided in
this Indenture, and not otherwise.
No Security shall be entitled to any benefit under this
Indenture or be valid or obligatory for any purpose unless there appears on
such Security a certificate of authentication substantially in the form
provided for herein executed by the Trustee by manual signature, and such
certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered
hereunder.
SECTION 3.04. Temporary Securities.
Pending the preparation of definitive Securities, either of
the Obligors may execute, and upon receipt of an Obligor's Order, the Trustee
shall authenticate and deliver, temporary Securities which are printed,
lithographed, typewritten, mimeographed or otherwise produced, in any
authorized denomination, substantially of the tenor of the definitive
Securities in lieu of which they are issued and with such appropriate
insertions, omissions, substitutions and other variations as the officers
executing such Securities may determine, as evidenced by their execution of
such Securities.
If temporary Securities are issued, the Obligors will cause
definitive Securities to be prepared without unreasonable delay. After the
preparation of definitive Securities, the temporary Securities shall be
exchangeable for definitive Securities upon surrender of the temporary
Securities at any office or agency of the Obligors designated pursuant to
Section 1002, without charge to the Holder. Upon surrender for cancellation of
any one or more temporary Securities either of the Obligors shall execute and
the Trustee shall authenticate and make available for delivery in exchange
therefor a like principal amount of definitive Securities of authorized
denominations. Until so exchanged the temporary Securities shall in all
respects be entitled to the same benefits under this Indenture as definitive
Securities.
SECTION 3.05. Registration, Registration of Transfer and Exchange.
(a) General.
The Obligors shall cause to be kept at the Corporate Trust
Office of the Trustee a register (the register maintained in such office and
in any other office or agency designated pursuant to Section 1002 being herein
sometimes collectively referred to as the "Security Register") in which,
subject to such reasonable regulations as it may prescribe, the Obligors shall
provide for the registration of Securities and of transfers of Securities. The
Trustee is hereby appointed "Security Registrar" for the purpose of
registering Securities and transfers of Securities as herein provided.
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Upon surrender for registration of transfer of any Security
at an office or agency of the Obligors designated pursuant to Section 1002 for
such purpose, the Obligors shall execute, and the Trustee shall authenticate
and deliver, in the name of the designated transferee or transferees, one or
more new Securities of any authorized denominations and of a like aggregate
principal amount.
At the option of the Holder, Securities may be exchanged for
other Securities of any authorized denominations and of a like aggregate
principal amount, upon surrender of the Securities to be exchanged at such
office or agency. Whenever any Securities are so surrendered for exchange,
either of the Obligors shall execute, and the Trustee shall authenticate and
make available for delivery, the Securities which the Holder making the
exchange is entitled to receive.
All Securities issued upon any registration of transfer or
exchange of Securities shall be the valid obligations of each of the Obligors,
evidencing the same debt, and entitled to the same benefits under this
Indenture, as the Securities surrendered upon such registration of transfer or
exchange.
Every Security presented or surrendered for registration of
transfer or for exchange shall (if so required by the Obligors or the Trustee)
be duly endorsed, or be accompanied by a written instrument of transfer in
form satisfactory to the Obligors and the Security Registrar duly executed, by
the Holder thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of
transfer or exchange of Securities, but the Obligors may require payment of a
sum sufficient to cover any tax or other governmental charge that may be
imposed in connection with any registration of transfer or exchange of
Securities, other than exchanges pursuant to Section 304, 906, 1108 or 1201
not involving any transfer.
The Obligors shall not be required (i) in the case of a
partial redemption of the Securities, to issue, register the transfer of or
exchange any Security during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Securities
selected for redemption under Section 1104 and ending at the close of business
on the day of such mailing, or (ii) to register the transfer of or exchange
any Security so selected for redemption in whole or in part, except the
unredeemed portion of any Security being redeemed in part.
(b) Transfer Procedures and Restrictions.
The Securities may not be transferred except in compliance
with the Restricted Securities Legend unless otherwise determined by each of
the Obligors in accordance with applicable law. Upon any distribution of the
Securities to the holders of the Preferred Securities in accordance with the
Declaration, each of the Obligors and the Trustee shall enter into a
supplemental indenture pursuant to Section 901(6) to provide for transfer
procedures and restrictions with respect to the Securities substantially
similar to those contained in the Declaration to the extent applicable in the
circumstances existing at the time of such distribution.
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SECTION 3.06. Mutilated, Destroyed, Lost and Stolen Securities.
If any mutilated Security is surrendered to the Trustee,
each of the Obligors shall execute and the Trustee shall authenticate and
deliver in exchange therefor a new Security of like tenor and principal amount
and bearing a number not contemporaneously outstanding.
If there shall be delivered to either of the Obligors and
the Trustee (i) evidence to their satisfaction of the destruction, loss or
theft of any Security and (ii) such security or indemnity as may be required
by them to save each of them and any agent of either of them harmless, then,
in the absence of notice to the Obligors or the Trustee that such Security has
been acquired by a bona fide purchaser, each of the Obligors shall execute and
the Trustee shall authenticate and deliver, in lieu of any such destroyed,
lost or stolen Security, a new Security of like tenor and principal amount and
bearing a number not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen
Security has become or is about to become due and payable, the Company in its
discretion may, instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section,
the Obligors may require the payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in relation thereto and any
other expenses (including the fees and expenses of the Trustee) connected
therewith.
Every new Security issued pursuant to this Section in lieu
of any destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Obligors, whether or not the
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all the benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall
preclude (to the extent lawful) all other rights and remedies of the Holders
with respect to the replacement or payment of mutilated, destroyed, lost or
stolen Securities.
SECTION 3.07. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually
paid or duly provided for, on any Interest Payment Date shall be paid to the
Person in whose name that Security (or one or more Predecessor Securities) is
registered at the close of business on the Regular Record Date, subject to any
right to defer the payment of Interest hereunder.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the Holder
on the relevant Regular Record Date by virtue of having been such Holder, and
such Defaulted Interest may be paid by the Obligors, at its election in each
case, as provided in Clause (1) or (2) below:
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(1) The Obligors may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. Either of the
Obligors shall notify the Trustee in writing of the amount of
Defaulted Interest proposed to be paid on each Security and the date
of the proposed payment, and at the same time either of the Obligors
shall deposit with the Trustee an amount of money equal to the
aggregate amount proposed to be paid in respect of such Defaulted
Interest or shall make arrangements satisfactory to the Trustee for
such deposit prior to the date of the proposed payment, such money
when deposited to be held in trust for the benefit of the Persons
entitled to such Defaulted Interest as in this Clause provided.
Thereupon the Trustee shall fix a Special Record Date for the payment
of such Defaulted Interest which shall be not more than 15 days and
not less than 10 days prior to the date of the proposed payment and
not less than 10 days after the receipt by the Trustee of the notice
of the proposed payment. The Trustee shall promptly notify the
Obligors of such Special Record Date and, in the name and at the
expense of the Obligors, shall cause notice of the proposed payment
of such Defaulted Interest and the Special Record Date therefor to be
mailed, first-class postage prepaid, to each Holder at his address as
it appears in the Security Register, not less than 10 days prior to
such Special Record Date. Notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor having been
so mailed, such Defaulted Interest shall be paid to the Persons in
whose names the Securities (or their respective Predecessor
Securities) are registered at the close of business on such Special
Record Date and shall no longer be payable pursuant to the following
Clause (2).
(2) The Obligors may make payment of any Defaulted Interest
in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities may be listed, and,
if so listed, upon such notice as may be required by such exchange,
if, after notice given by either of the Obligors to the Trustee of
the proposed payment pursuant to this Clause, such manner of payment
shall be deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each
Security delivered under this Indenture upon registration of transfer of or in
exchange for or in lieu of any other Security shall carry the rights to
interest accrued and unpaid, and to accrue (including in each such case
Compounded Interest), which were carried by such other Security.
In the case of any Security which is converted after any
Regular Record Date and on or prior to the next succeeding Interest Payment
Date (other than any Security whose Maturity is prior to such Interest Payment
Date), interest whose Stated Maturity is on such Interest Payment Date shall
be payable on such Interest Payment Date notwithstanding such conversion, and
such interest (whether or not punctually paid or duly provided for) shall be
paid to the Person in whose name that Security (or one or more Predecessor
Securities) is registered at the close of business on such Regular Record
Date. Except as otherwise expressly provided in the immediately preceding
sentence, in the case of any Security that is converted, interest whose Stated
Maturity is after the date of conversion of such Security shall not be
payable, and the Company shall not make nor be
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required to make any other payment, adjustment or allowance with respect to
accrued but unpaid interest (including Additional Interest, Compounded Interest
and Liquidated Damages) on the Securities being converted, which shall be
deemed to be paid in full.
SECTION 3.08. Persons Deemed Owners.
Prior to due presentment of a Security for registration of
transfer, the Obligors, the Trustee and any agent of the Obligors or the
Trustee may treat the Person in whose name such Security is registered as the
owner of such Security for the purpose of receiving payment of principal of
and (subject to Section 307) interest (including Additional Interest,
Compounded Interest and Liquidated Damages) on such Security and for all other
purposes whatsoever, whether or not such Security be overdue, and neither the
Obligors, the Trustee nor any agent of the Obligors or the Trustee shall be
affected by notice to the contrary.
SECTION 3.09. Cancellation.
All Securities surrendered for payment, redemption,
registration of transfer or exchange or conversion shall, if surrendered to
any Person other than the Trustee, be delivered to the Trustee and shall be
promptly cancelled by it. Either of the Obligors may at any time deliver to
the Trustee for cancellation any Securities previously authenticated and
delivered hereunder which the Obligors may have acquired in any manner
whatsoever, and all Securities so delivered shall be promptly cancelled by the
Trustee. No Securities shall be authenticated in lieu of or in exchange for
any Securities cancelled as provided in this Section, except as expressly
permitted by this Indenture. All cancelled Securities held by the Trustee
shall be disposed of as directed by an Obligor's Order; provided, however,
that the Trustee shall not be required to destroy the certificates
representing such cancelled Securities.
SECTION 3.10. Right of Set Off.
Notwithstanding anything to the contrary in this Indenture,
each of the Obligors shall have the right to set off any payment it is
otherwise required to make hereunder to the extent the Obligors have
theretofore made, or are concurrently on the date of such payment making, a
payment under the Guarantee.
SECTION 3.11. CUSIP Numbers.
The Company and Golden Books Publishing, together as
Obligors, in issuing the Securities may use "CUSIP" numbers (if then generally
in use), and, if so, the Trustee shall use "CUSIP" numbers in notices of
redemption as a convenience to Holders; provided, that any such notice may
state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed only on the other identification
numbers printed on the Securities, and any such redemption shall not be
affected by any defect in or omission of such numbers.
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SECTION 3.12. Option to Extend Interest Payment Period.
(a) Either of the Obligors shall have the right at any time
during the term of the Securities to defer interest payments from time to time
by extending the interest payment period for successive periods (each, an
"Extension Period") not exceeding 20 consecutive quarters for each such
period; provided, no Extension Period may extend beyond the maturity date of
the Securities. At the end of each Extension Period, the Obligors, jointly and
severally, shall be responsible for the payment of, and either Obligor shall
pay, all interest then accrued and unpaid (including Additional Interest and
Liquidated Damages) together with interest thereon compounded quarterly at the
rate specified for the Securities to the extent permitted by applicable law
("Compounded Interest"); provided, that during any Extension Period, the
Company (i) shall not declare or pay dividends on, make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock (except for (1) dividends or
distributions in shares of Common Stock on Common Stock or on the Series B
Preferred Stock, (2) purchases or acquisitions of shares of Common Stock made
in connection with any employee benefit plan of the Company or its
subsidiaries or pursuant to employment agreements with officers or employees
of the Company or its subsidiaries, provided that such repurchases by the
Company made from officers or employees of the Company or its subsidiaries
pursuant to employment agreements shall be made at a price not to exceed the
market value on the date of any such repurchase and shall not exceed $5
million in the aggregate for all such employees and officers, (3) conversions
or exchanges of shares of Common Stock of any one class into shares of Common
Stock of another class or (4) purchases of fractional interests in shares of
the Company's capital stock pursuant to the conversion or exchange provisions
of any of the Company's securities being converted or exchanged), (ii) shall
not make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem, any debt securities issued by the Company that rank
junior to the Securities (except by conversion into or exchange for shares of
its capital stock) and (iii) shall not make any guarantee payments with
respect to the foregoing (other than such payments made pursuant to the
Guarantee). In addition, during any Extension Period, Golden Books Publishing
(a) if Golden Books Publishing is not a wholly owned subsidiary of the
Company, shall not declare or pay dividends on, make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock (except for (1) dividends or
distributions in shares of its common stock made on outstanding shares of its
common stock, (2) conversions or exchanges of shares of its common stock of
one class into shares of common stock of another class or (3) purchases of
fractional interests in shares of the capital stock of Golden Books Publishing
being converted or exchanged) and (b) shall not make any payment of interest,
principal of or premium, if any, on, or repay, repurchase or redeem any debt
securities issued by the Golden Books Publishing that rank junior to the
Convertible Debentures (except by conversion into or exchange for shares of
its capital stock). Prior to the termination of any such Extension Period,
either of the Obligors may further extend such Extension Period; provided that
such Extension Period together with all previous and further extensions
thereof may not exceed 20 consecutive quarters and may not extend beyond the
maturity of the Securities. Upon the termination of any Extension Period and
the payment of all amounts then due, either of the Obligors may commence a new
Extension Period, subject to the above requirements. No interest during an
Extension Period, except at the end thereof, shall be due and payable.
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(b) If the Property Trustee is the sole Holder of the
Securities at the time either of the Obligors selects an Extension Period,
either of the Obligors shall give written notice to the Regular Trustees, the
Property Trustee and the Trustee of its selection of such Extension Period at
least one Business Day prior to the earlier of (i) the date the distributions
on the Preferred Securities are payable or (ii) if the Preferred Securities
are listed on The Nasdaq National Market or other stock exchange or quotation
system, the date the Trust is required to give notice to The Nasdaq National
Market or other applicable self-regulatory organization or to holders of the
Preferred Securities of the record date or the date such distributions are
payable, but in any event not less than ten Business Days prior to such record
date.
(c) If the Property Trustee is not the sole holder of the
Securities at the time either of the Obligors selects an Extension Period, the
Obligors shall give the Holders of the Securities and the Trustee written
notice of its selection of such Extension Period at least ten Business Days
prior to the earlier of (i) the next succeeding Interest Payment Date or (ii)
if the Preferred Securities are listed on The Nasdaq National Market or other
stock exchange or quotation system, the date the Obligors are required to give
notice to The Nasdaq National Market or other applicable self-regulatory
organization or to holders of the Securities on the record or payment date of
such related interest payment, but in any event not less than two Business
Days prior to such record date.
(d) The quarter in which any notice is given pursuant to
paragraphs (b) and (c) hereof shall be counted as one of the 20 quarters
permitted in the maximum Extension Period permitted under paragraph (a)
hereof.
SECTION 3.13. Paying Agent, Security Registrar and Conversion Agent.
The Trustee will initially act as Paying Agent, Security
Registrar and Conversion Agent. The Obligors may change any Paying Agent,
Security Registrar, co-registrar or Conversion Agent without prior notice.
The Obligors or any of their Affiliates may act in any such capacity.
SECTION 3.14. Global Security
(a) In connection with a Dissolution Event,
(i) the Securities in certificated form may be
presented to the Trustee by the Property Trustee in exchange for a global
Security in an aggregate principal amount equal to the aggregate principal
amount of all outstanding Securities (a "Global Security"), to be registered in
the name of the Depositary, or its nominee, and delivered by the Trustee to the
Depositary for crediting to the accounts of its participants pursuant to the
instructions of the Regular Trustees. Each of the Obligors upon any such
presentation shall execute a Global Security in such aggregate principal amount
and deliver the same to the Trustee for authentication and delivery in
accordance with this Indenture. Payments on the Securities issued as a Global
Security will be made to the Depositary; and
(ii) if any Preferred Securities are held in non
book-entry certificated form, the Securities in certificated form may be
presented to the Trustee by the Property Trustee and any
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Preferred Security Certificate which represents Preferred Securities other than
Preferred Securities held by the Depositary or its nominee ("Non Book-Entry
Preferred Securities") will be deemed to represent beneficial interests in
Securities presented to the Trustee by the Property Trustee having an aggregate
principal amount equal to the aggregate liquidation amount of the Non
Book-Entry Preferred Securities until such Preferred Security Certificates are
presented to the Security Registrar for transfer or reissuance at which time
such Preferred Security Certificates will be cancelled and a Security,
registered in the name of the holder of the Preferred Security Certificate or
the transferee of the holder of such Preferred Security Certificate, as the
case may be, with an aggregate principal amount equal to the aggregate
liquidation amount of the Preferred Security Certificate cancelled, will be
executed by each of the Obligors and delivered to the Trustee for
authentication and delivery in accordance with this Indenture. On issue of such
Securities, Securities with an equivalent aggregate principal amount that were
presented by the Property Trustee to the Trustee will be deemed to have been
cancelled.
(b) If (i) the Depositary notifies the Obligors that it is
unwilling or unable to continue as a depositary for such Global Security and
no successor depositary shall have been appointed, (ii) the Depositary, at any
time, ceases to be a clearing agency registered under the Exchange Act at
which time the Depositary is required to be so registered to act as such
depositary and no successor depositary shall have been appointed, (iii) the
Obligors, in their sole discretion, determine that such Global Security shall
be so exchangeable or (iv) there shall have occurred an Event of Default with
respect to such Securities, as the case may be, each of the Obligors will
execute, and, subject to Article Three of this Indenture, the Trustee, upon
written notice from the Company and receipt of an Obligor's Order, will
authenticate and deliver the Securities in definitive registered form without
coupons, in authorized denominations, and in an aggregate principal amount
equal to the principal amount of the Global Security in exchange for such
Global Security. In addition, upon an Event of Default or if the Obligors may
at any time determine that the Securities shall no longer be represented by a
Global Security, each of the Obligors will execute, and subject to Section 305
of this Indenture, the Trustee, upon receipt of an Officers' Certificate
evidencing such determination by the Obligors, will authenticate and make
available for delivery the Securities in definitive registered form without
coupons, in authorized denominations, and in an aggregate principal amount
equal to the principal amount of the Global Security in exchange for such
Global Security. Upon the exchange of the Global Security for such Securities
in definitive registered form without coupons, in authorized denominations,
the Global Security shall be cancelled by the Trustee. Such Securities in
definitive registered form issued in exchange for the Global Security shall be
registered in such names and in such authorized denominations as the
Depositary, pursuant to instructions from its direct or indirect participants
or otherwise, shall instruct the Trustee. The Trustee shall deliver such
Securities to the Depositary for delivery to the Persons in whose names such
Securities are so registered.
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ARTICLE FOUR
Satisfaction and Discharge
SECTION 4.01. Satisfaction and Discharge of Indenture.
This Indenture shall cease to be of further effect (except
as to any surviving rights of conversion, registration of transfer or exchange
of Securities herein expressly provided for), and the Trustee, on demand of
the Obligors and at the expense of each of the Obligors, shall execute proper
instruments acknowledging satisfaction and discharge of this Indenture, when
(1) either
(A) all Securities theretofore authenticated and
delivered (other than (i) Securities which have been
destroyed, lost or stolen and which have been replaced or
paid as provided in Section 306 and (ii) Securities for
whose payment money has theretofore been deposited in trust
or segregated and held in trust by the Obligors and
thereafter repaid to the Obligors or discharged from such
trust, as provided in Section 1003) have been delivered to
the Trustee for cancellation; or
(B) all such Securities not theretofore delivered
to the Trustee for cancellation have become due and payable,
and the Obligors have deposited or caused to be deposited
with the Trustee as trust funds in trust for the purpose an
amount sufficient to pay and discharge the entire
indebtedness on such Securities not theretofore delivered to
the Trustee for cancellation, for principal and interest
(including Compounded Interest and Liquidated Damages) to
the date of such deposit (in the case of Securities which
have become due and payable) or to the Stated Maturity or
Redemption Date, as the case may be;
(2) the Obligors have paid or caused to be paid all other
sums payable hereunder by the Obligors; and
(3) the Obligors have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that, in their
opinion, all conditions precedent herein provided for relating to the
satisfaction and discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Obligors to the Trustee under Section 607 and, if money
shall have been deposited with the Trustee pursuant to subclause (B) of Clause
(1) of this Section, the obligations of the Trustee under Section 402 and the
last paragraph of Section 1003 shall survive.
SECTION 4.02. Application of Trust Money.
Subject to the provisions of the last paragraph of Section
1003, all money deposited with the Trustee pursuant to Section 401 shall be
held in trust and applied by it, in accordance with
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the provisions of the Securities and this Indenture, to the payment, either
directly or through any Paying Agent (including the Obligors acting as their
own Paying Agent) as the Trustee may determine, to the Persons entitled
thereto, of the principal and interest for whose payment such money has been
deposited with the Trustee. All moneys deposited with the Trustee pursuant to
Section 401 (and held by it or any Paying Agent) for the payment of Securities
subsequently converted shall be returned to the Obligors promptly following
such conversion or, if sooner, upon receipt of an Obligor's Request.
ARTICLE FIVE
Remedies
SECTION 5.01. Events of Default.
"Event of Default," wherever used herein, means any one of
the following events that has occurred and is continuing (whatever the reason
for such Event of Default and whether it shall be voluntary or involuntary or
be effected by operation of law or pursuant to any judgment, decree or order
of any court or any order, rule or regulation of any administrative or
governmental body):
(1) failure for 90 days to pay interest on the
Securities, including any Additional Interest, Compounded
Interest and Liquidated Damages in respect thereof, when
due; provided that a valid extension of an interest payment
period will not constitute a default in the payment of
interest (including any Additional Interest, Compounded
Interest or Liquidated Damages) for this purpose;
(2) failure to pay principal of or premium, if any,
on the Securities when due whether at maturity, upon
redemption, by declaration or otherwise;
(3) failure by the Company to deliver shares of its
Common Stock upon an election by a holder of Preferred
Securities to convert such Preferred Securities;
(4) failure to observe or perform in all material
respects any other covenant contained in the Indenture for
180 days after notice to the Obligors by the Trustee or by
the holders of not less than 25% in aggregate outstanding
principal amount of the Securities;
(5) entry by a court having jurisdiction in the
premises of (A) a decree or order for relief in respect of
either of the Obligors in an involuntary case or proceeding
under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or (B) a
decree or order adjudging either of the Obligors a bankrupt
or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustment or
composition of or in respect of such Obligors under any
applicable Federal or State law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or
other similar official of such
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Obligors or of substantially all of the property of such
Obligors, or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order for
relief or any such other decree or order unstayed and in
effect for a period of 60 consecutive days;
(6) the commencement by either of the Obligors of a
voluntary case or proceeding under any applicable Federal or
State bankruptcy, insolvency, reorganization or other
similar law or of any other case or proceeding to be
adjudicated a bankrupt or insolvent, or the consent by
either of the Obligors to the entry of a decree or order for
relief in respect of itself in an involuntary case or
proceeding under any applicable Federal or State bankruptcy,
insolvency, reorganization or other similar law or to the
commencement of any bankruptcy or insolvency case or
proceeding against either of the Obligors, or the filing by
either of the Obligors of a petition or answer or consent
seeking reorganization or relief under any applicable
Federal or State law, or the consent by either of the
Obligors to the filing of such petition or to the
appointment of or taking possession by a custodian,
receiver, liquidator, assignee, trustee, sequestrator or
other similar official of such Obligors or of substantially
all of the property of either Obligor, or the making by
either of the Obligors of a general assignment for the
benefit of creditors, or the admission by either of the
Obligors in writing of its inability to pay its debts
generally as they become due, or the taking of corporate
action by either Obligor in furtherance of any such action;
or
(7) the voluntary or involuntary dissolution,
winding up or termination of the Trust, except in connection
with (i) the distribution of Securities to holders of
Preferred Securities in liquidation of the Trust upon the
redemption of all of the outstanding Preferred Securities of
the Trust or (ii) certain mergers, consolidations or
amalgamations, each as permitted by the Declaration.
SECTION 5.02. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default occurs and is continuing, then and in
every such case the Trustee or the Holders of not less than 25% in principal
amount of the Outstanding Securities may declare the principal of all the
Securities and any other amounts payable hereunder to be due and payable
immediately, by a notice in writing to the Obligors (and to the Trustee if
given by Holders), and upon any such declaration such principal and all
accrued interest shall become immediately due and payable.
At any time after such a declaration of acceleration has
been made and before a judgment or decree for payment of the money due has
been obtained by the Trustee as provided in this Article hereinafter, the
Holders of a majority in aggregate principal amount of the Outstanding
Securities, by written notice to the Obligors and the Trustee, may rescind and
annul such declaration and its consequences if:
(1) the Obligors have paid or deposited with the Trustee
a sum sufficient to pay
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(A) all overdue interest (including any Additional
Interest, Compounded Interest and Liquidated Damages) on all
Securities,
(B) the principal of any Securities which have
become due otherwise than by such declaration of
acceleration and interest thereon at the rate borne by the
Securities, and
(C) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel;
and
(2) all Events of Default, other than the non-payment of the
principal and/or interest of Securities which have become due solely
by such declaration of acceleration, have been cured or waived as
provided in Section 513.
No such rescission shall affect any subsequent default or
impair any right consequent thereon.
SECTION 5.03. Collection of Indebtedness and Suits for Enforcement by
Trustee.
Each of the Obligors covenants that if:
(1) default is made in the payment of any interest
(including any Additional Interest or Compounded Interest) on any
Security when such interest becomes due and payable and such default
continues for a period of 30 days, or
(2) default is made in the payment of the principal of any
Security at the Maturity thereof,
the Obligors will, jointly and severally, upon demand of the Trustee, pay to
it, for the benefit of the Holders of such Securities, the whole amount then
due and payable on such Securities for principal and interest (including any
Additional Payments) and, to the extent that payment thereof shall be legally
enforceable, interest on any overdue principal and on any overdue interest
(including any Additional Interest and Compounded Interest), at the rate borne
by the Securities, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the rights
of the Holders by such appropriate judicial proceedings as the Trustee shall
deem most effectual to protect and enforce any such rights, whether for the
specific enforcement of any covenant or agreement in this Indenture or in aid
of the exercise of any power granted herein, or to enforce any other proper
remedy.
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SECTION 5.04. Trustee May File Proofs of Claim.
In case of any judicial proceeding relative to either of the
Obligors (or any other obligor upon the Securities), its property or its
creditors, the Trustee shall be entitled and empowered, by intervention in
such proceeding or otherwise, to take any and all actions authorized under the
Trust Indenture Act in order to have claims of the Holders and the Trustee
allowed in any such proceeding. In particular, the Trustee shall be authorized
to collect and receive any moneys or other property payable or deliverable on
any such claims and to distribute the same; and any custodian, receiver,
assignee, trustee, liquidator, sequestrator or other similar official in any
such judicial proceeding is hereby authorized by each Holder to make such
payments to the Trustee and, in the event that the Trustee shall consent to
the making of such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel, and any other amounts due the
Trustee under Section 607.
No provision of this Indenture shall be deemed to authorize
the Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment or composition
affecting the Securities or the rights of any Holder thereof or to authorize
the Trustee to vote in respect of the claim of any Holder in any such
proceeding.
SECTION 5.05. Trustee May Enforce Claims Without Possession of Securities.
All rights of action and claims under this Indenture or the
Securities may be prosecuted and enforced by the Trustee without the
possession of any of the Securities or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the Trustee
shall be brought in its own name as trustee of an express trust, and any
recovery of judgment shall, after provision for the payment of the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel, be for the ratable benefit of the Holders of the Securities in
respect of which such judgment has been recovered.
SECTION 5.06. Application of Money Collected.
Any money collected by the Trustee pursuant to this Article
shall be applied in the following order, at the date or dates fixed by the
Trustee and, in case of the distribution of such money on account of principal
or interest (including any Additional Payments), upon presentation of the
Securities and the notation thereon of the payment if only partially paid and
upon surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 607; and
SECOND: To the payment of the amounts then due and unpaid
for principal of and interest (including any Additional Payments) on
the Securities in respect of which or for the benefit of which such
money has been collected, ratably, without preference or priority of
any kind, according to the amounts due and payable on such Securities
for principal and interest (including any Compounded Interest),
respectively.
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SECTION 5.07. Limitation on Suits.
No Holder of any Security shall have any right to institute
any proceeding, judicial or otherwise, with respect to this Indenture, or for
the appointment of a receiver or trustee, or for any other remedy hereunder,
unless
(1) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(2) if the Trust is not the sole holder of the Outstanding
Securities, the Holders of at least 25% in aggregate principal amount
of the Outstanding Securities shall have made written request to the
Trustee to institute proceedings in respect of such Event of Default
in its own name as Trustee hereunder;
(3) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities to
be incurred in compliance with such request;
(4) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(5) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of
a majority in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing itself of, any
provision of this Indenture to affect, disturb or prejudice the rights of any
other Holders, or to obtain or to seek to obtain priority or preference over
any other Holders or to enforce any right under this Indenture, except in the
manner herein provided and for the equal and ratable benefit of all the
Holders.
SECTION 5.08. Unconditional Right of Holders to Receive Principal and
Interest and Convert.
Notwithstanding any other provision in this Indenture, the
Holder of any Security shall have the right, which is absolute and
unconditional, to receive payment of the principal of and (subject to Section
307) interest (including any Additional Payments) on such Security on the
respective Stated Maturities expressed in such Security (or, in the case of
redemption, on the Redemption Date) and to convert such Security in accordance
with Article Twelve and to institute suit for the enforcement of any such
payment and right to convert, and such rights shall not be impaired without
the consent of such Holder.
SECTION 5.09. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding
to enforce any right or remedy under this Indenture and such proceeding has
been discontinued or abandoned for any reason, or has been determined
adversely to the Trustee or to such Holder, then and in every such
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case, subject to any determination in such proceeding, each of the Obligors,
the Trustee and the Holders shall be restored severally and respectively to
their former positions hereunder and thereafter all rights and remedies of the
Trustee and the Holders shall continue as though no such proceeding had been
instituted.
SECTION 5.10. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Securities in the last
paragraph of Section 306, no right or remedy herein conferred upon or reserved
to the Trustee or to the Holders is intended to be exclusive of any other
right or remedy, and every right and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy.
SECTION 5.11. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any
Security to exercise any right or remedy accruing upon any Event of Default
shall impair any such right or remedy or constitute a waiver of any such Event
of Default or an acquiescence therein. Every right and remedy given by this
Article or by law to the Trustee or to the Holders may be exercised from time
to time, and as often as may be deemed expedient, by the Trustee or by the
Holders, as the case may be.
SECTION 5.12. Control by Holders.
The Holders of a majority in principal amount of the
Outstanding Securities shall have the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee; provided, that
(1) such direction shall not be in conflict with any rule of
law or with this Indenture; and
(2) the Trustee may take any other action deemed proper by
the Trustee which is not inconsistent with such direction.
SECTION 5.13. Waiver of Past Defaults.
Subject to Section 902 hereof, the Holders of not less than
a majority in principal amount of the Outstanding Securities may on behalf of
the Holders of all the Securities waive any past default hereunder and its
consequences, except a default
(1) in the payment of the principal of, premium, if any, or
interest (including any Additional Payments and Liquidated Damages)
on any Security (unless such default
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has been cured and a sum sufficient to pay all matured installments of
interest and principal due otherwise than by acceleration has been
deposited with the Trustee); or
(2) in respect of a covenant or provision hereof which under
Article Nine cannot be modified or amended without the consent of the
Holder of each Outstanding Security affected; provided, however, that
if the Securities are held by the Trust or a trustee of the Trust,
such waiver shall not be effective until the holders of a majority in
liquidation amount of Trust Securities shall have consented to such
waiver; provided, further, that if the consent of the Holder of each
outstanding Security is required, such waiver shall not be effective
until each holder of the Trust Securities shall have consented to
such waiver.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been cured, for
every purpose of this Indenture; but no such waiver shall extend to any
subsequent or other default or impair any right consequent thereon.
SECTION 5.14. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, a court may require any party litigant
in such suit to file an undertaking to pay the costs of such suit, and may
assess costs against any such party litigant, in the manner and to the extent
provided in the Trust Indenture Act; provided, that neither this Section nor
the Trust Indenture Act shall be deemed to authorize any court to require such
an undertaking or to make such an assessment in any suit instituted by either
of the Obligors or the Trustee or in any suit for the enforcement of the right
to receive the principal of and interest (including any Additional Payments)
on any Security or to convert any Security in accordance with Article Twelve.
SECTION 5.15. Waiver of Stay or Extension Laws.
Each of the Obligors covenants (to the extent that it may
lawfully do so) that it will not at any time insist upon, or plead, or in any
manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which
may affect the covenants or the performance of this Indenture; and each of the
Obligors (to the extent that it may lawfully do so) hereby expressly waives
all benefit or advantage of any such law and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
SECTION 5.16. Enforcement by Holders of Preferred Securities.
Notwithstanding the foregoing, if an Indenture Event of
Default has occurred and is continuing and such event is attributable to the
failure of the Obligors to pay interest or principal on the Securities on the
date such interest or principal is otherwise payable, each of the Obligors
acknowledges that, in such event, a holder of Preferred Securities may
institute a Direct Action for payment on or after the respective due date
specified in the Securities. The Obligors may not amend the Indenture to
remove the foregoing right to bring a Direct Action without the prior
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written consent of all the holders of Preferred Securities. Notwithstanding any
payment made to such holder of Preferred Securities by the Obligors in
connection with a Direct Action, each of the Obligors shall remain obligated,
on a joint and several basis, to pay the principal of or interest on the
Securities held by the Trust or the Property Trustee and the Obligors shall be
subrogated to the rights of the holders of such Preferred Securities with
respect to payments on the Preferred Securities to the extent of any payments
made by the Obligors to any such holders in any Direct Action. The holders of
Preferred Securities will not be able to exercise directly any other remedy
available to the holders of the Securities.
ARTICLE SIX
The Trustee
SECTION 6.01. Certain Duties and Responsibilities.
The duties and responsibilities of the Trustee shall be as
provided by the Trust Indenture Act. Notwithstanding the foregoing, no
provision of this Indenture shall require the Trustee to expend or risk its
own funds or otherwise incur any financial liability in the performance of any
of its duties hereunder, or in the exercise of any of its rights or powers, if
it shall have reasonable grounds for believing that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it. Whether or not therein expressly so provided, every provision of this
Indenture relating to the conduct or affecting the liability of or affording
protection to the Trustee shall be subject to the provisions of this Section.
SECTION 6.02. Notice of Defaults.
The Trustee shall give the Holders notice of any default
hereunder as and to the extent provided by the Trust Indenture Act; provided,
however, that in the case of any default of the character specified in Section
501(4), no such notice to Holders shall be given until at least 30 days after
the occurrence thereof. For the purpose of this Section, the term "default"
means any event which is, or after notice or lapse of time or both would
become, an Event of Default.
SECTION 6.03. Certain Rights of Trustee.
Subject to the provisions of Section 601:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of indebtedness or other
paper or document believed by it to be genuine and to have been
signed or presented by the proper party or parties;
(b) any request or direction of the Obligors mentioned
herein shall be sufficiently evidenced by an Obligor's Request or
Obligor's Order and any resolution of the Board of Directors may be
sufficiently evidenced by a Board Resolution;
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(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or
established prior to taking, suffering or omitting any action
hereunder, the Trustee (unless other evidence be herein specifically
prescribed) may, in the absence of bad faith on its part, rely upon
an Officers' Certificate;
(d) the Trustee may consult with counsel of its choice and
the advice of such counsel or any Opinion of Counsel shall be full
and complete authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good faith and in
reliance thereon;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be
incurred by it in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation
into the facts or matters stated in any resolution, certificate,
statement, instrument, opinion, report, notice, request, direction,
consent, order, bond, debenture, note, other evidence of indebtedness
or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters
as it may see fit, and, if the Trustee shall determine to make such
further inquiry or investigation, it shall be entitled to reasonable
examination of the books, records and premises of the Obligors,
personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder; and
(h) the Trustee shall not be liable for any action taken,
suffered, or omitted to be taken by it in good faith, without
negligence or willful misconduct, and reasonably believed by it to be
authorized or within the discretion or rights or powers conferred
upon it by this Indenture.
SECTION 6.04. Not Responsible for Recitals or Issuance of Securities.
The recitals contained herein and in the Securities, except
the Trustee's certificates of authentication, shall be taken as the statements
of the Obligors, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Indenture or of the Securities. The Trustee shall not be
accountable for the use or application by the Obligors of the Securities or
the proceeds thereof.
SECTION 6.05. May Hold Securities.
The Trustee, any Paying Agent, any Security Registrar or any
other agent of the Obligors, in its individual or any other capacity, may
become the owner or pledgee of Securities
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and, subject to Sections 608 and 613, may otherwise deal with the Obligors or
any Affiliate thereof with the same rights it would have if it were not
Trustee, Paying Agent, Security Registrar, or such other agent.
SECTION 6.06. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be
segregated from other funds except to the extent required by law. The Trustee
shall be under no liability for interest on any money received by it hereunder
except as otherwise agreed with the Obligors.
SECTION 6.07. Compensation and Reimbursement.
The Obligors agree jointly and severally
(1) to pay to the Trustee from time to time such reasonable
compensation as the Obligors and the Trustee shall from time to time
agree in writing for all services rendered by it hereunder;
(2) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
fees, disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
(3) to indemnify the Trustee and any predecessor Trustee
for, and to hold it harmless against, any loss, liability or
reasonable expense incurred without negligence or bad faith on its
part, arising out of or in connection with the acceptance or
administration of this trust, including the reasonable costs and
expenses of defending itself against any claim or liability in
connection with the exercise or performance of any of its powers or
duties hereunder.
When the Trustee incurs expenses or renders services in
connection with an Event of Default specified in Section 501(6) or Section
501(7), the expenses (including the reasonable charges and expenses of its
counsel) and the compensation for the services are intended to constitute
expenses of administration under any applicable Federal or state bankruptcy,
insolvency or other similar law.
The provisions of this Section shall survive the termination
of this Indenture.
SECTION 6.08. Disqualification; Conflicting Interests.
If the Trustee has or shall acquire a conflicting interest
within the meaning of the Trust Indenture Act, the Trustee shall either
eliminate such interest or resign, to the extent and in the manner provided
by, and subject to the provisions of, the Trust Indenture Act and this
Indenture.
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SECTION 6.09. Corporate Trustee Required; Eligibility.
There shall at all times be a Trustee hereunder which shall
be a Person that is eligible pursuant to the Trust Indenture Act to act as
such and has a combined capital and surplus of at least $50,000,000 and has
its Corporate Trust Office in New York, New York. If such Person publishes
reports of condition at least annually, pursuant to law or to the requirements
of said supervising or examining authority, then for the purposes of this
Section, the combined capital and surplus of such Person shall be deemed to be
its combined capital and surplus as set forth in its most recent report of
condition so published. If at any time the Trustee shall cease to be eligible
in accordance with the provisions of this Section, it shall resign immediately
in the manner and with the effect hereinafter specified in this Article.
SECTION 6.10. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no
appointment of a successor Trustee pursuant to this Article shall become
effective until the acceptance of appointment by the successor Trustee under
Section 611.
(b) The Trustee may resign at any time by giving written
notice thereof to each of the Obligors. If an instrument of acceptance by a
successor Trustee shall not have been delivered to the Trustee within 30 days
after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a
successor Trustee.
(c) The Trustee may be removed at any time by Act of the
Holders of a majority in principal amount of the Outstanding Securities,
delivered to the Trustee and to each of the Obligors. If an instrument of
acceptance by a successor Trustee shall not have been delivered to the Trustee
within 30 days after the giving of such notice of resignation, the resigning
Trustee may petition any court of competent jurisdiction for the appointment
of a successor Trustee.
(d) If at any time:
(1) the Trustee shall fail to comply with Section 608 after
written request therefor by the Obligors or by any Holder who has
been a bona fide Holder of a Security for at least six months, or
(2) the Trustee shall cease to be eligible under Section 609
and shall fail to resign after written request therefor by either of
the Obligors or by any such Holder, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of
its property shall be appointed or any public officer shall take
charge or control of the Trustee or of its property or affairs for
the purpose of rehabilitation, conservation or liquidation,
then, in any such case, (i) either of the Obligors by Board Resolution may
remove the Trustee, or (ii) subject to Section 514, any Holder who has been a
bona fide Holder of a Security for at least six months may, on behalf of
himself and all others similarly situated, petition any court of competent
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jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
(e) If the Trustee shall resign, be removed or become
incapable of acting, or if a vacancy shall occur in the office of Trustee for
any cause, either of the Obligors, by a Board Resolution, shall promptly
appoint a successor Trustee. If, within one year after such resignation,
removal or incapability, or the occurrence of such vacancy, a successor
Trustee shall be appointed by Act of the Holders of a majority in principal
amount of the Outstanding Securities delivered to either of the Obligors and
the retiring Trustee, the successor Trustee so appointed shall, forthwith upon
its acceptance of such appointment, become the successor Trustee and supersede
the successor Trustee appointed by either of the Obligors. If no successor
Trustee shall have been so appointed by either of the Obligors or the Holders
and accepted appointment in the manner hereinafter provided, any Holder who
has been a bona fide Holder of a Security for at least six months may, on
behalf of himself and all others similarly situated, petition any court of
competent jurisdiction for the appointment of a successor Trustee.
(f) Either of the Obligors shall give notice of each
resignation and each removal of the Trustee and each appointment of a
successor Trustee to all Holders in the manner provided in Section 106. Each
notice shall include the name of the successor Trustee and the address of its
Corporate Trust Office.
SECTION 6.11. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute,
acknowledge and deliver to the Obligors and to the retiring Trustee an
instrument accepting such appointment, and thereupon the resignation or
removal of the retiring Trustee shall become effective and such successor
Trustee, without any further act, deed or conveyance, shall become vested with
all the rights, powers, trusts and duties of the retiring Trustee; provided,
that on request of the Obligors or the successor Trustee, such retiring
Trustee shall, upon payment of its charges, execute and deliver an instrument
transferring to such successor Trustee all the rights, powers and trusts of
the retiring Trustee and shall duly assign, transfer and deliver to such
successor Trustee all property and money held by such retiring Trustee
hereunder. Upon request of any such successor Trustee, each of the Obligors
shall execute any and all instruments required to more fully and certainly
vest in and confirm to such successor Trustee all such rights, powers and
trusts.
No successor Trustee shall accept its appointment unless at
the time of such acceptance such successor Trustee shall be qualified and
eligible under this Article.
SECTION 6.12. Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to all or substantially all the corporate
trust business of the Trustee, shall be the successor of the Trustee
hereunder, provided such corporation shall be otherwise qualified and eligible
under this Article, without the execution or filing of any paper or any
further act on the part of any of the parties hereto. In case any Securities
shall have been authenticated, but not delivered, by the Trustee then in
office, any
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successor by merger, conversion or consolidation to such authenticating Trustee
may adopt such authentication and deliver the Securities so authenticated with
the same effect as if such successor Trustee had itself authenticated such
Securities.
SECTION 6.13. Preferential Collection of Claims Against Obligors.
If and when the Trustee shall be or become a creditor of the
Obligors (or any other obligor upon the Securities), the Trustee shall be
subject to the provisions of the Trust Indenture Act regarding the collection
of claims against the Obligors (or any such other obligor).
ARTICLE SEVEN
Holders' Lists and Reports by Trustee and Obligors
SECTION 7.01. Obligors to Furnish Trustee Names and Addresses of Holders.
The Obligors will furnish or cause to be furnished to the
Trustee
(a) semiannually, within one Business Day after May 20 and
November 20 of each year, a list, in such form as the Trustee may
reasonably require, of the names and addresses of the Holders as of a
date not more than 15 days prior to the delivery thereof, and
(b) at such other times as the Trustee may request in
writing, within 30 days after the receipt by the Obligors of any such
request, a list of similar form and content as of a date not more
than 15 days prior to the time such list is furnished;
excluding from any such list names and addresses received by the Trustee in
its capacity as Security Registrar and provided that the Obligors shall not be
obligated to provide a list of Holders at any time such list of Holders does
not differ from the most recent list of Holders given to the Trustee by the
Obligors or the Securities are represented by one or more Global Securities.
SECTION 7.02. Preservation of Information; Communications to Holders.
(a) The Trustee shall preserve, in as current a form as is
reasonably practicable, the names and addresses of Holders contained in the
most recent list furnished to the Trustee as provided in Section 701 and the
names and addresses of Holders received by the Trustee in its capacity as
Security Registrar. The Trustee may destroy any list furnished to it as
provided in Section 701 upon receipt of a new list so furnished.
(b) The rights of Holders to communicate with other Holders
with respect to their rights under this Indenture or under the Securities, and
the corresponding rights and duties of the Trustee, shall be as provided by
the Trust Indenture Act.
(c) Every Holder of Securities, by receiving and holding the
same, agrees with the Obligors and the Trustee that neither the Obligors nor
the Trustee nor any agent of either of
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them shall be held accountable by reason of any disclosure of information as to
names and addresses of Holders made pursuant to the Trust Indenture Act or this
Indenture.
SECTION 7.03. Reports by Trustee.
(a) Within 60 days after September 15 of each year,
commencing September 15, 1996, the Trustee shall transmit by mail to the
Holders such reports concerning the Trustee and its actions under this
Indenture as may be required pursuant to the Trust Indenture Act in the manner
provided pursuant thereto.
(b) A copy of each such report shall, at the time of such
transmission to the Holders, be filed by the Trustee with each stock exchange
upon which the Securities are listed, with the Commission and with the
Obligors. The Obligors will notify the Trustee when the Securities are listed
on any stock exchange.
SECTION 7.04. Reports by Obligors.
The Obligors shall file with the Trustee and the Commission,
and transmit to the Holders, such information, documents and other reports,
and such summaries thereof, as may be required pursuant to the Trust Indenture
Act at the times and in the manner provided pursuant to such Act; provided,
that any such information, documents or reports required to be filed with the
Commission pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 shall be filed with the Trustee within 15 days after the same is so
required to be filed with the Commission.
Delivery of such reports, information and documents to the
Trustee is for informational purposes only and the Trustee's receipt of such
shall not constitute constructive notice of any information contained therein
or determinable from information contained therein, including the Obligors'
compliance with any of their covenants hereunder (as to which the Trustee is
entitled to rely exclusively on Officers' Certificates).
The Obligors shall also provide to the Trustee on a timely
basis such information as the Trustee requires to enable the Trustee to
prepare and file any form required to be submitted by the Obligors with the
Internal Revenue Service and the Holders of the Notes relating to original
issue discount, including, without limitation, Form 1099-OID or any successor
form.
ARTICLE EIGHT
Consolidation, Merger, Conveyance, Transfer or Lease
SECTION 8.01. Obligors May Consolidate, Etc., Only on Certain Terms.
Neither of the Obligors shall consolidate with or merge with
or into any other Person or, directly or indirectly, convey, transfer or lease
all or substantially all of its properties and assets on a consolidated basis
to any Person, unless:
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(1) the Person formed by such consolidation or into which
one or both of the Obligors is merged or the Person which acquires by
conveyance, transfer or lease, all or substantially all of the
properties and assets of one or both of the Obligors on a
consolidated basis shall be a corporation, partnership or trust,
shall be organized and validly existing under the laws of the United
States of America, any State thereof or the District of Columbia and
shall expressly assume, by an indenture supplemental hereto, executed
and delivered to the Trustee, in form reasonably satisfactory to the
Trustee, the due and punctual payment of the principal of (and
premium, if any) and interest on all the Securities and the
performance or observance of every covenant of this Indenture on the
part of the applicable Obligor to be performed or observed and shall
have provided for conversion rights in accordance with Article
Twelve;
(2) immediately after giving effect to such transaction and
treating any indebtedness which becomes an obligation of one or
either of the Obligors or a Subsidiary of either Obligor as a result
of such transaction as having been incurred by one or either of the
Obligors or such Subsidiary at the time of such transaction, no Event
of Default, and no event which, after notice or lapse of time or
both, would become an Event of Default, shall have happened and be
continuing; and
(3) one or both of the Obligors have delivered to the
Trustee an Officers' Certificate and an Opinion of Counsel, each
stating that, in their opinion, such consolidation, merger,
conveyance, transfer or lease and, if a supplemental indenture is
required in connection with such transaction, such supplemental
indenture, comply with this Article and that all conditions precedent
herein provided for relating to such transaction have been complied
with.
This Section shall only apply to (i) a merger or
consolidation in which either of the Obligors is not the surviving
corporation, provided, however, this Section shall not apply to a merger or
consolidation in which one of the Obligors is the surviving corporation and
(ii) to conveyances, leases and transfers by either of the Obligors as
transferor or lessor; provided, however, that this Section shall not apply if
one of the Obligors consolidates with or merges into the other Obligor and one
of the Obligors is the surviving entity.
SECTION 8.02. Successor Substituted.
Upon any consolidation of either of the Obligors with, or
merger of either of the Obligors into, any other Person or any conveyance,
transfer or lease of all or substantially all the properties and assets of
either of the Obligors on a consolidated basis in accordance with Section 801,
the successor Person formed by such consolidation or into which either of the
Obligors is merged or to which such conveyance, transfer or lease is made
shall succeed to, and be substituted for, and may exercise every right and
power of, the Obligors under this Indenture with the same effect as if such
successor Person had been named as one of the Obligors herein, and thereafter
the predecessor Person shall be relieved of all obligations and covenants
under this Indenture and the Securities.
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ARTICLE NINE
Supplemental Indentures
SECTION 9.01. Supplemental Indentures Without Consent of Holders.
Without the consent of any Holders, the Obligors, when
authorized by a Board Resolution, and the Trustee, at any time and from time
to time, may enter into one or more indentures supplemental hereto, in form
satisfactory to the Trustee, for any of the following purposes:
(1) to evidence the succession of another Person to either of
the Obligors and the assumption by any such successor of the covenants
of the Obligors herein and in the Securities; or
(2) to add to the covenants of either of the Obligors for the
benefit of the Holders, or to surrender any right or power herein
conferred upon either of the Obligors; or
(3) to make provision with respect to the conversion rights
of Holders pursuant to the requirements of Article Twelve; or
(4) to cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with any other provision
herein, or to make any other provisions with respect to matters or
questions arising under this Indenture which shall not be
inconsistent with the provisions of this Indenture; provided, that
such action pursuant to this clause (4) shall not adversely affect
the interests of the Holders of the Securities or, so long as any of
the Preferred Securities shall remain outstanding, the holders of the
Preferred Securities;
(5) to comply with the requirements of the Commission in
order to effect or maintain the qualification of this Indenture under
the Trust Indenture Act; or
(6) to make provision for transfer procedures,
certification, book-entry provisions, the form of restricted
securities legends, if any, to be placed on Securities, and all other
matters required pursuant to Section 305(b) or otherwise necessary,
desirable or appropriate in connection with the issuance of
Securities to holders of Preferred Securities in the event of a
distribution of Securities by the Trust if a Special Event occurs and
is continuing.
SECTION 9.02. Supplemental Indentures with Consent of Holders.
With the consent of the Holders of not less than a majority
in principal amount of the Outstanding Securities, by Act of said Holders
delivered to each of the Obligors and the Trustee, each of the Obligors, when
authorized by a Board Resolution, and the Trustee may enter into an indenture
or indentures supplemental hereto for the purpose of adding any provisions to
or changing in any manner or eliminating any of the provisions of this
Indenture or of modifying in
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any manner the rights of the Holders under this Indenture; provided, however,
that no such supplemental indenture shall, without the consent of the Holder of
each Outstanding Security affected thereby,
(1) extend the Stated Maturity of the principal of, or any
installment of interest (including any Additional Payments) on, any
Security, or reduce the principal amount thereof, or reduce the rate
or extend the time for payment of interest thereon, or reduce any
premium payable upon the redemption thereof, or change the place of
payment where, or the coin or currency in which, any Security or
interest thereon is payable, or impair the right to institute suit
for the enforcement of any such payment on or after the Stated
Maturity thereof (or, in the case of redemption, on or after the
Redemption Date), or adversely affect the right to convert any
Security as provided in Article Twelve (except as permitted by
Section 901(3)),
(2) reduce the percentage in principal amount of the
Outstanding Securities, the consent of whose Holders is required for
any such supplemental indenture, or the consent of whose Holders is
required for any waiver (of compliance with certain provisions of
this Indenture or certain defaults hereunder and their consequences)
provided for in this Indenture, or
(3) modify any of the provisions of this Section or Section
513, except to increase any such percentage or to provide that
certain other provisions of this Indenture cannot be modified or
waived without the consent of the Holder of each Outstanding Security
affected thereby;
provided that if the Securities are held by the Trust or a trustee of the
Trust, such supplemental indenture shall not be effective until the holders of
a majority in liquidation amount of Trust Securities shall have consented to
such supplemental indenture; provided, further, that if the consent of the
Holder of each Outstanding Security is required, such supplemental indenture
shall not be effective as to a given holder of Trust Securities of the Trust
until such holder of the Trust Securities of the Trust shall have consented to
such supplemental indenture.
It shall not be necessary for any Act of Holders under this
Section to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
The Obligors may, but shall not be obligated to, fix a
record date for the purpose of determining the Persons entitled to consent to
any indenture supplemental hereto. If a record date is fixed, the Holders on
such record date, or their duly designated proxies, and only such Persons,
shall be entitled to consent to such supplemental indenture, whether or not
such Holders remain Holders after such record date; provided that unless such
consent shall have become effective by virtue of the requisite percentage
having been obtained prior to the date which is 90 days after such record
date, any such consent previously given shall automatically and without
further action by any Holder be cancelled and of no further effect.
SECTION 9.03. Execution of Supplemental Indentures.
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In executing, or accepting the additional trusts created by,
any supplemental indenture permitted by this Article or the modifications
thereby of the trusts created by this Indenture, the Trustee shall be entitled
to receive, and (subject to Section 601) shall be fully protected in relying
upon, an Opinion of Counsel stating that the execution of such supplemental
indenture is authorized or permitted by this Indenture. The Trustee may, but
shall not be obligated to, enter into any such supplemental indenture which
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise.
SECTION 9.04. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this
Article, this Indenture shall be modified in accordance therewith, and such
supplemental indenture shall form a part of this Indenture for all purposes;
and every Holder of Securities theretofore or thereafter authenticated and
delivered hereunder shall be bound thereby.
SECTION 9.05. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this
Article shall conform to the requirements of the Trust Indenture Act.
SECTION 9.06. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution
of any supplemental indenture pursuant to this Article may, and shall if
required by the Trustee, bear a notation in form approved by the Trustee as to
any matter provided for in such supplemental indenture. If the Obligors shall
so determine, new Securities so modified as to conform, in the opinion of the
Trustee and the Obligors, to any such supplemental indenture may be prepared
and executed by the Obligors and authenticated and delivered by the Trustee in
exchange for Outstanding Securities.
ARTICLE TEN
Covenants; Representations and Warranties
SECTION 10.01. Payment of Principal and Interest.
The Obligors will, jointly and severally, duly and
punctually pay the principal of and interest on the Securities in accordance
with the terms of the Securities and this Indenture.
SECTION 10.02. Maintenance of Office or Agency.
The Obligors will each maintain in the United States an
office or agency (which may be the same for both of the Obligors) where
Securities may be presented or surrendered for payment, where Securities may
be surrendered for registration of transfer or exchange and where notices and
demands to or upon the Obligors in respect of the Securities and this
Indenture may be served. The Obligors will give prompt written notice to the
Trustee of the location, and any change
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in the location, of any such office or agency. If at any time the Obligors
shall fail to maintain any such required office or agency or shall fail to
furnish the Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the Corporate Trust Office of the
Trustee, and the Obligors hereby appoint the Trustee as their agent to receive
all such presentations, surrenders, notices and demands.
The Obligors may also from time to time designate one or
more other offices or agencies (in the United States) where the Securities may
be presented or surrendered for any or all such purposes and may from time to
time rescind such designations; provided, however, that no such designation or
rescission shall in any manner relieve the Obligors of their obligations to
maintain an office or agency in the United States for such purposes. The
Obligors will give prompt written notice to the Trustee of any such
designation or rescission and of any change in the location of any such other
office or agency.
SECTION 10.03. Money for Security Payments to Be Held in Trust.
If the Obligors shall at any time act as their own Paying
Agent, they will, on or before each due date of the principal of or interest
on any of the Securities, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal or interest so
becoming due until such sums shall be paid to such Persons or otherwise
disposed of as herein provided and will promptly notify the Trustee of their
action or failure so to act.
Whenever the Obligors shall have one or more Paying Agents
other than the Obligors, the Obligors will, prior to each due date of the
principal of or interest on any Securities, deposit with a Paying Agent a sum
sufficient to pay such amount, such sum to be held as provided by the Trust
Indenture Act, and (unless such Paying Agent is the Trustee) the Obligors will
promptly notify the Trustee of such action or failure so to act.
The Obligors will cause each Paying Agent other than the
Trustee to execute and deliver to the Trustee an instrument in which such
Paying Agent shall agree with the Trustee, subject to the provisions of this
Section, that such Paying Agent will (i) comply with the provisions of the
Trust Indenture Act applicable to it as a Paying Agent and (ii) during the
continuance of any default by the Obligors (or any other obligor upon the
Securities) in the making of any payment in respect of the Securities, upon
the written request of the Trustee, forthwith pay to the Trustee all sums held
in trust by such Paying Agent as such.
The Obligors may at any time, for the purpose of obtaining
the satisfaction and discharge of this Indenture or for any other purpose,
pay, or by an Obligor's Order direct any Paying Agent to pay, to the Trustee
all sums held in trust by the Company or such Paying Agent, such sums to be
held by the Trustee upon the same terms as those upon which such sums were
held by the Obligors or such Paying Agent; and, upon such payment by any
Paying Agent to the Trustee, such Paying Agent shall be released from all
further liability with respect to such money.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Obligors, in trust for the payment of the principal of or
interest on any Security and remaining unclaimed for two years after such
principal or interest has become due and payable shall be paid to
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the Obligors upon an Obligor's Request, or (if then held by the Obligors) shall
be discharged from such trust; and the Holder of any such Security shall
thereafter, as an unsecured general creditor, look only to the Obligors for
payment thereof, unless an abandoned property law designates another person,
and all liability of the Trustee or such Paying Agent with respect to such
trust money, and all liability of the Obligors as trustee thereof, shall
thereupon cease.
SECTION 10.04. Statement by Officers as to Default.
The Obligors will deliver to the Trustee, within 120 days
after the end of each fiscal year of the Company ending after the date hereof,
an Officers' Certificate, stating whether or not to the best knowledge of the
signers thereof the Obligors are in default in the performance and observance
of any of the material terms, provisions and conditions of this Indenture
(without regard to any period of grace or requirement of notice provided
hereunder) and, if the Obligors shall be in default, specifying all such
defaults and the nature and status thereof of which they may have knowledge.
SECTION 10.05. Limitation on Dividends; Transactions with Affiliates;
Covenants as to the Trust.
(a) The Company covenants that so long as the Securities are
outstanding, if (i) there shall have occurred and be continuing any event that
with the giving of notice or the lapse of time or both, would constitute an
Event of Default, (ii) the Company shall be in default with respect to its
payment of any obligations under the Guarantee, or (iii) the Obligors have
exercised their option to defer interest payments on the Securities by
extending the interest payment period and such period, or any extension
thereof, shall be continuing, then the Company (a) shall not declare or pay
dividends on, make distributions with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of its capital
stock (except for (i) dividends or distributions in shares of Common Stock on
Common Stock or on the Series B Preferred Stock, (ii) purchases or
acquisitions of shares of Common Stock made in connection with any employee
benefit plan of the Company or its subsidiaries or pursuant to employment
agreements with officers or employees of the Company or its subsidiaries,
provided that such repurchases by the Company made from officers or employees
of the Company or its subsidiaries pursuant to employment agreements shall be
made at a price not to exceed the market value on the date of any such
repurchase and shall not exceed $5 million in the aggregate for all such
employees and officers, (iii) conversions or exchanges of shares of Common
Stock of one class into shares of Common Stock of another class or (iv)
purchases of fractional interests in shares of the Company's capital stock
pursuant to the conversion or exchange provisions of any of the Company's
securities being converted or exchanged), (b) shall not make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by the Company that rank junior to the Securities
(except by conversion into or exchange for shares of its capital stock), and
(c) shall not make any guarantee payments with respect to the foregoing (other
than such payments made pursuant to the Guarantee).
(b) Golden Books Publishing covenants that so long as the
Securities are outstanding, if (i) there shall have occurred and be continuing
any event that with the giving of
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notice or the lapse of time or both, would constitute an Event of Default, or
(ii) the Obligors have exercised their option to defer interest payments on the
Securities by extending the interest payment period and such period, or any
extension thereof, shall be continuing, then Golden Books Publishing (a) if
Golden Books Publishing is not a wholly owned subsidiary of the Company, shall
not declare or pay dividends on, make distributions with respect to, or redeem,
purchase or acquire, or make a liquidation payment with respect to, any of its
capital stock (except for (i) dividends or distributions in shares of its
common stock made on outstanding shares of its common stock, (ii) conversions
or exchanges of shares of its common stock of one class into shares of common
stock of another class or (iii) purchases of fractional interests in shares of
the capital stock of Golden Books Publishing being converted or exchanged) and
(b) shall not make any payment of interest, principal of or premium, if any,
on, or repay, repurchase or redeem any debt securities issued by the Golden
Books Publishing that rank junior to the Convertible Debentures (except by
conversion into or exchange for shares of its capital stock).
(c) The Company also covenants and agrees (i) that it shall
directly or indirectly maintain 100% ownership of the Common Securities of the
Trust; provided, however, that any permitted successor of the Company
hereunder may succeed to the Company's ownership of such Common Securities and
(ii) that it shall use its reasonable efforts, consistent with the terms and
provisions of the Declaration, to cause the Trust (x) to remain a statutory
business trust, except in connection with the distribution of the Securities
to the holders of Trust Securities in liquidation of the Trust, the redemption
of all of the Trust Securities of the Trust, or certain mergers,
consolidations or amalgamations, each as permitted by the Declaration, and (y)
to otherwise continue to be classified as a grantor trust for United States
Federal income tax purposes.
SECTION 10.06. Payment of Expenses of the Trust.
In connection with the offering, sale and issuance of the
Securities to the Property Trustee in connection with the sale of the Trust
Securities by the Trust, the Obligors shall, jointly and severally, be
responsible for the payment of:
(a) all costs, fees and expenses relating to the offering,
sale and issuance of the Securities, including commissions to the Initial
Purchasers payable pursuant to the Purchase Agreement and compensation of the
Trustee under the Indenture in accordance with the provisions of Section 607
of the Indenture;
(b) all debts and obligations (other than with respect to
the Trust Securities) of the Trust, all costs and expenses of the Trust
(including, but not limited to, costs and expenses relating to the
organization of the Trust, the offering, sale and issuance of the Trust
Securities (including commissions to the Initial Purchasers in connection
therewith), the fees and expenses of the Property Trustee and the Delaware
Trustee, the costs and expenses relating to the operation of the Trust,
including without limitation, costs and expenses of accountants, attorneys,
statistical or bookkeeping services, expenses for printing and engraving and
computing or accounting equipment, paying agent(s), registrar(s), transfer
agent(s), duplicating, travel and telephone and other telecommunications
expenses and costs and expenses incurred in connection with the acquisition,
financing and disposition of Trust assets); and
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(c) all taxes (other than United States withholding taxes
attributable to the Trust or its assets) and all liabilities, costs and
expenses with respect to such taxes of the Trust.
SECTION 10.07. Registration Rights.
The holders of the Preferred Securities, the Securities, the
Guarantee and the shares of Common Stock of the Company issuable upon
conversion of the Securities (collectively, the "Registrable Securities") are
entitled to the benefits of a Registration Rights Agreement, dated as of
August 20, 1996, among the Company, Golden Books Publishing, and the Initial
Purchasers (the "Registration Rights Agreement"). Pursuant to the Registration
Rights Agreement, the Company has agreed for the benefit of the holders of
Registrable Securities that (i) it will, at its cost, within 60 calendar days
after the date of issuance of the Registrable Securities, file a shelf
registration statement (the "Shelf Registration Statement") with the
Commission with respect to the resales of the Registrable Securities, (ii) it
will use its best efforts to cause such Shelf Registration Statement to be
declared effective by the Commission within 150 calendar days after the date
of issuance of the Registrable Securities and (iii) the Company will use its
best efforts to maintain such Shelf Registration Statement continuously
effective under the Securities Act until the third anniversary of the
effectiveness of the Shelf Registration Statement or such earlier date as is
provided in the Registration Rights Agreement (the "Effectiveness Period").
If (i) on or prior to 60 days following the date of original
issuance of the Registrable Securities, a Shelf Registration Statement has not
been filed with the Commission, or (ii) on or prior to the 150th day following
the issuing of the Registrable Securities, such Shelf Registration Statement
is not declared effective (each, a "Registration Default"), additional
interest ("Liquidated Damages") will accrue on the Securities and,
accordingly, additional distributions will accrue on the Preferred Securities,
in each case from and including the day following such Registration Default.
Liquidated Damages will be paid quarterly in arrears, with the first quarterly
payment due on the first interest or distribution payment date, as applicable,
following the date on which such Liquidated Damages begin to accrue, and will
accrue at a rate per annum equal to an additional one-quarter of one percent
(0.25%) of the principal amount or liquidation amount, as applicable, to and
including the 90th day following such Registration Default and one-half of one
percent (0.50%) thereof from and after the 91st day following such
Registration Default. Upon (x) the filing of the Shelf Registration Statement
after the 60-day period described in clause (i) above or (y) the effectiveness
of the Shelf Registration Statement after the 150-day period described in
clause (ii) above, the interest rate borne by the Securities and the
distribution rate borne by the Preferred Securities, from and after the date
of such filing or effectiveness, as the case may be, will be reduced to the
original interest rate and distribution rate, respectively. In the event that
the Shelf Registration Statement ceases to be effective during the
Effectiveness Period for more than 60 days, whether or not consecutive, during
any 12-month period, then the interest rate borne by the Securities and the
distribution rate borne by the Preferred Securities will each increase by an
additional one-half of one percent (0.50%) per annum from such 61st day, until
such time as the Shelf Registration Statement again becomes effective.
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ARTICLE ELEVEN
Redemption of Securities
SECTION 11.01. Right of Redemption.
(a) The Securities may be redeemed at the election of the
Obligors, in whole or in part, at any time or from time to time after August
20, 1999, at the Redemption Prices set forth in Section 1109 below upon not
less than 30 or more than 60 days' notice.
(b) The Securities may be redeemed, in whole (but not in
part), at the election of the Obligors at any time within 90 days following
the occurrence of a Tax Event or an Investment Company Event (in whole but not
in part); provided, however, that if, at the time there is available to the
Obligors or the Trust the opportunity to eliminate, within such 90-day period,
the Tax Event or Investment Company Event by taking some ministerial action,
such as filing a form or making an election, or pursuing some other similar
reasonable measure, which in the sole judgment of the Obligors has or will
cause no adverse effect on the Trust, the Holders of the Trust Securities or
the Obligors or will involve no material cost, then the Obligors or the Trust
shall pursue such measure in lieu of redemption.
SECTION 11.02. Applicability of Article.
Redemption of Securities at the election of the Obligors, as
permitted by Section 1101, shall be made in accordance with such provision and
this Article.
SECTION 11.03. Election to Redeem; Notice to Trustee.
The election of the Obligors to redeem Securities pursuant
to Section 1101 shall be evidenced by a Board Resolution. In case of any
redemption at the election of either of the Obligors, the Obligors shall, at
least 60 days and no more than 90 days prior to the Redemption Date fixed by
the Obligors, notify the Trustee in writing of such Redemption Date and of the
principal amount of Securities to be redeemed and provide a copy of the notice
of redemption given to Holders of Securities to be redeemed pursuant to
Section 1104.
SECTION 11.04. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed (unless
such redemption affects only a single Security), the particular Securities to
be redeemed shall be selected not more than 60 days prior to the Redemption
Date by the Trustee, from the Outstanding Securities not previously called for
redemption, by such method as the Trustee shall deem fair and appropriate and
which may provide for the selection for redemption of portions (equal to $50
or any integral multiple thereof) of the principal amount of the Securities.
The Trustee shall promptly notify the Obligors in writing of
the Securities selected for redemption as aforesaid and, in case of any
Securities selected for partial redemption as aforesaid, the principal amount
thereof to be redeemed.
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The provisions of the two preceding paragraphs shall not
apply with respect to any redemption affecting only a single Security, whether
such Security is to be redeemed in whole or in part. In the case of any such
redemption in part, the unredeemed portion of the principal amount of the
Security shall be in an authorized denomination (which shall not be less than
the minimum authorized denomination) for such Security.
For all purposes of this Indenture, unless the context
otherwise requires, all provisions relating to the redemption of Securities
shall relate, in the case of any Securities redeemed or to be redeemed only in
part, to the portion of the principal amount of such Securities which has been
or is to be redeemed.
SECTION 11.05. Notice of Redemption.
Notice of redemption shall be given by first-class mail,
postage prepaid, mailed not less than 30 nor more than 60 days prior to the
Redemption Date, to each Holder of Securities to be redeemed, at such Holder's
address appearing in the Security Register.
All notices of redemption shall identify the Securities to
be redeemed (including, if relevant, the CUSIP or ISIN number) and shall
state:
(1) the Redemption Date,
(2) the Redemption Price,
(3) that on the Redemption Date the Redemption Price will
become due and payable upon each such Security to be redeemed and that
interest thereon will cease to accrue on and after said date, and
(4) the place or places where such Securities are to be
surrendered for payment of the Redemption Price.
Notice of redemption of Securities to be redeemed at the
election of the Obligors shall be given by the Obligors or, at the Obligors'
request, by the Trustee in the name and at the expense of the Obligors.
SECTION 11.06. Deposit of Redemption Price.
Prior to any Redemption Date, the Obligors shall deposit
with the Trustee or with a Paying Agent (or, if the Obligors are acting as
their own Paying Agent, segregate and hold in trust as provided in Section
1003) an amount of money sufficient to pay the Redemption Price of, and
(except if the Redemption Date shall be an Interest Payment Date) accrued
interest on, all the Securities which are to be redeemed on that date.
If any Security called for redemption is converted, any
money deposited with the Trustee or with any Paying Agent or so segregated and
held in trust for the redemption of such Security shall (subject to any right
of the Holder of such Security or any Predecessor Security to
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receive interest as provided in the last paragraph of Section 307) be paid to
the Obligors upon an Obligor's Request or, if then held by the Obligors, shall
be discharged from such trust.
SECTION 11.07. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the
Securities so to be redeemed shall, on the Redemption Date, become due and
payable at the Redemption Price therein specified, and from and after such
date (unless the Obligors shall default in the payment of the Redemption Price
and accrued interest) such Securities shall cease to bear interest. Upon
surrender of any such Security for redemption in accordance with said notice,
such Security shall be paid by the Obligors, which obligation shall be joint
and several, at the Redemption Price, together with accrued interest
(including Additional Payments, if any) to the Redemption Date; provided,
however, that installments of interest whose Stated Maturity is on or prior to
the Redemption Date shall be payable to the Holders of such Securities, or one
or more Predecessor Securities, registered as such at the close of business on
the relevant Record Dates according to the terms and the provisions of Section
307.
If any Security called for redemption shall not be so paid
upon surrender thereof for redemption, the principal shall, until paid, bear
interest from the Redemption Date at the rate borne by the Security.
SECTION 11.08. Securities Redeemed in Part.
In the event of any redemption in part, the Obligors shall
not be required to (i) issue, register the transfer of or exchange any
Security during a period beginning at the opening of business 15 days before
any selection for redemption of Securities and ending at the close of business
on the earliest date on which the relevant notice of redemption is deemed to
have been given to all holders of Securities to be so redeemed and (ii)
register the transfer of or exchange any Securities so selected for
redemption, in whole or in part, except for the unredeemed portion of any
Securities being redeemed in part.
Any Security which is to be redeemed only in part shall be
surrendered at a place of payment therefor (with, if the Obligors or the
Trustee so requires, due endorsement by, or a written instrument of transfer
in form satisfactory to the Obligors and the Trustee duly executed by, the
Holder thereof or his attorney duly authorized in writing), and each of the
Obligors shall execute, and the Trustee shall authenticate and make available
for delivery to the Holder of such Security without service charge, a new
Security or Securities, of any authorized denomination as requested by such
Holder, in aggregate principal amount equal to and in exchange for the
unredeemed portion of the principal of the Security so surrendered.
SECTION 11.09. Optional Redemption.
(a) The Obligors shall have the right to redeem the
Securities, in whole or in part, at any time or from time to time on or after
August 20, 1999 upon not less than 30 nor more than 60 days' notice, at a
redemption price equal to 106.125% of the principal amount of the Securities
to be redeemed plus any accrued and unpaid interest, including Additional
Payments and
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Liquidated Damages, if any, to the Redemption Date, if redeemed
on or before August 19, 2000, and at the following optional redemption prices
(expressed as a percentage of the principal amount of Securities), if redeemed
during the 12-month period beginning August 20, 2000:
Percentage of
Principal
Year Amount
2000.................................... 105.250
2001.................................... 104.375
2002.................................... 103.500
2003.................................... 102.625
2004.................................... 101.750
2005.................................... 100.875
2006 and thereafter..................... 100.000
plus, in each case, accrued and unpaid interest, including Additional Payments
and Liquidated Damages, if any, to the Redemption Date. Any redemption
pursuant to this Section 1109 shall be made pursuant to the provisions of
Sections 1101 through 1108 hereof.
(b) If a partial redemption of the Securities would result
in the delisting of the Preferred Securities issued by the Trust from any
national securities exchange or other organization on which the Preferred
Securities are listed, the Obligors shall not be permitted to effect such
partial redemption and may only redeem the Securities in whole.
SECTION 11.10. Tax Event Redemption
If a Tax Event has occurred and is continuing and:
(a) Either of the Obligors has received a Redemption Tax
Opinion; or
(b) after receiving a Dissolution Tax Opinion, the Regular
Trustees shall have been informed by tax counsel rendering the Dissolution Tax
Opinion that a No Recognition Opinion cannot be delivered to the Trust,
then, notwithstanding Section 1109(a) but subject to Section 1109(b), either
of the Obligors shall have the right upon not less than 30 days nor more than
60 days notice to the Holders of the Securities to redeem the Securities in
whole (but not in part) for cash at a redemption price equal to 100% of the
principal amount of the Securities plus accrued and unpaid interest, if any,
within 90 days following the occurrence of such Tax Event (the "90-Day
Period"); provided, however, that if, at the time there is available to either
of the Obligors or the Trust the opportunity to eliminate within the 90-Day
Period, the Tax Event by taking some ministerial action ("Ministerial
Action"), such as filing a form or making an election, or pursuing some other
similar reasonable measure which, in the sole judgment of the Obligors, has or
will cause no adverse effect on either of the Obligors, the Trust or the
Holders of the Trust Securities and will involve no material cost, the
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Obligors or the Trust shall pursue such Ministerial Action or other measure in
lieu of redemption, and provided, further, that the Obligors shall have no
right to redeem the Securities while the Trust is pursuing any Ministerial
Action. The redemption payment of 100% of the principal amount of the
Securities plus accrued and unpaid interest, including Additional Payments, if
any, shall be made prior to 12:00 noon, New York time, on the date of such
redemption or such earlier time as the Obligors determine, provided, that the
Obligors shall deposit with the Trustee an amount sufficient to make such
redemption payment by 10:00 a.m. on the date such redemption payment is to be
made.
SECTION 11.11. No Sinking Fund.
The Securities are not entitled to the benefit of any
sinking fund.
ARTICLE TWELVE
Conversion of Securities
SECTION 12.01. Conversion Rights.
Subject to and upon compliance with the provisions of this
Article, the Securities are convertible, at the option of the Holder, at any
time on or before the close of business on the Business Day immediately
preceding the date of repayment of such Securities, whether at maturity or
upon redemption (either at the option of either of the Obligors or pursuant to
a Tax Event), into fully paid and nonassessable shares of Common Stock of the
Company at an initial conversion rate of 3.8462 shares of Common Stock for
each $50 in aggregate principal amount of Securities (equal to a conversion
price of $13 per share of Common Stock), subject to adjustment as described in
this Article Twelve. A Holder of Securities may convert any portion of the
principal amount of the Securities into that number of fully paid and
nonassessable shares of Common Stock (calculated as to each conversion to the
nearest 1/100th of a share) obtained by dividing the principal amount of the
Securities to be converted by such conversion price. In case a Security or
portion thereof is called for redemption, such conversion right in respect of
the Security or portion so called shall expire at the close of business on the
Business Day immediately preceding the corresponding Redemption Date, unless
either of the Obligors defaults in making the payment due upon redemption.
SECTION 12.02. Conversion Procedures.
(a) In order to convert all or a portion of the Securities,
the Holder thereof shall deliver to the Conversion Agent an irrevocable Notice
of Conversion setting forth the principal amount of Securities to be
converted, together with the name or names, if other than the Holder, in which
the shares of Common Stock should be issued upon conversion and, if such
Securities are definitive Securities, surrender to the Conversion Agent the
Securities to be converted, duly endorsed or assigned to either of the
Obligors or in blank. In addition, a holder of Preferred Securities may
exercise its right under the Declaration to convert such Preferred Securities
into
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Common Stock by delivering to the Conversion Agent an irrevocable Notice
of Conversion setting forth the information called for by the preceding
sentence and directing the Conversion Agent (i) to exchange such Preferred
Security for a portion of the Securities held by the Trust (at an exchange
rate of $50 principal amount of Securities for each Preferred Security) and
(ii) to immediately convert such Securities, on behalf of such holder, into
Common Stock of the Company pursuant to this Article Twelve and, if such
Preferred Securities are in definitive form, surrendering such Preferred
Securities, duly endorsed or assigned to either of the Obligors or in blank.
So long as any Preferred Securities are outstanding, the Trust shall not
convert any Securities except pursuant to a Notice of Conversion delivered to
the Conversion Agent by a holder of Preferred Securities.
If a Notice of Conversion is delivered on or after the
Regular Record Date and prior to the subsequent Interest Payment Date, the
Holder will be entitled to receive the interest payable on the subsequent
Interest Payment Date on the portion of Securities to be converted
notwithstanding the conversion thereof prior to such Interest Payment Date.
Except as otherwise provided in the immediately preceding sentence, in the
case of any Security which is converted, interest whose Stated Maturity is on
or after the date of conversion of such Security shall not be payable, and the
Obligors shall not make nor be required to make any other payment, adjustment
or allowance with respect to accrued but unpaid interest on the Securities
being converted, which shall be deemed to be paid in full. Each conversion
shall be deemed to have been effected immediately prior to the close of
business on the day on which the Notice of Conversion was received (the
"Conversion Date") by the Conversion Agent from the Holder or from a holder of
the Preferred Securities effecting a conversion thereof pursuant to its
conversion rights under the Declaration, as the case may be. The Person or
Persons entitled to receive the Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder or holders of such
Common Stock as of the Conversion Date and such Person or Persons will cease
to be a record holder or record holders of the Securities on that date. As
promptly as practicable on or after the Conversion Date, the Company shall
issue and deliver at the office of the Conversion Agent, unless otherwise
directed by the Holder in the Notice of Conversion, a certificate or
certificates for the number of full shares of Common Stock issuable upon such
conversion, together with the cash payment, if any, in lieu of any fraction of
any share to the Person or Persons entitled to receive the same. The
Conversion Agent shall deliver such certificate or certificates to such Person
or Persons.
(b) The Company's delivery upon conversion of the fixed
number of shares of Common Stock into which the Securities are convertible
(together with the cash payment, if any, in lieu of fractional shares) shall
be deemed to satisfy the Obligors' obligation to pay the principal amount at
Maturity of the portion of Securities so converted and any unpaid interest
(including Compounded Interest, Additional Interest and Liquidated Damages)
accrued on such Securities at the time of such conversion.
(c) No fractional shares of Common Stock will be issued as a
result of conversion, but in lieu thereof, the Obligors shall pay to the
Conversion Agent a cash adjustment in an amount equal to the same fraction of
the last reported sale price of such fractional interest on the date on which
the Securities or Preferred Securities, as the case may be, were duly
surrendered to the Conversion Agent for conversion, or, if such day is not a
Trading Day, on the next Trading Day,
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and the Conversion Agent in turn will make such payment, if any, to the Holder
of the Securities or the holder of the Preferred Securities so converted.
(d) In the event of the conversion of any Security in part
only, a new Security or Securities for the unconverted portion thereof will be
issued in the name of the Holder thereof upon the cancellation of the Security
converted in part in accordance with Section 305.
(e) In effecting the conversion transactions described in
this Section, the Conversion Agent is acting as agent of the holders of
Preferred Securities (in the exchange of Preferred Securities for Securities)
and as agent of the Holders of Securities (in the conversion of Securities
into Common Stock), as the case may be, directing it to effect such conversion
transactions. The Conversion Agent is hereby authorized (i) to exchange
Securities held by the Trust from time to time for Preferred Securities in
connection with the conversion of such Preferred Securities in accordance with
this Article Twelve and (ii) to convert all or a portion of the Securities
into Common Stock and thereupon to deliver such shares of Common Stock in
accordance with the provisions of this Article Twelve and to deliver to the
Trust a new Security or Securities for any resulting unconverted principal
amount.
(f) All shares of Common Stock delivered upon any conversion
of Restricted Securities shall bear a restrictive legend substantially in the
form of the legend required to be set forth on such Securities and shall be
subject to the restrictions on transfer provided in such legend and in Section
305(b) hereof. Neither the Trustee nor the Conversion Agent shall have any
responsibility for the inclusion or content of any such restrictive legend on
such Common Stock; provided, however, that the Trustee or the Conversion Agent
shall have provided to each of the Obligors or to the Obligors' transfer agent
for such Common Stock, prior to or concurrently with a request to the Company
to deliver to such Conversion Agent certificates for such Common Stock,
written notice that the Securities delivered for conversion are Restricted
Securities.
SECTION 12.03. Conversion Price Adjustments.
The conversion price shall be subject to adjustment (without
duplication) from time to time as follows:
(a) In case the Company shall, while any of the Securities
are outstanding, (i) pay a dividend or make a distribution with respect to its
Common Stock in shares of Common Stock, (ii) subdivide its outstanding shares
of Common Stock, (iii) combine its outstanding shares of Common Stock into a
smaller number of shares or (iv) issue by reclassification of its shares of
Common Stock any shares of capital stock of the Company, the conversion
privilege and the conversion price in effect immediately prior to such action
shall be adjusted so that the Holder of any Securities thereafter surrendered
for conversion shall be entitled to receive the number of shares of capital
stock of the Company which he would have owned immediately following such
action had such Securities been converted immediately prior thereto. An
adjustment made pursuant to this subsection (a) shall become effective
immediately after the record date in the case of a dividend or other
distribution and shall become effective immediately after the effective date
in case of a subdivision, combination or reclassification (or immediately
after the record date if a record date shall have been established for such
event). If, as a result of an adjustment made pursuant to this
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subsection (a), the Holder of any Security thereafter surrendered for
conversion shall become entitled to receive shares of two or more classes or
series of capital stock of the Company, the Board of Directors (whose
determination shall be conclusive and shall be described in a Board Resolution
filed with the Trustee) shall determine the allocation of the adjusted
conversion price between or among shares of such classes or series of capital
stock. In the event that such dividend, distribution, subdivision, combination
or issuance is not so paid or made, the conversion price shall again be
adjusted to be the conversion price which would then be in effect if such
record date had not been fixed.
(b) In case the Company shall, while any of the Securities
are outstanding, issue rights or warrants to all holders of its Common Stock
entitling them (for a period expiring within 45 days after the record date
mentioned below) to subscribe for or purchase shares of Common Stock at a
price per share less than the current market price per share of Common Stock
(as determined pursuant to subsection (f) below) on the record date mentioned
below, the conversion price for the Securities shall be adjusted so that the
same shall equal the price determined by multiplying the conversion price in
effect immediately prior to the date of issuance of such rights or warrants by
a fraction of which the numerator shall be the number of shares of Common
Stock outstanding on the date of issuance of such rights or warrants plus the
number of shares which the aggregate offering price of the total number of
shares so offered for subscription or purchase would purchase at such current
market price, and of which the denominator shall be the number of shares of
Common Stock outstanding on the date of issuance of such rights or warrants
plus the number of additional shares of Common Stock offered for subscription
or purchase. Such adjustment shall become effective immediately after the
record date for the determination of stockholders entitled to receive such
rights or warrants. For the purposes of this subsection, the number of shares
of Common Stock at any time outstanding shall not include shares held in the
treasury of the Company. The Company shall not issue any rights or warrants in
respect of shares of Common Stock held in the treasury of the Company. In case
any rights or warrants referred to in this subsection in respect of which an
adjustment shall have been made shall expire unexercised within 45 days after
the same shall have been distributed or issued by the Company, the conversion
price shall be readjusted at the time of such expiration to the conversion
price that would have been in effect if no adjustment had been made on account
of the distribution or issuance of such expired rights or warrants.
(c) Subject to the last sentence of this subparagraph, in
case the Company shall, by dividend or otherwise, distribute to all holders of
its Common Stock evidences of its indebtedness, shares of any class or series
of capital stock, cash or assets (including securities, but excluding any
rights or warrants referred to in subparagraph (b), any dividend or
distribution paid exclusively in cash and any dividend or distribution
referred to in subparagraph (a) of this Section 1203), the conversion price
shall be reduced so that the same shall equal the price determined by
multiplying the conversion price in effect immediately prior to the
effectiveness of the conversion price reduction contemplated by this
subparagraph (c) by a fraction of which the numerator shall be the current
market price per share (determined as provided in subparagraph (f)) of the
Common Stock on the date fixed for the payment of such distribution (the
"Reference Date") less the fair market value (as determined in good faith by
the Board of Directors, whose determination shall be conclusive and described
in a resolution of the Board of Directors), on the Reference Date, of the
portion of the evidences of indebtedness, shares of capital stock, cash and
assets so distributed
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applicable to one share of Common Stock and the denominator shall be such
current market price per share of the Common Stock, such reduction to become
effective immediately prior to the opening of business on the day following the
Reference Date. In the event that such dividend or distribution is not so paid
or made, the conversion price shall again be adjusted to be the conversion
price which would then be in effect if such dividend or distribution had not
occurred. If the Board of Directors determines the fair market value of any
distribution for purposes of this subparagraph (c) by reference to the actual
or when issued trading market for any securities comprising such distribution,
it must in doing so consider the prices in such market over the same period
used in computing the current market price per share of Common Stock
(determined as provided in subparagraph (f)). For purposes of this subparagraph
(c), any dividend or distribution that includes shares of Common Stock or
rights or warrants to subscribe for or purchase shares of Common Stock shall be
deemed instead to be (1) a dividend or distribution of the evidences of
indebtedness, shares of capital stock, cash or assets other than such shares of
Common Stock or such rights or warrants (making any conversion price reduction
required by this subparagraph (c)) immediately followed by (2) a dividend or
distribution of such shares of Common Stock or such rights or warrants (making
any further conversion price reduction required by subparagraph (a) or (b)),
except (A) the Reference Date of such dividend or distribution as defined in
this subparagraph shall be substituted as (a) "the record date in the case of a
dividend or other distribution," and (b) "the record date for the determination
of stockholders entitled to receive such rights or warrants" and (c) "the date
fixed for such determination" within the meaning of subparagraphs (a) and (b)
and (B) any shares of Common Stock included in such dividend or distribution
shall not be deemed outstanding for purposes of computing any adjustment of the
conversion price in subparagraph (a).
(d) In case the Company shall pay or make a dividend or
other distribution on its Common Stock exclusively in cash (excluding all
regular cash dividends, if the annualized amount thereof per share of Common
Stock does not exceed 15% of the current market price per share, determined as
provided in subparagraph (f), of the Common Stock on the Trading Day
immediately preceding the date of declaration of such dividend), the
conversion price shall be reduced so that the same shall equal the price
determined by multiplying the conversion price in effect immediately prior to
the effectiveness of the conversion price reduction contemplated by this
subparagraph by a fraction of which the numerator shall be the current market
price per share (determined as provided in subparagraph (f)) of the Common
Stock on the date fixed for the payment of such distribution less the amount
of cash so distributed (excluding that portion of such distribution that does
not exceed 15% of the current market price per share, determined as provided
above) applicable to one share of Common Stock and the denominator shall be
such current market price per share of the Common Stock, such reduction to
become effective immediately prior to the opening of business on the day
following the date fixed for the payment of such distribution; provided,
however, that in the event the portion of the cash so distributed applicable
to one share of Common Stock is equal to or greater than the current market
price per share (as defined in subparagraph (f)) of the Common Stock on the
record date mentioned above (excluding that portion of such distribution that
does not exceed 15% of the current market price per share, determined as
provided above), in lieu of the foregoing adjustment, adequate provision shall
be made so that each Holder of shares of Securities shall have the right to
receive upon conversion the amount of cash such Holder would have received had
such Holder converted each share of the Securities immediately prior to the
record date for the distribution of the cash (less that portion of such
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distribution that does not exceed 15% of the current market price per share,
determined as provided above). In the event that such dividend or distribution
is not so paid or made, the conversion price shall again be adjusted to be the
conversion price which would then be in effect if such record date had not
been fixed.
(e) In case a tender or exchange offer (other than an
odd-lot offer) made by the Company or any Subsidiary of the Company for all or
any portion of the Common Stock shall expire and such tender or exchange offer
shall involve the payment by the Company or such Subsidiary of consideration
per share of Common Stock having a fair market value (as determined in good
faith by the Board of Directors, whose determination shall be conclusive and
described in a resolution of the Board of Directors) at the last time (the
"Expiration Time") tenders or exchanges may be made pursuant to such tender or
exchange offer (as it shall have been amended) that exceeds 110% of the
current market price per share (determined as provided in subparagraph (f)) of
the Common Stock on the Trading Day next succeeding the Expiration Time, the
conversion price shall be reduced so that the same shall equal the price
determined by multiplying the conversion price in effect immediately prior to
the effectiveness of the conversion price reduction contemplated by this
subparagraph (e) by a fraction of which the numerator shall be the number of
shares of Common Stock outstanding (including any tendered or exchanged
shares) at the Expiration Time multiplied by the current market price per
share (determined as provided in subparagraph (f)) of the Common Stock on the
Trading Day next succeeding the Expiration Time and the denominator shall be
the sum of (x) the fair market value (determined as aforesaid) of the
aggregate consideration payable to stockholders based on the acceptance (up to
any maximum specified in the terms of the tender or exchange offer) of all
shares validly tendered or exchanged and not withdrawn as of the Expiration
Time (the shares deemed so accepted, up to any such maximum, being referred to
as the "Purchased Shares") (excluding that portion of such consideration that
does not exceed 110% of the current market price per share, determined as
provided above) and (y) the product of the number of shares of Common Stock
outstanding (less any Purchased Shares) at the Expiration Time and the current
market price per share (determined as provided in subparagraph (f)) of the
Common Stock on the Trading Day next succeeding the Expiration Time, such
reduction to become effective immediately prior to the opening of business on
the day following the Expiration Time. In the event that such tender or
exchange offer is not so made, the conversion price shall again be adjusted to
be the conversion price which would then be in effect if such record date had
not been fixed.
(f) For the purpose of any computation under subparagraphs
(b), (c), (d) or (e), the current market price per share of Common Stock on
any date in question shall be deemed to be the average of the daily Closing
Prices for the five consecutive Trading Days selected by the Obligors
commencing not more than 20 Trading Days before, and ending not later than,
the earlier of the day in question or, if applicable, the day before the "ex"
date with respect to the issuance or distribution requiring such computation;
provided, however, that if another event occurs that would require an
adjustment pursuant to subparagraph (a) through (e), inclusive, the Board of
Directors may make such adjustments to the Closing Prices during such five
Trading Day period as it deems appropriate to effectuate the intent of the
adjustments in this Section 1203, in which case any such determination by the
Board of Directors shall be set forth in a Board Resolution and shall be
conclusive. For purposes of this paragraph, the term "ex" date, (1) when used
with respect to any issuance or distribution, means the first date on which
the Common Stock trades regular way on
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The Nasdaq National Market or on such successor securities exchange or
inter-dealer quotation system as the Common Stock may be listed or in the
relevant market from which the Closing Prices were obtained without the right
to receive such issuance or distribution, and (2) when used with respect to any
tender or exchange offer means the first date on which the Common Stock trades
regular way on such securities exchange or inter-dealer quotation system or in
such market after the Expiration Time of such offer.
(g) The Company may make such reductions in the conversion
price, in addition to those required by subparagraphs (a) through (e), as it
considers to be advisable to avoid or diminish any income tax to holders of
Common Stock or rights to purchase Common Stock resulting from any dividend or
distribution of stock (or rights to acquire stock) or from any event treated
as such for income tax purposes. The Company from time to time may reduce the
conversion price by any amount for any period of time if the period is at
least twenty (20) days, the reduction is irrevocable during the period, and
the Board of Directors of the Company shall have made a determination that
such reduction would be in the best interest of the Company, which
determination shall be conclusive. Whenever the conversion price is reduced
pursuant to the preceding sentence, the Company shall mail to holders of
record of the Securities a notice of the reduction at least fifteen (15) days
prior to the date the reduced conversion price takes effect, and such notice
shall state the reduced conversion price and the period it will be in effect.
(h) No adjustment of the conversion price shall be required
upon the issuance of any shares of Common Stock pursuant to any present or
future plan providing for the reinvestment of dividends or interest payable on
securities of the Company and the investment of additional optional amounts in
shares of Common Stock under any such plan. No adjustment in the conversion
price shall be required unless such adjustment would require an increase or
decrease of at least 1% in the conversion price; provided, however, that any
adjustments which by reason of this subparagraph are not required to be made
shall be carried forward and taken into account in determining whether any
subsequent adjustment shall be required.
(i) If any action would require adjustment of the conversion
price pursuant to more than one of the provisions described above, only one
adjustment shall be made and such adjustment shall be the amount of adjustment
that has the highest absolute value to the Holder of the Securities.
SECTION 12.04. Fundamental Change.
(a) In the event that the Company shall be a party to any
transaction (including without limitation (i) any recapitalization or
reclassification of the Common Stock (other than a change in par value, or
from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination of the Common Stock), (ii) any
consolidation of the Company with, or merger of the Company into, any other
Person, any merger of another Person into the Company (other than a merger
which does not result in a reclassification, conversion, exchange or
cancellation of outstanding shares of Common Stock of the Company), (iii) any
sale or transfer of all or substantially all of the assets of the Company or
(iv) any compulsory share exchange) pursuant to which either shares of Common
Stock shall be converted into the right to
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receive other securities, cash or other property, or, in the case of a sale or
transfer of all or substantially all of the assets of the Company, the holders
of Common Stock shall be entitled to receive other securities, cash or other
property, then lawful provision shall be made as part of the terms of such
transaction whereby the Holder of each Security then outstanding shall have the
right thereafter to convert such Security only into:
(A) in the case of any such transaction that does not
constitute a Common Stock Fundamental Change (as defined below) and
subject to funds being legally available for such purpose under
applicable law at the time of such conversion, the kind and amount of
the securities, cash or other property that would have been
receivable upon such recapitalization, reclassification,
consolidation, merger, sale, transfer or share exchange by a holder
of the number of shares of Common Stock issuable upon conversion of
such Security immediately prior to such recapitalization,
reclassification, consolidation, merger, sale, transfer or share
exchange, after giving effect, in the case of any Non-Stock
Fundamental Change (as defined below), to any adjustment in the
Conversion Price in accordance with clause (i) of subsection (c) of
this Section 1204; and
(B) in the case of any such transaction that constitutes a
Common Stock Fundamental Change, common stock of the kind received by
holders of Common Stock as a result of such Common Stock Fundamental
Change in an amount determined in accordance with clause (ii) of
subsection (c) of this Section 1204.
(b) The company or the Person formed by such consolidation
or resulting from such merger or which acquired such assets or which acquires
the Company's shares, as the case may be, shall make provision in its
certificate or articles of incorporation or other constituent document to
establish such right. Such certificate or articles of incorporation or other
constituent document shall provide for adjustments which, for events
subsequent to the effective date of such certificate or articles of
incorporation or other constituent document, shall be as nearly equivalent as
may be practicable to the adjustments provided for in this Article XII. The
above provisions shall similarly apply to successive transactions of the
foregoing type.
(c) Notwithstanding any other provision of this Section 1204
to the contrary, but without duplication with Section 1203, if any Fundamental
Change (as defined below) occurs, then the Conversion Price in effect will be
adjusted immediately after such Fundamental Change as follows:
(i) in the case of a Non-Stock Fundamental Change, the
Conversion Price of the Securities immediately following such
Non-Stock Fundamental Change shall be the lower of (A) the Conversion
Price in effect immediately prior to such Non-Stock Fundamental
Change, but after giving effect to any other prior adjustments
effected pursuant to Section 1203, and (B) the product of (1) the
greater of the Applicable Price and the then applicable Reference
Market Price (as defined below) and (2) a fraction, the numerator of
which is $50 and the denominator of which is (x) the amount of the
Optional Redemption Price set forth in Section 1109 for $50 in
principal amount of Convertible Debentures if the redemption date
were the date of such Non-Stock Fundamental Change
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(or, for the period commencing on the first date of original issuance
of the Preferred Securities and through August 19, 1997 and the
twelve-month periods commencing August 20, 1997 and August 20, 1998,
the product of 1.08750, 1.07875 and 1.07000, respectively, times $50)
plus (y) any then-accrued and unpaid interest on $50 in principal
amount of Securities; and
(ii) in the case of a Common Stock Fundamental Change, the
Conversion Price of the Securities immediately following such Common
Stock Fundamental Change shall be the Conversion Price in effect
immediately prior to such Common Stock Fundamental Change, but after
giving effect to any other prior adjustments effected pursuant to
Section 1203, multiplied by a fraction, the numerator of which is the
Purchaser Stock Price and the denominator of which is the Applicable
Price; provided, however, that in the event of a Common Stock
Fundamental Change in which (A) 100% of the value of the
consideration received by a holder of Common Stock is common stock of
the successor, acquiror or other third party (and cash, if any, paid
with respect to any fractional interests in such common stock
resulting from such Common Stock Fundamental Change) and (B) all of
the Common Stock shall have been exchanged for, converted into or
acquired for, common stock of the successor, acquiror or other third
party (and any cash with respect to fractional interests or with
respect to appraisal or similar rights), the Conversion Price of the
Securities immediately following such Common Stock Fundamental Change
shall be the Conversion Price in effect immediately prior to such
Common Stock Fundamental Change multiplied by a fraction, the
numerator of which is one and the denominator of which is the number
of shares of common stock of the successor, acquiror or other third
party received by a holder of one share of Common Stock as a result
of such Common Stock Fundamental Change.
SECTION 12.05. Notice of Adjustments of Conversion Price.
Whenever the conversion price is adjusted as herein
provided:
(a) the Obligors shall compute the adjusted conversion price
and shall prepare a certificate signed by the Chief Financial Officer or the
Treasurer of the Company setting forth the adjusted conversion price and
showing in reasonable detail the facts upon which such adjustment is based,
and such certificate shall forthwith be filed with the Trustee, the Conversion
Agent and the transfer agent for the Preferred Securities and the Securities;
and
(b) a notice stating the conversion price has been adjusted
and setting forth the adjusted conversion price shall as soon as practicable
be mailed by the Obligors to all record holders of Preferred Securities and
the Securities at their last addresses as they appear upon the stock transfer
books of the Company and the Trust.
SECTION 12.06. Prior Notice of Certain Events.
In case:
(i) the Company shall (1) declare any dividend (or
any other distribution) on its Common Stock, other than (A) a
dividend payable in shares of Common
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Stock or (B) a dividend payable in cash that would not require an
adjustment pursuant to Section 1203(c) or (d) or (2) authorize a
tender or exchange offer that would require an adjustment pursuant to
Section 1203(e);
(ii) the Company shall authorize the granting to
all holders of Common Stock of rights or warrants to subscribe for or
purchase any shares of stock of any class or series or of any other
rights or warrants;
(iii) of any reclassification of Common Stock
(other than a subdivision or combination of the outstanding Common
Stock, or a change in par value, or from par value to no par value,
or from no par value to par value), or of any consolidation or merger
to which either of the Obligors is a party and for which approval of
any stockholders of either of the Obligors shall be required, or of
the sale or transfer of all or substantially all of the assets of
either of the Obligors or of any compulsory share exchange whereby
the Common Stock is converted into other securities, cash or other
property; or
(iv) of the voluntary or involuntary dissolution,
liquidation or winding up of either of the Obligors;
then the Obligors shall (a) if any Preferred Securities are outstanding, cause
to be filed with the transfer agent for the Preferred Securities, and shall
cause to be mailed to the holders of record of the Preferred Securities, at
their last addresses as they shall appear upon the stock transfer books the
Trust or (b) shall cause to be mailed to all Holders at their last addresses
as they shall appear in the Security Register, at least 15 days prior to the
applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record (if any) is to be taken for the purpose of such
dividend, distribution, rights or warrants or, if a record is not to be taken,
the date as of which the holders of Common Stock of record to be entitled to
such dividend, distribution, rights or warrants are to be determined or (y)
the date on which such reclassification, consolidation, merger, sale,
transfer, share exchange, dissolution, liquidation or winding up is expected
to become effective, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities, cash or other property deliverable upon such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding up (but no failure to mail such notice or
any defect therein or in the mailing thereof shall affect the validity of the
corporate action required to be specified in such notice).
SECTION 12.07. Certain Defined Terms.
The following definitions shall apply to terms used in this
Article Twelve:
(1) "Applicable Price" means (i) in the event of a
Non-Stock Fundamental Change in which the holders of Common Stock
receive only cash, the amount of cash received by a holder of one
share of Common Stock and (ii) in the event of any other Fundamental
Change, the average of the daily Closing Price for one share of
Common Stock during the 10 Trading Days immediately prior to the
record date for the determination of the holders of Common Stock
entitled to receive cash, securities, property or other assets in
connection with such Fundamental Change or, if there is no such
record date, prior to the
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date upon which the holders of Common Stock shall have the right to
receive such cash, securities, property or other assets.
(2) "Closing Price" of any common stock on any day
shall mean the last reported sale price regular way on such day or,
in case no such sale takes place on such day, the average of the
reported closing bid and asked prices regular way of such common
stock, in each case on the NYSE Composite Tape or, if the common
stock is not listed or admitted to trading on such exchange, on the
principal national securities exchange or inter-dealer quotation
system on which such common stock is listed or admitted to trading,
or, if not listed or admitted to trading on any national securities
exchange or inter-dealer quotation system, the average of the closing
bid and asked prices as furnished by any New York Stock Exchange
member firm selected from time to time by the Board of Directors of
the Company for that purpose or, if not so available in such manner,
as otherwise determined in good faith by the Board of Directors.
(3) "Common Stock Fundamental Change" means any
Fundamental Change in which more than 50% of the value (as determined
in good faith by the Board of Directors of the Company) of the
consideration received by holders of Common Stock consists of common
stock that, for the 10 Trading Days immediately prior to such
Fundamental Change, has been admitted for listing or admitted for
listing subject to notice of issuance on a national securities
exchange or inter-dealer quotation system or quoted on The Nasdaq
National Market; provided, however, that a Fundamental Change shall
not be a Common Stock Fundamental Change unless either (i) the
Company continues to exist after the occurrence of such Fundamental
Change and the outstanding Securities continue to exist as
outstanding Securities or (ii) not later than the occurrence of such
Fundamental Change, the outstanding Securities are converted into or
exchanged for shares of convertible preferred stock or debentures of
a corporation succeeding to the business of the Company, which
convertible preferred stock has powers, preferences and relative,
participating, optional or other rights, and qualifications,
limitations and restrictions substantially similar to those of the
Preferred Securities and which debentures have terms substantially
similar to those of the Securities.
(4) "Fundamental Change" means the occurrence of
any transaction or event or series of transactions or events pursuant
to which all or substantially all of the Common Stock shall be
exchanged for, converted into, acquired for or shall constitute
solely the right to receive cash, securities, property or other
assets (whether by means of an exchange offer, liquidation, tender
offer, consolidation, merger, combination, reclassification,
recapitalization or otherwise); provided, however, in the case of any
such series of transactions or events, for purposes of adjustment of
the Conversion Price, such Fundamental Change shall be deemed to have
occurred when substantially all of the Common Stock shall have been
exchanged for, converted into or acquired for, or shall constitute
solely the right to receive, such cash, securities, property or other
assets, but the adjustment shall be based upon the consideration that
the holders of Common Stock received in the transaction or event as a
result of which more than 50% of the Common
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Stock outstanding shall have been exchanged for, converted into or
acquired for, or shall constitute solely the right to receive, such
cash, securities, property or other assets.
(5) "Non-Stock Fundamental Change" means any
Fundamental Change other than a Common Stock Fundamental Change.
(6) "Purchaser Stock Price" means, with respect to
any Common Stock Fundamental Change, the average of the daily Closing
Price for one share of the common stock received by holders of Common
Stock in such Common Stock Fundamental Change during the 10 Trading
Days immediately prior to the date fixed for the determination of the
holders of Common Stock entitled to receive such common stock or, if
there is no such date, prior to the date upon which the holders of
Common Stock shall have the right to receive such common stock.
(7) "Reference Market Price" initially means $7.00
and, in the event of any adjustment to the Conversion Price other
than as a result of a Fundamental Change, the Reference Market Price
shall also be adjusted so that the ratio of the Reference Market
Price to the Conversion Price after giving effect to any such
adjustment shall always be the same as the ratio of the initial
Reference Market Price to the initial Conversion Price of $13.00 per
share.
(8) "Trading Day" shall mean a day on which
securities are traded on the national securities exchange or
quotation system used to determine the Closing Price.
SECTION 12.08. Dividend or Interest Reinvestment Plans.
Notwithstanding the foregoing provisions, the issuance of
any shares of Common Stock pursuant to any plan providing for the reinvestment
of dividends or interest payable on securities of either of the Obligors and
the investment of additional optional amounts in shares of Common Stock under
any such plan, and the issuance of any shares of Common Stock or options or
rights to purchase such shares pursuant to any employee benefit plan or
program of either of the Obligors or pursuant to any option, warrant, right or
exercisable, exchangeable or convertible security outstanding as of the date
the Securities were first issued, shall not be deemed to constitute an
issuance of Common Stock or exercisable, exchangeable or convertible
securities by the Company to which any of the adjustment provisions described
above applies. There shall also be no adjustment of the conversion price in
case of the issuance of any stock (or securities convertible into or
exchangeable for stock) of either of the Obligors except as specifically
described in this Article Twelve.
SECTION 12.09. Certain Additional Rights.
In case the Company shall, by dividend or otherwise, declare
or make a distribution on its Common Stock referred to in Section 1203(c) or
1203(d) (including, without limitation, dividends or distributions referred to
in the last sentence of Section 1203(c)), the Holder of the Securities, upon
the conversion thereof subsequent to the close of business on the date fixed
for the determination of stockholders entitled to receive such distribution
and prior to the effectiveness of
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the conversion price adjustment in respect of such distribution, shall also be
entitled to receive for each share of Common Stock into which the Securities
are converted, the portion of the shares of Common Stock, rights, warrants,
evidences of indebtedness, shares of capital stock, cash and assets so
distributed applicable to one share of Common Stock; provided, however, that,
at the election of the Obligors (whose election shall be evidenced by a
resolution of the Board of Directors) with respect to all Holders so
converting, the Obligors may, in lieu of distributing to such Holder any
portion of such distribution not consisting of cash or securities of the
Company, pay such Holder an amount in cash equal to the fair market value
thereof (as determined in good faith by the Board of Directors, whose
determination shall be conclusive and described in a resolution of the Board of
Directors). If any conversion of Securities described in the immediately
preceding sentence occurs prior to the payment date for a distribution to
holders of Common Stock which the Holder of Securities so converted is entitled
to receive in accordance with the immediately preceding sentence, the Obligors
may elect (such election to be evidenced by a resolution of the Board of
Directors) to distribute to such Holder a due bill for the shares of Common
Stock, rights, warrants, evidences of indebtedness, shares of capital stock,
cash or assets to which such Holder is so entitled, provided, that such due
bill (i) meets any applicable requirements of the principal national securities
exchange or other market on which the Common Stock is then traded and (ii)
requires payment or delivery of such shares of Common Stock, rights, warrants,
evidences of indebtedness, shares of capital stock, cash or assets no later
than the date of payment or delivery thereof to holders of shares of Common
Stock receiving such distribution.
SECTION 12.10. Restrictions on Common Stock Issuable Upon Conversion.
(a) Shares of Common Stock to be issued upon conversion of a
Security in respect of Restricted Preferred Securities (as defined in the
Declaration) shall bear such restrictive legends as the Obligors may provide
in accordance with applicable law.
(b) If shares of Common Stock to be issued upon conversion
of a Security in respect of Restricted Preferred Securities are to be
registered in a name other than that of the Holder of such Preferred Security,
then the Person in whose name such shares of Common Stock are to be registered
must deliver to the Conversion Agent a certificate satisfactory to the
Obligors and signed by such Person, as to compliance with the restrictions on
transfer applicable to such Preferred Security. Neither the Trustee nor any
Conversion Agent or Registrar shall be required to register in a name other
than that of the Holder shares of Common Stock issued upon conversion of any
such Security in respect of such Preferred Securities not so accompanied by a
properly completed certificate.
SECTION 12.11. Trustee Not Responsible for Determining Conversion Price or
Adjustments.
Neither the Trustee nor any Conversion Agent shall at any
time be under any duty or responsibility to any Holder of any Security to
determine whether any facts exist which may require any adjustment of the
conversion price, or with respect to the nature or extent of any such
adjustment when made, or with respect to the method employed, or herein or in
any supplemental indenture provided to be employed, in making the same.
Neither the Trustee nor any Conversion Agent shall be accountable with respect
to the validity or value (or the kind of account) of any
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shares of Common Stock or of any securities or property, which may at any time
be issued or delivered upon the conversion of any Security; and neither the
Trustee nor any Conversion Agent makes any representation with respect thereto.
Neither the Trustee nor any Conversion Agent shall be responsible for any
failure of the Obligors to make any cash payment or to issue, transfer or
deliver any shares of Common Stock or stock certificates or other securities or
property upon the surrender of any Security for the purpose of conversion, or,
except as expressly herein provided, to comply with any of the covenants of the
Obligors contained in Article Ten or this Article Twelve.
ARTICLE THIRTEEN
Miscellaneous
SECTION 13.01. No Recourse; Immunity of Incorporators, Stockholders,
Officers and Directors.
No recourse under or upon any obligation, covenant or
agreement of this Indenture, or of any Security, or for any claim based
thereon or otherwise in respect thereof, shall be had against any
incorporator, stockholder, officer or director, past, present or future as
such, of either of the Obligors or of any predecessor or successor
corporation, either directly or through either of the Obligors or any such
predecessor or successor corporation, whether by virtue of any constitution,
statute or rule of law, or by the enforcement of any assessment or penalty or
otherwise; it being expressly understood that this Indenture and the
obligations issued hereunder are solely corporate obligations, and that no
such personal liability whatever shall attach to, or is or shall be incurred
by, the incorporators, stockholders, officers or directors as such, of either
of the Obligors or of any predecessor or successor corporation, or any of
them, because of the creation of the indebtedness hereby authorized, or under
or by reason of the obligations, covenants or agreements contained in this
Indenture or in any of the Securities or implied therefrom; and that any and
all such personal liability of every name and nature, either at common law or
in equity or by constitution or statute, of, and any and all such rights and
claims against, every such incorporator, stockholder, officer or director as
such, because of the creation of the indebtedness hereby authorized, or under
or by reason of the obligations, covenants or agreements contained in this
Indenture or in any of the Securities or implied therefrom, are hereby
expressly waived and released as a condition of, and as a consideration for,
the execution of this Indenture and the issuance of such Securities.
This instrument may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original, but
all such counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed, and their respective corporate seals to be
hereunto affixed and attested, all as of the day and year first above written.
GOLDEN BOOKS FAMILY ENTERTAINMENT,
INC.
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By:_______________________________
Name:
Title:
GOLDEN BOOKS PUBLISHING COMPANY,
INC.
By:_______________________________
Name:
Title:
THE BANK OF NEW YORK, as Trustee
By: ______________________________
Name:
Title:
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<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK)
On the ____ day of August, 1996 before me personally came
_________________, to me known, who, being by me duly sworn, did depose and
say that he/she is the __________________________________ of Golden Books
Family Entertainment, Inc., one of the corporations described in and which
executed the foregoing instrument; and that he/she signed his/her name thereto
by authority of the Board of Directors of such corporation.
_____________________________________
Name:
Notary Public State of New York
No. _____________________
Qualified in _______________ County
Certificate Filed in ___________ County
Commission Expires
_____________ __, 199_
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<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK)
On the ____ day of August, 1996 before me personally came
_________________, to me known, who, being by me duly sworn, did depose and
say that he/she is the __________________________________ of Golden Books
Publishing Company, Inc., one of the corporations described in and which
executed the foregoing instrument; and that he/she signed his/her name thereto
by authority of the Board of Directors of such corporation.
_____________________________________
Name:
Notary Public State of New York
No. _____________________
Qualified in _______________ County
Certificate Filed in ___________ County
Commission Expires
_____________ __, 199_
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<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK)
On the ____ day of August, 1996 before me personally came
_________________, to me known, who, being by me duly sworn, did depose and
say that he/she is the __________________________________ of The Bank of New
York, one of the corporations described in and which executed the foregoing
instrument; and that he/she signed his/her name thereto by authority of the
Board of Directors of such corporation.
_____________________________________
Name:
Notary Public State of New York
No. _____________________
Qualified in _______________ County
Certificate Filed in ___________ County
Commission Expires
_____________ __, 199_
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<PAGE>
EXHIBIT A
FORM OF SECURITY
[FORM OF FACE OF SECURITY]
THIS SECURITY AND ANY COMMON STOCK ISSUED ON CONVERSION
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAWS. NEITHER THIS SECURITY
NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE REOFFERED, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF
SUCH REGISTRATION OR UNLESS SUCH TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT
TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE HOLDER OF THIS
SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER, SELL OR OTHERWISE TRANSFER
SUCH SECURITY, PRIOR TO THE DATE WHICH IS THREE YEARS AFTER THE LATER OF THE
ORIGINAL ISSUE DATE HEREOF AND THE LAST DATE ON WHICH GOLDEN BOOKS FAMILY
ENTERTAINMENT, INC. (THE "COMPANY"), GOLDEN BOOKS PUBLISHING COMPANY, INC.
("GOLDEN BOOKS PUBLISHING" AND, TOGETHER WITH THE COMPANY, THE "OBLIGORS") OR
ANY AFFILIATE OF THE OBLIGORS WAS THE OWNER OF THIS SECURITY (OR ANY
PREDECESSOR OF THIS SECURITY) (THE "RESALE RESTRICTION TERMINATION DATE") ONLY
(A) TO THE OBLIGORS, (B) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT, (C) FOR SO LONG AS THE SECURITIES ARE ELIGIBLE FOR RESALE
PURSUANT TO RULE 144A UNDER THE SECURITIES ACT ("RULE 144A"), TO A PERSON IT
REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED IN RULE
144A THAT PURCHASES FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED
INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A, (D) PURSUANT TO OFFERS AND SALES TO NON-U.S. PERSONS
THAT OCCUR OUTSIDE THE UNITED STATES WITHIN THE MEANING OF REGULATION S UNDER
THE SECURITIES ACT, (E) TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE
MEANING OF SUBPARAGRAPH (a)(1), (2), (3) OR (7) OF RULE 501 UNDER THE
SECURITIES ACT THAT IS ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT, OR FOR THE
ACCOUNT OF SUCH AN INSTITUTIONAL "ACCREDITED INVESTOR," FOR INVESTMENT
PURPOSES AND NOT WITH A VIEW TO, OR FOR OFFER OR SALE IN CONNECTION WITH, ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT, OR (F) PURSUANT TO ANOTHER
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT,
SUBJECT TO THE OBLIGORS' AND THE TRANSFER AGENT'S RIGHT PRIOR TO ANY SUCH
OFFER, SALE OR TRANSFER (i) PURSUANT TO CLAUSES (D), (E) OR (F) TO REQUIRE THE
DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR OTHER INFORMATION
SATISFACTORY TO EACH OF THEM, AND (ii) IN EACH OF THE FOREGOING CASES, TO
REQUIRE THAT A CERTIFICATE OF TRANSFER IN THE FORM APPEARING ON THIS SECURITY
IS COMPLETED AND DELIVERED BY THE
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<PAGE>
TRANSFEROR TO THE TRANSFER AGENT. THIS LEGEND WILL BE REMOVED UPON THE REQUEST
OF A HOLDER AFTER THE RESALE RESTRICTION TERMINATION DATE.
71
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
GOLDEN BOOKS PUBLISHING COMPANY, INC.
8 3/4% ConvertiblE
Security Due 2016
No._________ $___________
[CUSIP No. _________]
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC., a corporation duly
organized and existing under the laws of the State of Delaware (herein called
"the Company", which term includes any successor corporation under the
Indenture hereinafter referred to) and GOLDEN BOOKS PUBLISHING COMPANY, INC.,
a corporation duly organized and existing under the laws of the State of
Delaware (herein called "Golden Books Publishing", which term includes any
successor corporation under the Indenture hereinafter referred to, and,
together with the Company, herein called the "Obligors") for value received,
hereby promises to pay to ____________________, or registered assigns, the
principal sum [indicated on Schedule A hereof]* [of ______ Dollars]** ($ ) on
[ ].
Interest Payment Dates: February 20, May 20, August 20 and November 20,
commencing November 20, 1996
Regular Record Dates: the close of business on the day immediately preceding
each Interest Payment Date, except as otherwise
provided in clause 4 set forth on the reverse
side of this Security
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for
all purposes have the same effect as if set forth at this place.
Unless the certificate of authentication hereon has been
executed by the Trustee referred to on the reverse hereof by manual signature,
this Security shall not be entitled to any benefit under the Indenture or be
valid or obligatory for any purpose.
_________________________________
* Applicable to Global Securities only.
** Applicable to certified Securities only.
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<PAGE>
IN WITNESS WHEREOF, the Obligors have caused this instrument
to be signed manually or by facsimile by its duly authorized officers and a
facsimile of its corporate seal to be affixed hereto or imprinted hereon.
Dated: _____________, 1996
GOLDEN BOOKS FAMILY
ENTERTAINMENT, INC.
By: /s/ Philip E. Rowley
--------------------------------------------
Name: Philip E. Rowley
Title: Chief Financial Officer
and Executive Vice President
GOLDEN BOOKS PUBLISHING
COMPANY, INC.
By: /s/ Philip E. Rowley
-------------------------------------------
Name: Philip E. Rowley
Title: Chief Operating Officer
[Seal]
Attest:
- ---------------
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<PAGE>
TRUSTEE'S CERTIFICATE
OF AUTHENTICATION
This is one of the Securities referred to in the
within-mentioned Indenture.
Dated: , The Bank of New York
as Trustee
By:/s/ Byron Merino
---------------------
Authorized Signatory
[FORM OF REVERSE OF SECURITY]
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
GOLDEN BOOKS PUBLISHING COMPANY, INC.
8 3/4% Convertible
Debenture Due 2016*
(1) Interest. Golden Books Family Entertainment, Inc., a
Delaware corporation (the "Company") and Golden Books Publishing Company,
Inc., a Delaware corporation ("Golden Books Publishing" and, together with the
Company, the "Obligors"), are the issuers, on a joint and several basis, of
this 8 3/4% Convertible Debenture Due 2016 (the "Security") limited in
aggregate principal amount to $103,092,800 (or $118,556,750 if the
over-allotment option is exercised), issued under the Indenture hereinafter
referred to. The Obligors promise to pay interest on the Securities in cash
from August 20, 1996 or from the most recent interest payment date to which
interest has been paid or duly provided for, quarterly (subject to deferral
for up to 20 consecutive quarters as described in Section 3 hereof) in arrears
on February 20, May 20, August 20 and November 20 of each year (each such
date, an "Interest Payment Date"), commencing November 20, 1996, at the rate
of 8 3/4% per annum (subject to increase as provided in Section 13 hereto)
plus Additional Interest, Compound Interest and Liquidated Damages if any,
until the principal hereof shall have become due and payable.
The amount of interest payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months. The amount of
interest payable for any period shorter than a full quarterly period for which
interest is computed will be computed on the basis of the actual
________________________________
* All terms used in this Security which are defined in the Indenture
or in the Declaration attached as Annex A thereto shall have the
meanings assigned to them in the Indenture or the Declaration,
as the case may be.
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<PAGE>
number of days elapsed. In the event that any date on which interest is payable
on the Securities is not a Business Day, then payment of the interest payable
on such date will be made on the next succeeding day which is a Business Day
(without any interest or other payment in respect of any such delay), except
that, if such Business Day is in the next succeeding calendar year, such
payment shall be made on the immediately preceding Business Day, in each case
with the same force and effect as if made on such date.
(2) Additional Interest. The Obligors shall pay to Golden
Books Finance Trust (and its permitted successors or assigns under the
Declaration) (the "Trust") such amounts as shall be required so that the net
amounts received and retained by the Trust after paying any taxes, duties,
assessments or other governmental charges of whatever nature (other than
withholding taxes) imposed on the Trust by the United States or any other
taxing authority ("Additional Interest") will be not less than the amounts the
Trust would have received had no such taxes, duties, assessment or
governmental charges been imposed.
(3) Option to Extend Interest Payment Period. Either of the
Obligors shall have the right at any time during the term of the Securities to
defer interest payments from time to time by extending the interest payment
period for successive periods (each, an "Extension Period") not exceeding 20
consecutive quarters for each such period; provided, no Extension Period may
extend beyond the maturity date of the Securities. At the end of each
Extension Period, the Obligors shall jointly and severally be responsible for
the payment of, and either Obligor shall pay all interest then accrued and
unpaid (including Additional Interest and Liquidated Damages) together with
interest thereon compounded quarterly at the rate specified for the Securities
to the extent permitted by applicable law ("Compounded Interest"); provided,
that during any Extension Period, the Company (i) shall not declare or pay
dividends on, make distributions with respect to, or redeem, purchase or
acquire, or make a liquidation payment with respect to, any of its capital
stock (except for (1) dividends or distributions in shares of Common Stock on
Common Stock or on the Series B Convertible Preferred Stock, (2) purchases or
acquisitions of shares of Common Stock made in connection with any employee
benefit plan of the Company or its subsidiaries or pursuant to employment
agreements with officers or employees of the Company or its subsidiaries,
provided that such repurchases by the Company made from officers or employees
of the Company or its subsidiaries pursuant to employment agreements shall be
made at a price not to exceed market value on the date of any such repurchase
and shall not exceed $5 million in the aggregate for all such employees and
officers, (3) conversions or exchanges of shares of Common Stock of any one
class into shares of Common Stock of another class or (4) purchases of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of any of the Company's securities being
converted or exchanged), (ii) shall not make any payment of interest,
principal or premium, if any, on or repay, repurchase or redeem, any debt
securities issued by the Company that rank junior to the Securities (except by
conversion into or exchange for shares of its capital stock) and (iii) shall
not make any guarantee payments with respect to the foregoing (other than such
payments made pursuant to the Guarantee). In addition, during any Extension
Period, Golden Books Publishing (a) if Golden Books Publishing is not a wholly
owned subsidiary of the Company, shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (except for (1)
dividends or distributions in shares of its common stock made on outstanding
shares of its
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<PAGE>
common stock, (2) conversions or exchanges of its common stock of one class
into common stock of another class or (3) purchases of fractional interests in
shares of the capital stock of Golden Books Publishing being converted or
exchanged) and (b) shall not make any payment of interest, principal of or
premium, if any, on, or repay, repurchase or redeem any debt securities issued
by the Golden Books Publishing that rank junior to the Convertible Debentures
(except by conversion into or exchange for shares of its capital stock). Prior
to the termination of any such Extension Period, the Obligors may further
extend such Extension Period; provided that such Extension Period together with
all previous and further extensions thereof may not exceed 20 consecutive
quarters and may not extend beyond the maturity of the Securities. Upon the
termination of any Extension Period and the payment of all amounts then due,
either of the Obligors may commence a new Extension Period, subject to the
above requirements. No interest during an Extension Period, except at the end
thereof, shall be due and payable.
If the Property Trustee is the sole holder of the Securities
at the time either of the Obligors selects an Extension Period, either of the
Obligors shall give notice to the Regular Trustees, the Property Trustee and
the Trustee of its selection of such Extension Period at least one Business
Day prior to the earlier of (i) the date the distributions on the Preferred
Securities are payable or (ii) if the Preferred Securities are listed on the
NASDAQ National Market or other stock exchange or quotation system, the date
the Trust is required to give notice to The NASDAQ National Market or other
applicable self-regulatory organization or to holders of the Preferred
Securities on the record date or the date such distributions are payable, but
in any event not less than ten Business Days prior to such record date.
If the Property Trustee is not the sole holder of the
Securities at the time either of the Obligors selects an Extension Period,
either of the Obligors shall give the Holders of these Securities and the
Trustee notice of its selection of an Extension Period at least ten Business
Days prior to the earlier of (i) the next succeeding Interest Payment Date or
(ii) if the Preferred Securities are listed on The NASDAQ National Market or
other stock exchange or quotation system, the date the Company is required to
give notice to The NASDAQ National Market or other applicable self-regulatory
organization or to holders of the Securities on the record or payment date of
such related interest payment, but in any event not less than two Business
Days prior to such record date.
The quarter in which any notice is given pursuant to the
second and third paragraphs of this Section 3 shall be counted as one of the
20 quarters permitted in the maximum Extension Period permitted under the
first paragraph of this Section 3.
(4) Method of Payment. The interest so payable, and
punctually paid or duly provided for, on any Interest Payment Date will, as
provided in the Indenture, be paid to the Person in whose name this Security
(or one or more Predecessor Securities) is registered at the close of business
on the regular record date for such interest installment, which shall be the
close of business on the day immediately preceding each Interest Payment Date;
provided, however, that, for so long as the Securities are held by the Trust
or the Property Trustee of the Trust, if any Preferred Securities (or if the
Trust is liquidated in connection with Special Event, any Securities) are held
in certificated form, the Record Date for each Interest Payment Date shall be
15 days prior to such Interest Payment Date (in each case, a "Regular Record
Date"). Any such interest not so punctually
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<PAGE>
paid or duly provided for shall forthwith cease to be payable to the Holder on
such Regular Record Date and may either be paid to the Person in whose name
this Security (or one or more Predecessor Securities) is registered at the
close of business on a Special Record Date for the payment of such Defaulted
Interest to be fixed by the Trustee, notice of which shall be given to Holders
of Securities not less than 10 days prior to such Special Record Date, or be
paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Securities may be listed,
and upon such notice as may be required by such exchange, all as more fully
provided in said Indenture.
Payment of the principal of and interest on this Security
will be made at the office or agency of the Obligors maintained for that
purpose in New York, New York, in such coin or currency of the United States
of America as at the time of payment is legal tender for payment of public and
private debts; provided, however, that, at the option of the Obligors, payment
of interest may be made by check mailed to the address of the Person entitled
thereto as such address shall appear in the Security Register.
(5) Paying Agent and Security Registrar. The Trustee will act
as Paying Agent, Security Registrar and Conversion Agent. The Obligors may
change any Paying Agent, Security Registrar, co-registrar or Conversion Agent
without prior notice. The Obligors or any of their Affiliates may act in any
such capacity.
(6) Indenture. The Obligors issued the Securities under an
indenture, dated as of August 20, 1996 (the "Indenture"), between the Obligors
and The Bank of New York, as Trustee (herein called the "Trustee", which term
includes any successor trustee under the Indenture), to which Indenture and
all indentures supplemental thereto reference is hereby made for a statement
of the respective rights, limitations of rights, duties and immunities
thereunder of the Trustee, the Obligors and the Holders of the Securities, and
of the terms upon which the Securities are, and are to be, authenticated and
delivered. The terms of the Securities include those stated in the Indenture
and those made part of the Indenture by the Trust Indenture Act of 1939 (15
U.S. Code ss.ss. 77aaa-77bbbb) ("TIA") as in effect on the date of the
Indenture. The Securities are subject to, and qualified by, all such terms,
certain of which are summarized hereon, and holders are referred to the
Indenture and the TIA for a statement of such terms. The Securities are
unsecured general obligations of the Obligors limited to $103,920,800 in
aggregate principal amount (or $118,556,750 if the over-allotment option is
exercised). No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Obligors, jointly and severally, which is absolute and unconditional, to pay
the principal of and interest on this Security at the times, place and rate,
and in the coin or currency, herein prescribed or to convert this Security as
provided in the Indenture.
(7) Optional Redemption. The Securities are redeemable, in
whole or in part, at the Obligors' option at any time and from time to time
after August 20, 1996, upon not less than 30 nor more than 60 days' notice, at
a redemption price equal to 106.125% of the principal amount of the Securities
to be redeemed plus any accrued and unpaid interest, including Additional
Interest, Compounded Interest and Liquidated Damages if any, to the Redemption
Date, if redeemed on or before August 19, 2000, and at the following optional
redemption prices (expressed as a percentage
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<PAGE>
of the principal amount of the Securities), if redeemed during the 12-month
period beginning August 20, 2000:
Percentage of
Principal
Year Amount
2000.................................... 105.250
2001.................................... 104.375
2002.................................... 103.500
2003.................................... 102.625
2004.................................... 101.750
2005.................................... 100.875
2006 and thereafter..................... 100.000
plus, in each case, accrued and unpaid interest, including Additional
Interest, Compounded Interest and Liquidated Damages if any, to the Redemption
Date. On or after the Redemption Date, interest will cease to accrue on the
Securities, or portion thereof, called for redemption.
(8) Optional Redemption Upon Tax Event. The Securities are
subject to redemption in whole (but not in part), at any time within 90 days
thereafter, if a Tax Event (as defined in the Declaration) shall occur and be
continuing, at a redemption price equal to 100% of the principal amount
thereof plus accrued but unpaid interest, including Additional Interest, if
any, to the Redemption Date. Any redemption pursuant to this Section 8 will be
made upon not less than 30 nor more than 60 days' notice.
(9) Notice of Redemption. Notice of redemption will be
mailed at least 30 days but not more than 60 days before the Redemption Date
to each Holder of the Securities to be redeemed at his address of record. The
Securities in denominations larger than $50 may be redeemed in part but only
in integral multiples of $50. In the event of a redemption of less than all of
the Securities, the Securities will be chosen for redemption by the Trustee in
accordance with the Indenture. On and after the Redemption Date, interest
ceases to accrue on the Securities or portions of them called for redemption.
If this Security is redeemed subsequent to a Regular Record
Date with respect to any Interest Payment Date specified above and on or prior
to such Interest Payment Date, then any accrued interest will be paid to the
person in whose name this Security is registered at the close of business on
such record date.
(10) Redemption. The Securities will mature on August 20,
2016, and may be redeemed, in whole or in part, at any time after August 20,
1996 as set forth above or at any time in certain circumstances upon the
occurrence of a Tax Event as set forth above. Upon the repayment of the
Securities, whether at maturity or upon redemption, the proceeds from such
repayment or payment shall simultaneously be applied to redeem Trust
Securities having an aggregate liquidation amount equal to the Securities so
repaid or redeemed at the applicable redemption price together
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<PAGE>
with accrued and unpaid distributions through the date of redemption; provided,
that holders of the Trust Securities shall be given not less than 30 nor more
than 60 days notice of such redemption. Upon the repayment of the Securities at
maturity or upon any acceleration, earlier redemption or otherwise, the
proceeds from such repayment will be applied to redeem the Preferred
Securities, in whole, upon not less than 30 nor more than 60 days' notice.
There are no sinking fund payments with respect to the Securities.
(11) Conversion. The Holder of any Security has the right,
exercisable at any time prior to the close of business (New York time) on the
Business Day immediately preceding the date of repayment of such Security
whether at maturity or upon redemption (either at the option of either of the
Obligors or pursuant to a Tax Event), to convert the principal amount thereof
(or any portion thereof that is an integral multiple of $50) into shares of
Common Stock at the initial conversion price of 3.8462 shares of Common Stock
for each Security (equivalent to a conversion price of $13 per share of Common
Stock of the Company), subject to adjustment under certain circumstances,
except that if a Security is called for redemption, the conversion right will
terminate at the close of business on the day immediately preceding the
Redemption Date.
To convert a Security, a Holder must (1) complete and sign a
conversion notice substantially in the form attached hereto, (2) surrender the
Security to a Conversion Agent, (3) furnish appropriate endorsements or
transfer documents if required by the Security Registrar or Conversion Agent
and (4) pay any transfer or similar tax, if required. Upon conversion, no
adjustment or payment will be made for interest or dividends, but if any
Holder surrenders a Security for conversion after the close of business on the
Regular Record Date for the payment of an installment of interest and prior to
the opening of business on the next Interest Payment Date, then,
notwithstanding such conversion, the interest payable on such Interest Payment
Date will be paid to the registered Holder of such Security on such Regular
Record Date. In such event, such Security, when surrendered for conversion,
need not be accompanied by payment of an amount equal to the interest payable
on such Interest Payment Date on the portion so converted. The number of
shares issuable upon conversion of a Security is determined by dividing the
principal amount of the Security converted by the conversion price in effect
on the Conversion Date. No fractional shares will be issued upon conversion
but a cash adjustment will be made for any fractional interest. The
outstanding principal amount of any Security shall be reduced by the portion
of the principal amount thereof converted into shares of Common Stock.
(12) Registration Rights.
The holders of the Preferred Securities, the Securities, the
Guarantee and the shares of Common Stock of the Company issuable upon
conversion of the Securities (collectively, the "Registrable Securities") are
entitled to the benefits of a Registration Rights Agreement, dated as of
August 20, 1996, among the Obligors and the Initial Purchasers (the
"Registration Rights Agreement"). Pursuant to the Registration Rights
Agreement, the Obligors have agreed for the benefit of the holders of
Registrable Securities that (i) it will, at its cost, within 60 days after the
date of issuance of the Registrable Securities, file a shelf registration
statement (the "Shelf Registration Statement") with the Commission with
respect to resales of the Registrable Securities, (ii) it will use its best
efforts to cause, such Shelf Registration Statement to be declared effective
by
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<PAGE>
the Commission within 150 days after the date of issuance of the Registrable
Securities and (iii) the Company will use its best efforts to maintain such
Shelf Registration Statement continuously effective under the Securities Act
until the third anniversary of the effectiveness of the Shelf Registration
Statement or such earlier date as is provided in the Registration Rights
Agreement.
If (i) on or prior to 60 days following the date of original
issuance of the Registrable Securities, a Shelf Registration Statement has not
been filed with the Commission, or (ii) on or prior to the 150th day following
the issuing of the Registrable Securities, such Shelf Registration Statement
is not declared effective (each, a "Registrable Default"), additional interest
("Liquidated Damages") will accrue on the Securities and, accordingly,
additional distributions will accrue on the Preferred Securities, in each case
from and including the day following such Registration Default. Liquidated
Damages will be paid quarterly in arrears, with the first quarterly payment
due on the first interest or distribution payment date, as applicable,
following the date on which such Liquidated Damages begin to accrue, and will
accrue at a rate per annum equal to an additional one-quarter of one percent
(0.25%) of the principal amount or liquidation amount, as applicable, to and
including the 90th day following such Registration Default and one-half of the
one percent (0.50%) thereof from and after the 91st day following such
Registration Default. Upon (x) the filing of the Shelf Registration Statement
after the 60-day period described in clause (i) above or (y) the effectiveness
of the Shelf Registration Statement after the 150-day period described in
clause (ii) above, the interest rate borne by the Securities and the
distribution rate borne by the Preferred Securities, from and after the date
of such filing or effectiveness, as the case may be, will be reduced to the
original interest rate and distribution rate, respectively. In the event that
the Shelf Registration Statement ceases to be effective during the
Effectiveness Period for more than 60 days, whether or not consecutive, during
any 12-month period, then the interest rate borne by the Securities and the
distribution rate borne by the Preferred Securities will each increase by an
additional one-half of one percent (0.50%) per annum from such 31st or 91st
day, as applicable, until such time as the Shelf Registration Statement again
becomes effective.
(13) Registration, Transfer, Exchange and Denominations. As
provided in the Indenture and subject to certain limitations therein set
forth, the transfer of this Security is registrable in the Security Register,
upon surrender of this Security for registration of transfer at the office or
agency of the Obligors in New York, New York, duly endorsed by, or accompanied
by a written instrument of transfer in form satisfactory to the Obligors and
the Security Registrar duly executed by, the Holder hereof or his attorney
duly authorized in writing, and thereupon one or more new Securities, of
authorized denominations and for the same aggregate principal amount, will be
issued to the designated transferee or transferees.
The Securities are issuable only in registered form without
coupons in denominations of $50 and integral multiples thereof. No service
charge shall be made for any such registration of transfer or exchange, but
the Obligors may require payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith. Prior to due presentment
of this Security for registration of transfer, the Obligors, the Trustee and
any agent of the Obligors or the Trustee may treat the Person in whose name
this Security is registered as the owner hereof for all purposes, whether or
not this Security be overdue, and neither the Obligors, the Trustee nor any
such agent shall be affected by notice to the contrary. In the event of
redemption or
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<PAGE>
conversion of this Security in part only, a new Security or Securities for the
unredeemed or unconverted portion hereof will be issued in the name of the
Holder hereof upon the cancellation hereof.
(14) Persons Deemed Owners. Except as provided in Section 4
hereof, the registered Holder of a Security may be treated as its owner for all
purposes.
(15) Unclaimed Money. If money for the payment of principal
or interest remains unclaimed for two years, the Trustee and the Paying Agent
shall pay the money back to the Obligors at its written request. After that,
holders of Securities entitled to the money must look to the Obligors for
payment unless an abandoned property law designates another Person and all
liability of the Trustee and such Paying Agent with respect to such money
shall cease.
(16) Defaults and Remedies. The Securities shall have the
Events of Default as set forth in Section 501 of the Indenture. Subject to
certain limitations in the Indenture, if an Event of Default occurs and is
continuing, the Trustee by notice to the Obligors, or the holders of at least
25% in aggregate principal amount of the then outstanding Securities by notice
to the Obligors and the Trustee, may declare all the Securities to be due and
payable immediately.
The holders of a majority in principal amount of the
Securities then outstanding by written notice to the Trustee may rescind an
acceleration and its consequences if the rescission is prior to a judgment or
decree for the payment of the money due has been obtained by the Trustee as
provided in the Indenture and if all existing Events of Default have been
cured or waived except nonpayment of principal and/or interest that has become
due solely because of the acceleration. Holders may not enforce the Indenture
or the Securities except as provided in the Indenture. Subject to certain
limitations, holders of a majority in principal amount of the then outstanding
Securities issued under the Indenture may direct the Trustee in its exercise
of any trust or power. Each of the Obligors must furnish annually compliance
certificates to the Trustee. The above description of Events of Default and
remedies is qualified by reference to, and subject in its entirety by, the
more complete description thereof contained in the Indenture.
(17) Amendments, Supplements and Waivers. The Indenture
permits, with certain exceptions as therein provided, the amendment thereof
and the modification of the rights and obligations of the Obligors and the
rights of the Holders of the Securities under the Indenture at any time by the
Obligors and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Securities at the time Outstanding. The
Indenture also contains provisions permitting the Holders of specified
percentages in aggregate principal amount of the Securities at the time
Outstanding, on behalf of the Holders of all the Securities, to waive
compliance by the Obligors with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and
binding upon such Holder and upon all future Holders of this Security and of
any Security issued upon the registration of transfer hereof or in exchange
herefore or in lieu hereof, whether or not notation of such consent or waiver
is made upon this Security.
(18) Trustee Dealings with the Obligors. The Trustee, in its
individual or any other capacity may become the owner or pledgee of the
Securities and may otherwise deal with the
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<PAGE>
Obligors or an Affiliate with the same rights it would have, as if it were not
Trustee, subject to certain limitations provided for in the Indenture and in
the TIA. Any Agent may do the same with like rights.
(19) No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company or Golden Books Publishing
shall not have any liability for any obligations of the Obligors under the
Securities or the Indenture or for any claim based on, in respect of or by
reason of such obligations or their creation. Each Holder of the Securities by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Securities.
(20) Governing Law. THE INDENTURE AND THE SECURITIES SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
WITHOUT REGARD TO CONFLICT OF LAW PROVISIONS THEREOF.
(21) Authentication. The Securities shall not be valid until
authenticated by the manual signature of an authorized signatory of the Trustee
or an authenticating agent.
The Obligors will furnish to any Holder of the Securities
upon written request and without charge a copy of the Indenture. Request may
be made to:
Golden Books Family Entertainment, Inc.
850 Third Avenue
New York, New York 10022
Attention of: Chief Financial Officer
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<PAGE>
ASSIGNMENT FORM
To assign this Security, fill in the form below:
(I) or (we) assign and transfer this Security to
_______________________________________________________________________________
(Insert assignee's social security or tax I.D. no.)
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(Print or type assignee's name, address and zip code)
and irrevocably appoint________________________________________________________
agent to transfer this Security on the books of the Obligors. The agent may
substitute another to act for him.
Your Signature:_______________________________________________________
(Sign exactly as your name appears on the other side of
this Security)
Date:_________________________________________
Signature Guarantee:* ________________________________________________
[Include the following if the Security bears a Restricted Securities Legend --
In connection with any transfer of any of the Securities evidenced by this
certificate, the undersigned confirms that such Securities are being:
CHECK ONE BOX BELOW
(1) |_| exchanged for the undersigned's own account without
transfer; or
(2) |_| transferred pursuant to and in compliance with Rule
144A under the Securities Act of 1933; or
___________________________________
* Signature must be guaranteed by a commercial bank, trust company or
member firm of the Nasdaq National Market.
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<PAGE>
(3) |_| transferred pursuant to and in compliance with
Regulation S under the Securities Act of 1933; or
(4) |_| transferred pursuant to another available exemption
from the registration requirements of the Securities
Act of 1933; or
(5) |_| transferred pursuant to an effective Shelf
Registration Statement.
Unless one of the boxes is checked, the Trustee will refuse to register any of
the Securities evidenced by this certificate in the name of any person other
than the registered Holder thereof; provided, however, that if box (3) or (4)
is checked, the Trustee may require, prior to registering any such transfer of
the Securities such legal opinions, certifications and other information as
the Company has reasonably requested to confirm that such transfer is being
made pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act of 1933, such as the exemption
provided by Rule 144 under such Act.
_______________________________________
Signature
Signature Guarantee:*
_______________________________________
Signature must be guaranteed Signature
_______________________________________________________________________________
[TO BE COMPLETED BY PURCHASER IF (2) ABOVE IS CHECKED.
The undersigned represents and warrants that it is
purchasing this Security for its own account or an account with respect to
which it exercises sole investment discretion and that it and any such account
is a "qualified institutional buyer" within the meaning of Rule 144A under the
Securities Act of 1933, and is aware that the sale to it is being made in
reliance on Rule 144A and acknowledges that it has received such information
regarding the Obligors as the undersigned has requested pursuant to Rule 144A
or has determined not to request such information and that it
___________________________________
* Signature must be guaranteed by a commercial bank, trust company or
member firm of the Nasdaq National Market.
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<PAGE>
is aware that the transferor is relying upon the undersigned's foregoing
representations in order to claim the exemption from registration provided by
Rule 144A.
Dated:_______________________________ ___________________________________
NOTICE: To be executed by an
executive officer]
85
<PAGE>
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE A
The initial principal amount of this Global Security shall
be $103,092,800. The following increases or decreases in the principal amount
of this Global Security have been made:
<TABLE>
<CAPTION>
Amount of increase
in Principal Amount
of this Global Amount of decrease Principal Amount of Signature of
Security including in Principal Amount this Global Security authorized officer
upon exercise of of this Global following such of Trustee or
Date Made over-allotment option Security decrease or increase Securities Custodian
- ------------------------ ---------------------- ---------------------- ----------------------- --------------------
<S> <C> <C> <C> <C>
</TABLE>
86
<PAGE>
ELECTION TO CONVERT
To: Golden Books Family Entertainment, Inc. and Golden Books Publishing
Company, Inc.
The undersigned owner of this Security hereby irrevocably
exercises the option to convert this Security, or the portion below
designated, into Common Stock of Golden Books Family Entertainment, Inc. in
accordance with the terms of the Indenture referred to in this Security, and
directs that the shares issuable and deliverable upon conversion, together
with any check in payment for fractional shares, be issued in the name of and
delivered to the undersigned, unless a different name has been indicated in
the assignment below. If shares are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto.
Any holder, upon the exercise of its conversion rights in
accordance with the terms of the Indenture and the Security, agrees to be
bound by the terms of the Registration Rights Agreement relating to the Common
Stock issuable upon conversion of the Securities.
Date: ____________, ____
in whole __
in part __ Portions of Security to be converted ($50 or
integral multiples thereof): $_________________
__________________________________________
Signature (for conversion only)
Please Print or Typewrite Name and Address,
Including Zip Code, and Social Security or
Other Identifying Number
___________________________________________
___________________________________________
___________________________________________
Signature Guarantee:*______________________
__________________________
* Signature must be guaranteed by a commercial bank, trust company or
member firm of the Nasdaq National Market.
87
====================================
PREFERRED SECURITIES GUARANTEE AGREEMENT
Golden Books Family Entertainment, Inc.
Dated as of August 20, 1996
====================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 Definitions and Interpretation................................................................2
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application..............................................................5
SECTION 2.2 Lists of Holders of Securities................................................................5
SECTION 2.3 Reports by the Preferred Guarantee Trustee....................................................5
SECTION 2.4 Periodic Reports to Preferred Guarantee Trustee...............................................6
SECTION 2.5 Evidence of Compliance with Conditions Precedent..............................................6
SECTION 2.6 Events of Default; Waiver.....................................................................6
SECTION 2.7 Event of Default; Notice......................................................................6
SECTION 2.8 Conflicting Interests.........................................................................7
ARTICLE III
POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of the Preferred Guarantee Trustee..........................................7
SECTION 3.2 Certain Rights of Preferred Guarantee Trustee.................................................8
SECTION 3.3 Not Responsible for Recitals or Issuance of Guarantee........................................10
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
SECTION 4.1 Preferred Guarantee Trustee; Eligibility.....................................................11
SECTION 4.2 Appointment, Removal and Resignation of Preferred Guarantee Trustees.........................11
ARTICLE V
GUARANTEE
SECTION 5.1 Guarantee....................................................................................12
SECTION 5.2 Subordination................................................................................12
SECTION 5.3 Waiver of Notice and Demand..................................................................13
SECTION 5.4 Obligations Not Affected.....................................................................13
SECTION 5.5 Rights of Holders............................................................................14
SECTION 5.6 Guarantee of Payment.........................................................................14
SECTION 5.7 Subrogation..................................................................................14
SECTION 5.8 Independent Obligations......................................................................15
SECTION 5.9 Conversion...................................................................................15
i
<PAGE>
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 Limitation of Transactions...................................................................15
SECTION 6.2 Ranking......................................................................................16
ARTICLE VII
TERMINATION
SECTION 7.1 Termination..................................................................................16
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 Exculpation..................................................................................16
SECTION 8.2 Indemnification..............................................................................17
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Successors and Assigns.......................................................................17
SECTION 9.2 Amendments...................................................................................17
SECTION 9.3 Notices......................................................................................18
SECTION 9.4 Benefit......................................................................................18
SECTION 9.5 Governing Law................................................................................18
ii
</TABLE>
<PAGE>
PREFERRED SECURITIES GUARANTEE AGREEMENT
This PREFERRED SECURITIES GUARANTEE AGREEMENT (the "Preferred
Securities Guarantee"), dated as of August 20, 1996, is executed and delivered
by Golden Books Family Entertainment, Inc., a Delaware corporation (the
"Guarantor"), and The Bank of New York as trustee (the "Preferred Guarantee
Trustee"), for the benefit of the Holders (as defined herein) from time to
time of the Preferred Securities (as defined herein) of Golden Books Financing
Trust, a Delaware statutory business trust (the "Trust").
WHEREAS, pursuant to an Amended and Restated Declaration of Trust
(the "Declaration"), dated as of August 20, 1996, among the trustees of the
Trust named therein, the Guarantor as sponsor, and the holders from time to
time of undivided beneficial interests in the assets of the Trust, the Trust
is issuing on the date hereof 2,000,000 preferred securities, having an
aggregate liquidation amount of $100,000,000 (plus up to an additional 300,000
preferred securities, having an aggregate liquidation amount of $15,000,000 to
cover over-allotments), designated the 8 3/4% Convertible Trust Originated
Preferred Securities(SM) (the "Preferred Securities").
WHEREAS, as incentive for the Holders to purchase the Preferred
Securities, the Guarantor desires irrevocably and unconditionally to agree, to
the extent set forth in this Preferred Securities Guarantee, to guarantee the
obligations of the Trust to the Holders of the Preferred Securities on the
terms and conditions set forth herein.
WHEREAS, the Guarantor is also executing and delivering a guarantee
agreement (the "Common Securities Guarantee") in substantially identical terms
to this Preferred Securities Guarantee for the benefit of the holders of the
Common Securities (as defined herein), except that if an Event of Default (as
defined in the Indenture (as defined herein)), has occurred and is continuing,
the rights of holders of the Common Securities to receive Guarantee Payments
(as defined in the Common Securities Guarantee) under the Common Securities
Guarantee shall be subordinated to the rights of Holders of Preferred
Securities to receive Guarantee Payments (as defined herein) under this
Preferred Securities Guarantee.
NOW, THEREFORE, in consideration of the purchase by each Holder of
Preferred Securities, which purchase the Guarantor hereby agrees shall benefit
the Guarantor, the Guarantor executes and delivers this Preferred Securities
Guarantee for the benefit of the Holders.
<PAGE>
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.1 Definitions and Interpretation
In this Preferred Securities Guarantee, unless the context otherwise
requires:
(a) Capitalized terms used in this Preferred Securities
Guarantee but not defined in the preamble above have the
respective meanings assigned to them in this Section 1.1;
(b) a term defined anywhere in this Preferred Securities
Guarantee has the same meaning throughout;
(c) all references to "the Preferred Securities Guarantee" or
"this Preferred Securities Guarantee" are to this Preferred
Securities Guarantee as modified, supplemented or amended
from time to time;
(d) all references in this Preferred Securities Guarantee to
Articles and Sections are to Articles and Sections of this
Preferred Securities Guarantee, unless otherwise specified;
(e) a term defined in the Trust Indenture Act has the same
meaning when used in this Preferred Securities Guarantee,
unless otherwise defined in this Preferred Securities
Guarantee or unless the context otherwise requires;
(f) a reference to the singular includes the plural and vice
versa;
(g) a reference to any Person shall include its successors and
assigns;
(h) a reference to any agreement or instrument shall mean such
agreement or instrument, as supplemented, modified, amended,
or amended and restated, and in effect from time to time;
and
(i) a reference to any statute, law, rule or regulation, shall
include any amendments thereto applicable to the relevant
Person, and any successor statute, law, rule or regulation.
"Affiliate" has the same meaning as given to that term in Rule 405 of
the Securities Act of 1933, as amended, or any successor rule thereunder.
"Business Day" means any day other than a day on which banking
institutions in New York, New York or in Wilmington, Delaware are authorized
or required by any applicable law or executive order to close.
"Common Securities" means the securities representing common
undivided beneficial interests in the assets of the Trust.
2
<PAGE>
"Convertible Debenture Issuers" means the Guarantor and Golden Books
Publishing Company, Inc., a Delaware corporation.
"Corporate Trust Office" means the office of the Preferred Guarantee
Trustee at which the corporate trust business of the Preferred Guarantee
Trustee shall, at any particular time, be principally administered, which
office at the date of execution of this Agreement is located at 101 Barclay
Street, New York, New York 10286.
"Covered Person" means any Holder or beneficial owner of Preferred
Securities.
"Debentures" means the 8 3/4% Convertible Debentures due 2016 of the
Convertible Debenture Issuers held by the Property Trustee (as defined in the
Declaration).
"Event of Default" means a default by the Guarantor on any of its
payment obligations under this Preferred Securities Guarantee.
"Guarantee Payments" means the following payments or distributions,
without duplication, with respect to the Preferred Securities, to the extent
not paid or made by the Trust: (i) any accrued and unpaid Distributions (as
defined in the Declaration) that are required to be paid on such Preferred
Securities to the extent the Trust shall have funds available therefor, (ii)
the redemption price, including all accrued and unpaid Distributions to the
date of redemption (the "Redemption Price"), with respect to any Preferred
Securities called for redemption by the Trust, to the extent the Trust has
funds available therefor, and (iii) upon a voluntary or involuntary
dissolution, winding-up or termination of the Trust (other than in connection
with a distribution of the Debentures to the Holders in exchange for Preferred
Securities or the redemption of all of the Preferred Securities, as provided
in the Declaration), the lesser of (a) the aggregate of the liquidation amount
and all accrued and unpaid Distributions on the Preferred Securities to the
date of payment, to the extent the Trust shall have funds available therefor,
and (b) the amount of assets of the Trust remaining available for distribution
to Holders upon liquidation of the Trust (in either case, the "Liquidation
Distribution").
"Holder" shall mean any holder, as registered on the books and
records of the Trust, of any Preferred Securities; provided, however, that in
determining whether the holders of the requisite percentage of Preferred
Securities have given any request, notice, consent or waiver hereunder,
"Holder" shall not include the Convertible Debenture Issuer or any Affiliate
of the Convertible Debenture Issuer.
"Indemnified Person" means the Preferred Guarantee Trustee, any
Affiliate of the Preferred Guarantee Trustee, or any officers, directors,
shareholders, members, partners, employees, representatives, nominees,
custodians or agents of the Preferred Guarantee Trustee.
"Indenture" means the Indenture dated as of August 20, 1996, among
the Guarantor, Golden Books Publishing and The Bank of New York, as trustee,
pursuant to which the Debentures are to be issued to the Property Trustee of
the Trust.
3
<PAGE>
"Indenture Trustee" means the Person acting as trustee under the
Indenture, initially The Bank of New York.
"Majority in liquidation amount of the Preferred Securities" means,
except as provided by the Trust Indenture Act, a vote by Holder(s) of
Preferred Securities, voting separately as a class, of more than 50% of the
liquidation amount (including the stated amount that would be paid on
redemption, liquidation or otherwise, plus accrued and unpaid Distributions to
the date upon which the voting percentages are determined) of all Preferred
Securities.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two Authorized Officers of such Person. Any Officers'
Certificate delivered with respect to compliance with a condition or covenant
provided for in this Preferred Securities Guarantee shall include:
(a) a statement that each officer signing the Officers'
Certificate has read the covenant or condition and the
definition relating thereto;
(b) a brief statement of the nature and scope of the examination
or investigation undertaken by each officer in rendering the
Officers' Certificate;
(c) a statement that each such officer has made such examination
or investigation as, in such officer's opinion, is necessary
to enable such officer to express an informed opinion as to
whether or not such covenant or condition has been complied
with; and
(d) a statement as to whether, in the opinion of each such
officer, such condition or covenant has been complied with.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever
nature.
"Preferred Guarantee Trustee" means The Bank of New York, until a
Successor Preferred Guarantee Trustee has been appointed and has accepted such
appointment pursuant to the terms of this Preferred Securities Guarantee and
thereafter means each such Successor Preferred Guarantee Trustee.
"Responsible Officer" means, with respect to the Preferred Guarantee
Trustee, any officer within the Corporate Trust Office of the Preferred
Guarantee Trustee, including any vice president, any assistant vice president,
any assistant secretary, the treasurer, any assistant treasurer or other
officer of the Corporate Trust Office of the Preferred Guarantee Trustee
customarily performing functions similar to those performed by any of the
above designated officers and also means, with respect to a particular
corporate trust matter, any other officer to whom such matter is referred
because of that officer's knowledge of and familiarity with the particular
subject.
4
<PAGE>
"Successor Preferred Guarantee Trustee" means a successor Preferred
Guarantee Trustee possessing the qualifications to act as Preferred Guarantee
Trustee under Section 4.1.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as
amended.
ARTICLE II
TRUST INDENTURE ACT
SECTION 2.1 Trust Indenture Act; Application
(a) This Preferred Securities Guarantee is subject to the provisions
of the Trust Indenture Act that are required to be part of this Preferred
Securities Guarantee and shall, to the extent applicable, be governed by such
provisions; and
(b) if and to the extent that any provision of this Preferred
Securities Guarantee limits, qualifies or conflicts with the duties imposed by
Sections 310 to 317, inclusive, of the Trust Indenture Act, such imposed
duties shall control.
SECTION 2.2 Lists of Holders of Securities
(a) The Guarantor shall provide the Preferred Guarantee Trustee with
a list, in such form as the Preferred Guarantee Trustee may reasonably
require, of the names and addresses of the Holders of the Preferred Securities
("List of Holders") as of such date, (i) within one Business Day after May 20
and November 20 of each year, and (ii) at any other time within 30 days of
receipt by the Guarantor of a written request for a List of Holders as of a
date no more than 14 days before such List of Holders is given to the
Preferred Guarantee Trustee, provided that the Guarantor shall not be
obligated to provide such List of Holders at any time the List of Holders does
not differ from the most recent List of Holders given to the Preferred
Guarantee Trustee by the Guarantor or the Preferred Securities are represented
by one or more Global Securities (as defined in the Indenture). The Preferred
Guarantee Trustee may destroy any List of Holders previously given to it on
receipt of a new List of Holders.
(b) The Preferred Guarantee Trustee shall comply with its obligations
under Section 311(a), 311(b) and Section 312(b) of the Trust Indenture Act.
SECTION 2.3 Reports by the Preferred Guarantee Trustee
Within 60 days after May 15 of each year, the Preferred Guarantee
Trustee shall provide to the Holders of the Preferred Securities such reports
as are required by Section 313 of the Trust Indenture Act, if any, in the form
and in the manner provided by Section 313 of the Trust Indenture Act. The
Preferred Guarantee Trustee shall also comply with the requirements of Section
313(d) of the Trust Indenture Act.
5
APITAL PRINTING SYSTEMS]
<PAGE>
SECTION 2.4 Periodic Reports to Preferred Guarantee Trustee
The Guarantor shall provide to the Preferred Guarantee Trustee such
documents, reports and information as required by Section 314 (if any) and the
compliance certificate required by Section 314 of the Trust Indenture Act in
the form, in the manner and at the times required by Section 314 of the Trust
Indenture Act.
SECTION 2.5 Evidence of Compliance with Conditions Precedent
The Guarantor shall provide to the Preferred Guarantee Trustee such
evidence of compliance with any conditions precedent, if any, provided for in
this Preferred Securities Guarantee that relate to any of the matters set
forth in Section 314(c) of the Trust Indenture Act. Any certificate or opinion
required to be given by an officer pursuant to Section 314(c)(1) may be given
in the form of an Officers' Certificate.
SECTION 2.6 Events of Default; Waiver
The Holders of a Majority in liquidation amount of Preferred
Securities may, by vote, on behalf of the Holders of all of the Preferred
Securities, waive any past Event of Default and its consequences. Upon such
waiver, any such Event of Default shall cease to exist, and any Event of
Default arising therefrom shall be deemed to have been cured, for every
purpose of this Preferred Securities Guarantee, but no such waiver shall
extend to any subsequent or other default or Event of Default or impair any
right consequent thereto.
SECTION 2.7 Event of Default; Notice
(a) The Preferred Guarantee Trustee shall, within 90 days after the
occurrence of an Event of Default, transmit by mail, first class postage
prepaid, to the Holders of the Preferred Securities, notices of all Events of
Default actually known to a Responsible Officer of the Preferred Guarantee
Trustee, unless such defaults have been cured before the giving of such
notice; provided that the Preferred Guarantee Trustee shall be protected in
withholding such notice if and so long as a Responsible Officer of the
Preferred Guarantee Trustee in good faith determines that the withholding of
such notice is in the interests of the Holders of the Preferred Securities.
(b) The Preferred Guarantee Trustee shall not be deemed to have
knowledge of any Event of Default unless the Preferred Guarantee Trustee shall
have received written notice, or of which a Responsible Officer of the
Preferred Guarantee Trustee charged with the administration of the Declaration
shall have obtained actual knowledge.
SECTION 2.8 Conflicting Interests
The Declaration shall be deemed to be specifically described in this
Preferred Securities Guarantee for the purposes of clause (i) of the first
proviso contained in Section 310(b) of the Trust Indenture Act.
6
<PAGE>
ARTICLE III
POWERS, DUTIES AND RIGHTS OF PREFERRED GUARANTEE TRUSTEE
SECTION 3.1 Powers and Duties of the Preferred Guarantee Trustee
(a) This Preferred Securities Guarantee shall be held by the
Preferred Guarantee Trustee for the benefit of the Holders of the Preferred
Securities, and the Preferred Guarantee Trustee shall not transfer this
Preferred Securities Guarantee to any Person except a Holder of Preferred
Securities exercising his or her rights pursuant to Section 5.5(b) or to a
Successor Preferred Guarantee Trustee on acceptance by such Successor
Preferred Guarantee Trustee of its appointment to act as Successor Preferred
Guarantee Trustee. The right, title and interest of the Preferred Guarantee
Trustee shall automatically vest in any Successor Preferred Guarantee Trustee,
and such vesting and cessation of title shall be effective whether or not
conveyancing documents have been executed and delivered pursuant to the
appointment of such Successor Preferred Guarantee Trustee.
(b) If an Event of Default actually known to a Responsible Officer of
the Preferred Guarantee Trustee has occurred and is continuing, the Preferred
Guarantee Trustee shall enforce this Preferred Securities Guarantee for the
benefit of the Holders of the Preferred Securities.
(c) The Preferred Guarantee Trustee, before the occurrence of any
Event of Default and after the curing of all Events of Default that may have
occurred, shall undertake to perform only such duties as are specifically set
forth in this Preferred Securities Guarantee, and no implied covenants shall
be read into this Preferred Securities Guarantee against the Preferred
Guarantee Trustee. In case an Event of Default has occurred (that has not been
cured or waived pursuant to Section 2.6) and is actually known to a
Responsible Officer of the Preferred Guarantee Trustee, the Preferred
Guarantee Trustee shall exercise such of the rights and powers vested in it by
this Preferred Securities Guarantee, and use the same degree of care and skill
in its exercise thereof, as a prudent man would exercise or use under the
circumstances in the conduct of his own affairs.
(d) No provision of this Preferred Securities Guarantee shall be
construed to relieve the Preferred Guarantee Trustee from liability for its
own negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) prior to the occurrence of any Event of Default and
after the curing or waiving of all such Events of Default that may
have occurred:
(A) the duties and obligations of the Preferred
Guarantee Trustee shall be determined solely by the express
provisions of this Preferred Securities Guarantee, and the Preferred
Guarantee Trustee shall not be liable except for the performance of
such duties and obligations as are specifically set forth in this
Preferred Securities Guarantee, and no implied covenants or
obligations shall be read into this Preferred Securities Guarantee
against the Preferred Guarantee Trustee; and
(B) in the absence of bad faith on the part of the
Preferred Guarantee Trustee, the Preferred Guarantee Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon any certificates
or
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opinions furnished to the Preferred Guarantee Trustee and
conforming to the requirements of this Preferred Securities
Guarantee; but in the case of any such certificates or opinions that
by any provision hereof are specifically required to be furnished to
the Preferred Guarantee Trustee, the Preferred Guarantee Trustee
shall be under a duty to examine the same to determine whether or not
they conform to the requirements of this Preferred Securities
Guarantee;
(ii) the Preferred Guarantee Trustee shall not be liable for
any error of judgment made in good faith by a Responsible Officer of
the Preferred Guarantee Trustee, unless it shall be proved that the
Preferred Guarantee Trustee was negligent in ascertaining the
pertinent facts upon which such judgment was made;
(iii) the Preferred Guarantee Trustee shall not be liable
with respect to any action taken or omitted to be taken by it in good
faith in accordance with the direction of the Holders of not less
than a Majority in liquidation amount of the Preferred Securities
relating to the time, method and place of conducting any proceeding
for any remedy available to the Preferred Guarantee Trustee, or
exercising any trust or power conferred upon the Preferred Guarantee
Trustee under this Preferred Securities Guarantee; and
(iv) no provision of this Preferred Securities Guarantee
shall require the Preferred Guarantee Trustee to expend or risk its
own funds or otherwise incur personal financial liability in the
performance of any of its duties or in the exercise of any of its
rights or powers, if the Preferred Guarantee Trustee shall have
reasonable grounds for believing that the repayment of such funds or
liability is not reasonably assured to it under the terms of this
Preferred Securities Guarantee or indemnity, reasonably satisfactory
to the Preferred Guarantee Trustee, against such risk or liability is
not reasonably assured to it.
SECTION 3.2 Certain Rights of Preferred Guarantee Trustee
(a) Subject to the provisions of Section 3.1:
(i) The Preferred Guarantee Trustee may conclusively rely,
and shall be fully protected in acting or refraining from acting
upon, any resolution, certificate, statement, instrument, opinion,
report, notice, request, direction, consent, order, bond, debenture,
note, other evidence of indebtedness or other paper or document
believed by it to be genuine and to have been signed, sent or
presented by the proper party or parties.
(ii) Any direction or act of the Guarantor contemplated by
this Preferred Securities Guarantee shall be sufficiently evidenced
by an Officers' Certificate.
(iii) Whenever, in the administration of this Preferred
Securities Guarantee, the Preferred Guarantee Trustee shall
reasonably deem it desirable that a matter be proved or established
before taking, suffering or omitting any action hereunder, the
Preferred Guarantee Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad faith on its
part, request and conclusively rely upon an Officers' Certificate
which, upon receipt of such request, shall be promptly delivered by
the Guarantor.
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(iv) The Preferred Guarantee Trustee shall have no duty to
see to any recording, filing or registration of any instrument (or
any rerecording, refiling or registration thereof).
(v) The Preferred Guarantee Trustee may consult with counsel
of its selection, and the written advice or opinion of such counsel
with respect to legal matters shall be full and complete
authorization and protection in respect of any action taken, suffered
or omitted by it hereunder in good faith and in accordance with such
advice or opinion. Such counsel may be counsel to the Guarantor or
any of its Affiliates and may include any of its employees. The
Preferred Guarantee Trustee shall have the right at any time to seek
instructions concerning the administration of this Preferred
Securities Guarantee from any court of competent jurisdiction.
(vi) The Preferred Guarantee Trustee shall be under no
obligation to exercise any of the rights or powers vested in it by
this Preferred Securities Guarantee at the request or direction of
any Holder, unless such Holder shall have provided to the Preferred
Guarantee Trustee such security and indemnity, reasonably
satisfactory to the Preferred Guarantee Trustee, against the costs,
expenses (including attorneys' fees and expenses) and liabilities
that might be incurred by it in complying with such request or
direction, including such reasonable advances as may be requested by
the Preferred Guarantee Trustee; provided that nothing contained in
this Section 3.2(a)(vi) shall be taken to relieve the Preferred
Guarantee Trustee, upon the occurrence of an Event of Default, of its
obligation to exercise the rights and powers vested in it by this
Preferred Securities Guarantee.
(vii) The Preferred Guarantee Trustee shall not be bound to
make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or document, but the
Preferred Guarantee Trustee, in its discretion, may make such further
inquiry or investigation into such facts or matters as it may see
fit.
(viii) The Preferred Guarantee Trustee may execute any of
the trusts or powers hereunder or perform any duties hereunder either
directly or by or through agents, nominees, custodians or attorneys,
and the Preferred Guarantee Trustee shall not be responsible for any
misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder.
(ix) Any action taken by the Preferred Guarantee Trustee or
its agents hereunder shall bind the Holders of the Preferred
Securities, and the signature of the Preferred Guarantee Trustee or
its agents alone shall be sufficient and effective to perform any
such action. No third party shall be required to inquire as to the
authority of the Preferred Guarantee Trustee to so act or as to its
compliance with any of the terms and provisions of this Preferred
Securities Guarantee, both of which shall be conclusively evidenced
by the Preferred Guarantee Trustee's or its agent's taking such
action.
(x) Whenever in the administration of this Preferred
Securities Guarantee the Preferred Guarantee Trustee shall deem it
desirable to receive instructions with respect to
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<PAGE>
enforcing any remedy or right or taking any other action hereunder,
the Preferred Guarantee Trustee (i) may request instructions from the
Holders of a Majority in liquidation amount of the Preferred
Securities, (ii) may refrain from enforcing such remedy or right or
taking such other action until such instructions are received, and
(iii) shall be protected in conclusively relying on or acting in
accordance with such instructions.
(xi) The Preferred Guarantee Trustee shall not be liable for
any action taken, suffered or omitted to be taken by it in good
faith, without negligence, and reasonably believed by it to be
authorized or within the discretion or rights or powers conferred
upon it by this Preferred Securities Guarantee.
(b) No provision of this Preferred Securities Guarantee shall be
deemed to impose any duty or obligation on the Preferred Guarantee Trustee to
perform any act or acts or exercise any right, power, duty or obligation
conferred or imposed on it in any jurisdiction in which it shall be illegal,
or in which the Preferred Guarantee Trustee shall be unqualified or
incompetent in accordance with applicable law, to perform any such act or acts
or to exercise any such right, power, duty or obligation. No permissive power
or authority available to the Preferred Guarantee Trustee shall be construed
to be a duty.
SECTION 3.3 Not Responsible for Recitals or Issuance of Guarantee
The recitals contained in this Preferred Securities Guarantee shall
be taken as the statements of the Guarantor, and the Preferred Guarantee
Trustee does not assume any responsibility for their correctness. The
Preferred Guarantee Trustee makes no representation as to the validity or
sufficiency of this Preferred Securities Guarantee.
ARTICLE IV
PREFERRED GUARANTEE TRUSTEE
SECTION 4.1 Preferred Guarantee Trustee; Eligibility
(a) There shall at all times be a Preferred Guarantee Trustee
which shall:
(i) not be an Affiliate of the Guarantor; and
(ii) be a corporation organized and doing business under the
laws of the United States of America or any State or Territory
thereof or of the District of Columbia, or a corporation or Person
permitted by the Securities and Exchange Commission to act as an
institutional trustee under the Trust Indenture Act, authorized under
such laws to exercise corporate trust powers, having a combined
capital and surplus of at least 50 million U.S. dollars
($50,000,000), and subject to supervision or examination by Federal,
State, Territorial or District of Columbia authority. If such
corporation publishes reports of condition at least annually,
pursuant to law or to the requirements of the supervising or
examining authority referred to above, then, for the purposes of this
Section 4.1(a)(ii), the
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combined capital and surplus of such corporation shall be deemed to
be its combined capital and surplus as set forth in its most recent
report of condition so published.
(b) If at any time the Preferred Guarantee Trustee shall cease to be
eligible to so act under Section 4.1(a), the Preferred Guarantee Trustee shall
immediately resign in the manner and with the effect set out in Section
4.2(c).
(c) If the Preferred Guarantee Trustee has or shall acquire any
"conflicting interest" within the meaning of Section 310(b) of the Trust
Indenture Act, the Preferred Guarantee Trustee and Guarantor shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
SECTION 4.2 Appointment, Removal and Resignation of Preferred Guarantee
Trustees
(a) Subject to Section 4.2(b), the Preferred Guarantee Trustee
may be appointed or removed without cause at any time by the Guarantor.
(b) The Preferred Guarantee Trustee shall not be removed in
accordance with Section 4.2(a) until a Successor Preferred Guarantee Trustee
has been appointed and has accepted such appointment by written instrument
executed by such Successor Preferred Guarantee Trustee and delivered to the
Guarantor.
(c) The Preferred Guarantee Trustee appointed to office shall hold
office until a Successor Preferred Guarantee Trustee shall have been appointed
or until its removal or resignation. The Preferred Guarantee Trustee may
resign from office (without need for prior or subsequent accounting) by an
instrument in writing executed by the Preferred Guarantee Trustee and
delivered to the Guarantor, which resignation shall not take effect until a
Successor Preferred Guarantee Trustee has been appointed and has accepted such
appointment by instrument in writing executed by such Successor Preferred
Guarantee Trustee and delivered to the Guarantor and the resigning Preferred
Guarantee Trustee.
(d) If no Successor Preferred Guarantee Trustee shall have been
appointed and accepted appointment as provided in this Section 4.2 within 60
days after delivery to the Guarantor of an instrument of removal or
resignation, the resigning or removed Preferred Guarantee Trustee may petition
any court of competent jurisdiction for appointment of a Successor Preferred
Guarantee Trustee. Such court may thereupon, after prescribing such notice, if
any, as it may deem proper, appoint a Successor Preferred Guarantee Trustee.
(e) No Preferred Guarantee Trustee shall be liable for the acts or
omissions to act of any Successor Preferred Guarantee Trustee.
(f) Upon termination of this Preferred Securities Guarantee or
removal or resignation of the Preferred Guarantee Trustee pursuant to this
Section 4.2, the Guarantor shall pay to the Preferred Guarantee Trustee all
reasonable amounts accrued to the date of such termination, removal or
resignation.
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ARTICLE V
GUARANTEE
SECTION 5.1 Guarantee
The Guarantor irrevocably and unconditionally agrees to pay in full
to the Holders the Guarantee Payments (without duplication of amounts
theretofore paid by the Trust), as and when due, regardless of any defense,
right of set-off or counterclaim that the Trust may have or assert. The
Guarantor's obligation to make a Guarantee Payment may be satisfied by direct
payment of the required amounts by the Guarantor to the Holders or by causing
the Trust to pay such amounts to the Holders.
SECTION 5.2 Subordination
If an Event of Default (as defined in the Indenture) has occurred and
is continuing, the rights of holders of Common Securities to receive Guarantee
Payments under the Common Securities Guarantee are subordinate to the rights
of the Holders of Preferred Securities to receive Guarantee Payments under
this Preferred Securities Guarantee.
SECTION 5.3 Waiver of Notice and Demand
The Guarantor hereby waives notice of acceptance of this Preferred
Securities Guarantee and of any liability to which it applies or may apply,
presentment, demand for payment, any right to require a proceeding first
against the Trust or any other Person before proceeding against the Guarantor,
protest, notice of nonpayment, notice of dishonor, notice of redemption and
all other notices and demands.
SECTION 5.4 Obligations Not Affected
The obligations, covenants, agreements and duties of the Guarantor
under this Preferred Securities Guarantee shall in no way be affected or
impaired by reason of the happening from time to time of any of the following:
(a) the release or waiver, by operation of law or otherwise, of the
performance or observance by the Trust of any express or implied agreement,
covenant, term or condition relating to the Preferred Securities to be
performed or observed by the Trust;
(b) the extension of time for the payment by the Trust of all or any
portion of the Distributions, Redemption Price, Liquidation Distribution or
any other sums payable under the terms of the Preferred Securities or the
extension of time for the performance of any other obligation under, arising
out of, or in connection with, the Preferred Securities (other than an
extension of time for payment of Distributions, Redemption Price, Liquidation
Distribution or other sum payable that results from the extension of any
interest payment period on the Debentures or any extension of the maturity
date of the Debentures permitted by the Indenture);
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(c) any failure, omission, delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or
remedy conferred on the Holders pursuant to the terms of the Preferred
Securities, or any action on the part of the Trust granting indulgence or
extension of any kind;
(d) the voluntary or involuntary liquidation, dissolution, sale of
any collateral, receivership, insolvency, bankruptcy, assignment for the
benefit of creditors, reorganization, arrangement, composition or readjustment
of debt of, or other similar proceedings affecting, the Trust or any of the
assets of the Trust;
(e) any invalidity of, or defect or deficiency in, the Preferred
Securities;
(f) the settlement or compromise of any obligation guaranteed
hereby; or
(g) any other circumstance whatsoever that might otherwise constitute
a legal or equitable discharge or defense of a guarantor, it being the intent
of this Section 5.4 that the obligations of the Guarantor hereunder shall be
absolute and unconditional under any and all circumstances.
There shall be no obligation of the Holders to give notice to, or
obtain consent of, the Guarantor with respect to the happening of any of the
foregoing.
SECTION 5.5 Rights of Holders
(a) The Holders of a Majority in liquidation amount of the Preferred
Securities have the right to direct the time, method of and place of
conducting any proceeding for any remedy available to the Preferred Guarantee
Trustee in respect of this Preferred Securities Guarantee or exercising any
trust or power conferred upon the Preferred Guarantee Trustee under this
Preferred Securities Guarantee.
(b) Any Holder of Preferred Securities may directly institute a legal
proceeding against the Guarantor to enforce the obligations of the Guarantor
under this Preferred Securities Guarantee without first instituting a legal
proceeding against the Trust, the Preferred Guarantee Trustee or any other
Person.
(c) If an Event of Default with respect to the Debentures (an
"Indenture Event of Default"), constituting the failure to pay interest or
principal on the Debentures on the date such interest or principal is
otherwise payable has occurred and is continuing, then a Holder of Preferred
Securities may directly, at any time, institute a proceeding for enforcement
of payment to such Holder of the principal of or interest on the Debentures
having a principal amount equal to the aggregate liquidation amount of the
Preferred Securities of such Holder on or after the respective due date
specified in the Debentures. The Holders of Preferred Securities will not be
able to exercise directly any other remedy available to the holders of the
Debentures unless the Property Trustee (as defined in the Indenture) fails to
do so, in each case, subject to the terms of the Indenture.
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SECTION 5.6 Guarantee of Payment
This Preferred Securities Guarantee creates a guarantee of payment and not of
collection.
SECTION 5.7 Subrogation
The Guarantor shall be subrogated to all (if any) rights of the
Holders of Preferred Securities against the Trust in respect of any amounts
paid to such Holders by the Guarantor under this Preferred Securities
Guarantee; provided, however, that the Guarantor shall not (except to the
extent required by mandatory provisions of law) be entitled to enforce or
exercise any right that it may acquire by way of subrogation or any indemnity,
reimbursement or other agreement, in all cases as a result of payment under
this Preferred Securities Guarantee, if, at the time of any such payment, any
amounts are due and unpaid under this Preferred Securities Guarantee. If any
amount shall be paid to the Guarantor in violation of the preceding sentence,
the Guarantor agrees to hold such amount in trust for the Holders and to pay
over such amount to the Holders.
SECTION 5.8 Independent Obligation
The Guarantor acknowledges that its obligations hereunder are
independent of the obligations of the Trust with respect to the Preferred
Securities, and that the Guarantor shall be liable as principal and as debtor
hereunder to make Guarantee Payments pursuant to the terms of this Preferred
Securities Guarantee notwithstanding the occurrence of any event referred to
in subsections (a) through (g), inclusive, of Section 5.4 hereof.
SECTION 5.9 Conversion
The Guarantor acknowledges its obligation to issue and deliver Common
Stock of the Guarantor upon the conversion of the Preferred Securities.
ARTICLE VI
LIMITATION OF TRANSACTIONS; SUBORDINATION
SECTION 6.1 Limitation of Transactions
So long as any Preferred Securities remain outstanding, if (i) there
shall have occurred and be continuing any event that, with the giving of
notice or the lapse of time or both, would constitute an event of default
under the Indenture, (ii) the Guarantor shall be in default with respect to
its payment obligations under this Preferred Securities Guarantee or (iii)
either of the Convertible Debenture Issuers have exercised their option to
defer interest payments on the Debentures by extending the interest payment
period and such period or extension thereof shall be continuing, then the
Guarantor (a) shall not declare or pay dividends on, make distributions with
respect to, or redeem, purchase or acquire, or make a liquidation payment with
respect to, any of its capital stock (except for (1) dividends or
distributions in shares of Common Stock (as defined in the Indenture) on
Common Stock or on its Series B Preferred Stock (as defined in the Indenture),
(2) purchases or acquisitions of shares of Common Stock made in connection
with employee benefit plans of the Guarantor or its subsidiaries or pursuant
to employment agreements with officers or employees of
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the Guarantor or its subsidiaries, provided that repurchases by the Guarantor
made from officers or employees of the Guarantor or its subsidiaries pursuant
to employment agreements shall be made at a price not to exceed the market
value on the date of any such repurchase and shall not exceed $5 million in
the aggregate for all such employees and officers, (3) conversions or exchanges
of shares of any class of common stock into any shares of other class of common
stock or (4) purchases of fractional interests in shares of the Guarantor's
capital stock pursuant to the conversion or exchange provisions of any of the
Guarantor's securities being converted or exchanged), (b) shall not make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities of the Guarantor that rank junior to the Debentures
(except by conversion into or exchange for shares of its capital stock) and (c)
shall not make any guarantee payments with respect to the foregoing (other than
such payments made pursuant to this Guarantee).
SECTION 6.2 Ranking
(a) This Preferred Securities Guarantee will constitute an unsecured
obligation of the Guarantor and will rank (i) pari passu with all other
unsecured liabilities of the Guarantor except any liabilities that may be
subordinate expressly by their terms, (ii) senior to the most senior preferred
or preference stock now or hereafter issued by the Guarantor and with any
guarantee now or hereafter entered into by the Guarantor in respect of any
preferred or preference stock or preferred securities of any affiliate of the
Guarantor, and (iii) senior to the Guarantor's common stock.
ARTICLE VII
TERMINATION
SECTION 7.1 Termination
This Preferred Securities Guarantee shall terminate as to each Holder
of Preferred Securities upon (i) full payment of the Redemption Price of all
Preferred Securities, (ii) the distribution of the Debentures held by the
Trust to the Holders of all of the Preferred Securities of the Trust, (iii)
liquidation of the Trust, or (iv) the distribution of the Guarantor's Common
Stock to such Holder in respect of the conversion of such Holder's Preferred
Securities into Common Stock of the Guarantor and will terminate completely
upon full payment of the amounts payable in accordance with the Declaration.
Notwithstanding the foregoing, this Preferred Securities Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any Holder of Preferred Securities must restore payment of any sums paid
under the Preferred Securities or under this Preferred Securities Guarantee.
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ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 Exculpation
(a) No Indemnified Person shall be liable, responsible or accountable
in damages or otherwise to the Guarantor or any Covered Person for any loss,
damage or claim incurred by reason of any act or omission performed or omitted
by such Indemnified Person in good faith in accordance with this Preferred
Securities Guarantee and in a manner that such Indemnified Person reasonably
believed to be within the scope of the authority conferred on such Indemnified
Person by this Preferred Securities Guarantee or by law, except that an
Indemnified Person shall be liable for any such loss, damage or claim incurred
by reason of such Indemnified Person's negligence or willful misconduct with
respect to such acts or omissions.
(b) An Indemnified Person shall be fully protected in relying in good
faith upon the records of the Guarantor and upon such information, opinions,
reports or statements presented to the Guarantor by any Person as to matters
the Indemnified Person reasonably believes are within such other Person's
professional or expert competence and who has been selected with reasonable
care by or on behalf of the Guarantor, including information, opinions,
reports or statements as to the value and amount of the assets, liabilities,
profits, losses, or any other facts pertinent to the existence and amount of
assets from which Distributions to Holders of Preferred Securities might
properly be paid.
SECTION 8.2 Indemnification
The Guarantor agrees to indemnify each Indemnified Person for, and to
hold each Indemnified Person harmless against, any loss, liability or expense
incurred without negligence or bad faith on its part, arising out of or in
connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses (including reasonable legal fees
and expenses) of defending itself against, or investigating, any claim or
liability in connection with the exercise or performance of any of its powers
or duties hereunder. The obligation to indemnify as set forth in this Section
8.2 shall survive the termination of this Preferred Securities Guarantee.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Successors and Assigns
All guarantees and agreements contained in this Preferred Securities
Guarantee shall bind the successors, assigns, receivers, trustees and
representatives of the Guarantor and shall inure to the benefit of the Holders
of the Preferred Securities then outstanding. Except in connection with any
merger or consolidation of the Guarantor with or into another entity or any
sale, transfer or lease of the Guarantor's assets to another entity, each as
permitted by the Indenture, the Guarantor may not assign its rights or
delegate its obligations under this Preferred Securities Guarantee
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without the prior approval of the Holders of at least a Majority in
liquidation amount of the Preferred Securities.
SECTION 9.2 Amendments
Except with respect to any changes that do not materially adversely
affect the rights of Holders (in which case no consent of Holders will be
required), this Preferred Securities Guarantee may be amended only with the
prior approval of the Holders of at least a Majority in liquidation amount of
the Preferred Securities. The provisions of Section 12.2 of the Declaration
with respect to meetings of Holders of the Preferred Securities apply to the
giving of such approval.
SECTION 9.3 Notices
All notices provided for in this Preferred Securities Guarantee shall
be in writing, duly signed by the party giving such notice, and shall be
delivered, sent by facsimile or mailed by registered or certified mail, as
follows:
(a) If given to the Preferred Guarantee Trustee, at the Preferred
Guarantee Trustee's mailing address set forth below (or such other address as
the Preferred Guarantee Trustee may give notice of to the Holders of the
Preferred Securities):
Bank of New York
101 Barclay Street
New York, New York 10286
(b) If given to the Guarantor, at the Guarantor's mailing address set
forth below (or such other address as the Guarantor may give notice of to the
Holders of the Preferred Securities):
Golden Books Family Entertainment, Inc.
850 Third Avenue
New York, New York 10022
Attention: Chief Financial Officer
(c) If given to any Holder of Preferred Securities, at the
address set forth on the books and records of the Trust.
All such notices shall be deemed to have been given when received in
person, telecopied with receipt confirmed, or mailed by first class mail,
postage prepaid, except that if a notice or other document is refused delivery
or cannot be delivered because of a changed address of which no notice was
given, such notice or other document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.
SECTION 9.4 Benefit
This Preferred Securities Guarantee is solely for the benefit of the
Holders of the Preferred Securities and, subject to Section 3.1(a), is not
separately transferable from the Preferred Securities.
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SECTION 9.5 Governing Law
THIS PREFERRED SECURITIES GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK AND ALL RIGHTS AND REMEDIES SHALL BE GOVERNED BY SUCH LAWS WITHOUT REGARD
TO ITS PRINCIPLES OF CONFLICTS OF LAWS.
THIS PREFERRED SECURITIES GUARANTEE is executed as of the day and
year first above written.
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.,
as Guarantor
By: /s/ Philip E. Rowely
-------------------------
Name: Philip E. Rowley
Title: Chief Financial Officer
and Executive Vice President
THE BANK OF NEW YORK,
as Preferred Guarantee Trustee
By: /s/ Byron Merino
--------------------------
Name: Byron Merino
Title: Assistant Treasurer
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GOLDEN BOOKS FINANCING TRUST
8-3/4% Convertible Trust Originated Preferred Securities(SM)
("Convertible TOPrS(SM)")
guaranteed to a limited extent by, and convertible
into shares of common stock of, Golden
Books Family Entertainment, Inc.
REGISTRATION RIGHTS AGREEMENT
August 20, 1996
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
SBC WARBURG INC.
a subsidiary of Swiss Bank Corporation
As Representatives of the several Initial Purchasers
c/o MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1305
Ladies and Gentlemen:
Golden Books Financing Trust, a statutory business trust formed under
the laws of the State of Delaware (the "Trust") by Golden Books Family
Entertainment, Inc. ("the Company"), a Delaware corporation, as sponsor,
proposes to issue and sell to the Initial Purchasers named in the Purchase
Agreement referred to below (the "Initial Purchasers"), for whom Merrill Lynch
& Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
Donaldson, Lufkin & Jenrette Securities Corporation and SBC Warburg Inc., a
subsidiary of Swiss Bank Corporation, are acting as representatives (the
"Representatives"), upon the terms set forth in a purchase agreement dated
August 14, 1996 (the "Purchase Agreement"), among the Initial Purchasers, the
Company, Golden Books Publishing Company, Inc., a Delaware corporation
("Golden Books Publishing"), and the Trust, 8-3/4% Convertible Trust
Originated Preferred Securities(SM) (liquidation amount $50 per Convertible
Trust Originated Preferred Security(SM)) (the "Preferred Securities") (the
"Initial Placement"). As an inducement to the Initial Purchasers to enter into
the Purchase Agreement and in satisfaction of a condition to the obligations
of the Initial Purchasers thereunder, the Trust, Golden Books Publishing and
the Company agree with you, (i) for the benefit of the Initial Purchasers and
(ii) for the benefit of the holders from time to time of the Preferred
Securities, the 8-
- ----------
(SM) "Convertible Trust Originated Preferred Securities" and "Convertible
TOPrS(SM)" are service marks of Merrill Lynch & Co., Inc.
<PAGE>
3/4% Convertible Debentures Due 2016 (the "Debentures") issued on a joint and
several basis by the Company and Golden Books Publishing and the Common Stock,
par value $0.01 per share, of the Company (the "Common Stock") initially
issuable upon conversion of the Preferred Securities and the Debentures
(collectively, together with the Guarantee of the Company of the Preferred
Securities, the "Registrable Securities"), including the Initial Purchasers
(each of the foregoing, a "Holder" and, together, the "Holders"), as follows:
1. DEFINITIONS. Capitalized terms used herein without
definition shall have their respective meanings set forth in or pursuant to
the Purchase Agreement or the Offering Memorandum, dated August 14, 1996, in
respect of the Preferred Securities, as applicable. All references to Sections
herein are to Sections of this Agreement unless otherwise indicated. As used
in this Agreement, the following capitalized defined terms shall have the
following meanings:
"Act" or "Securities Act" means the Securities Act of 1933,
as amended.
"Affiliate" of any specified person means any other person
which, directly or indirectly, is in control of, is controlled by, or
is under common control with such specified person. For purposes of
this definition, control of a person means the power, direct or
indirect, to direct or cause the direction of the management and
policies of such person whether by ownership, contract or otherwise;
and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Commission" means the Securities and Exchange Commission.
"Company Offering" means the sale of Common Stock pursuant
to a registration statement filed by the Company under the Act (other
than (i) a registration statement filed on Form S-4 or any successor
form or (ii) a registration statement filed on Form S-8 or any
successor form) respecting an underwritten offering, whether primary
or secondary, that is declared effective by the Commission.
"DTC" means The Depository Trust Company.
"Effectiveness Period" has the meaning set forth in Section
2(b) hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Declaration" means the Amended and Restated Declaration of
Trust.
"Indenture" means the Indenture among the Company, Golden
Books Publishing and The Bank of New York, as trustee.
"Managing Underwriters" means the investment banker or
investment bankers and manager or managers that shall administer an
underwritten offering, if any, as set forth in Section 6 hereof.
"Person" means an individual, partnership, corporation,
trust or unincorporated organization, or a government or agency or
political subdivision thereof.
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"Prospectus" means the prospectus included in any Shelf
Registration Statement (including, without limitation, a prospectus
that discloses information previously omitted from a prospectus filed
as part of an effective registration statement in reliance upon Rule
430A under the Act), as amended or supplemented by any prospectus
supplement, with respect to the terms of the offering of any portion
of the Registrable Securities.
"Shelf Registration" means a registration effected pursuant
to Section 2 hereof.
"Shelf Registration Statement" means a "shelf" registration
statement of the Trust and the Company pursuant to the provisions of
Section 2 hereof filed with the Commission which covers some or all
of the Registrable Securities, as applicable, on an appropriate form
under Rule 415 under the Act, or any similar rule that may be adopted
by the Commission, amendments and supplements to such registration
statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and
all material incorporated by reference therein.
"underwriter" means any underwriter of Registrable
Securities in connection with an offering thereof under a Shelf
Registration Statement.
2. SHELF REGISTRATION. (a) The Trust, Golden Books
Publishing and the Company shall, within 60 days following the date of
original issuance (the "Issue Date") of the Preferred Securities, file with
the Commission a Shelf Registration Statement relating to the offer and sale
of the Registrable Securities by the Holders from time to time in accordance
with the methods of distribution elected by such Holders and set forth in such
Shelf Registration Statement and, thereafter, shall each use their best
efforts to cause such Shelf Registration Statement to be declared effective
under the Act within 150 calendar days following the Issue Date; provided,
however, that no Holder shall be entitled to have the Registrable Securities
held by it covered by such Shelf Registration unless such Holder is in
compliance with Section 3(m) hereof.
(b) The Trust, Golden Books Publishing and the Company shall
each 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 three years from the date the Shelf
Registration Statement is declared effective or such shorter period that will
terminate upon the earliest of the following: (A) when all the Preferred
Securities covered by the Shelf Registration Statement have been sold pursuant
to the Shelf Registration Statement, (B) when all Debentures issued to Holders
in respect of Preferred Securities that had not been sold pursuant to the
Shelf Registration Statement have been sold pursuant to the Shelf Registration
Statement, (C) when all shares of Common Stock issued upon conversion of any
such Preferred Securities or any such Debentures that had not been sold
pursuant to the Shelf Registration Statement have been sold pursuant to the
Shelf Registration Statement and (D) when, in the written opinion of counsel
to the Trust, Golden Books Publishing and the Company, all outstanding
Registrable Securities held by persons which are not affiliates of the Trust
or the Company may be resold without registration under the Act pursuant to
Rule 144(k) under the Act or any successor provision thereto or any other
applicable law, rule or regulation, whether now in effect or hereinafter
promulgated, adopted or issued (in any such case, such period being called the
"Effectiveness Period").
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<PAGE>
(c) In the event that a Shelf Registration Statement with
respect to the Registrable Securities is not (i) filed on or prior to the 60th
calendar day following the Issue Date and (ii) declared effective on or prior
to the 150th calendar day following the Issue Date (each, a "Registration
Default"), the interest rate borne by the Debentures and, accordingly, the
distribution rate borne by the Preferred Securities, shall be increased by
one-quarter of one percent (0.25%) per annum, from and including the day
following the Registration Default to and including the 90th day following
such Registration Default and by one-half of one percent (0.50%) thereof from
and after the 91st day following such Registration Default. Upon (x) the
filing of the Shelf Registration Statement after the 60-day period described
in clause (i) above or (y) the effectiveness of the Shelf Registration
Statement after the 150-day period described in clause (ii) above, the
interest rate borne by the Debentures and the distribution rate borne by the
Preferred Securities from the date of such filing or effectiveness, as the
case may be, will be reduced to the original interest rate in respect of all
periods thereafter. In the event that the Shelf Registration Statement ceases
to be effective during the Effectiveness Period for more than 60 days, whether
or not consecutive, during any 12-month period, then the interest rate borne
by the Debentures and the distribution rate borne by the Preferred Securities
will each increase by one-half of one percent (0.50%) per annum from such 61st
day until such time as the Shelf Registration Statement again becomes
effective. Any interest payments contemplated by this Section 2(c) shall be
made pursuant to the terms of the Indenture and the Declaration.
(d) The Trust, Golden Books Publishing and the Company shall
be deemed not to have used their best efforts to keep the Shelf Registration
Statement effective during the requisite period if the Trust, Golden Books
Publishing or the Company voluntarily takes any action that would result in
Holders of Registrable Securities covered thereby not being able to offer and
sell any such Registrable Securities during that period, unless (i) such
action is required by applicable law or (ii) upon the occurrence of any event
contemplated by paragraph 3(c)(2)(iii) below; provided, that in the case of
clause (ii) above, the Trust, Golden Books Publishing and the Company
thereafter promptly comply with the requirements of Section 3(i) below.
3. REGISTRATION PROCEDURES. In connection with any Shelf
Registration Statement, the following provisions shall apply:
(a) The Trust, Golden Books Publishing and the Company shall
furnish to the Initial Purchasers and their counsel, prior to the
filing thereof with the Commission, a copy of any Shelf Registration
Statement, and each amendment thereof and each amendment or
supplement, if any, to the Prospectus included therein and shall each
use its best efforts to reflect in each such document, when so filed
with the Commission, such comments as the Initial Purchasers and such
counsel reasonably may propose.
(b) The Trust, Golden Books Publishing and the Company shall
take such action as may be necessary so that (i) any Shelf
Registration Statement, and any amendment thereto, and any Prospectus
forming a part thereof, and any amendment or supplement thereto (and
each report or other document incorporated therein by reference in
each case) complies in all material respects with the Securities Act
and the Exchange Act and the respective rules and regulations
thereunder, (ii) any Shelf Registration Statement, and any
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<PAGE>
amendment thereto, does not, when it becomes effective, contain an
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 the light of the circumstances under which they were
made, not misleading and (iii) any Prospectus forming part of any
Shelf Registration Statement, and any amendment or supplement to such
Prospectus, does not include an untrue statement of a material fact
or omit to state a material fact necessary in order to make the
statements, in the light of the circumstances under which they were
made, not misleading.
(c) (1) The Company shall advise the Initial Purchasers and,
in the case of clause (i) of this Section 3(c), the Holders, and, if
requested by the Initial Purchasers or any such Holder, confirm such
advice in writing:
(i) when a Shelf Registration Statement, and any
amendment thereto, has been filed with the Commission and
when the Shelf Registration Statement or any post-effective
amendment thereto has become effective; and
(ii) of any request by the Commission for
amendments or supplements to the Shelf Registration
Statement or the Prospectus included therein or for
additional information.
(2) The Company shall advise the Initial Purchasers and the
Holders and, if requested by the Initial Purchasers or any such
Holder, confirm such advice in writing of:
(i) the issuance by the Commission of any stop order
suspending effectiveness of the Shelf Registration Statement
or the initiation of any proceedings for that purpose;
(ii) the receipt by the Trust, Golden Books
Publishing or the Company of any notification with respect
to the suspension of the qualification of the securities
included therein for sale in any jurisdiction or the
initiation of any proceeding for such purpose; and
(iii) the happening of any event (which event need
not be described (if such disclosure would, in the good
faith judgment of the Company, be detrimental to the Company
or the Holders) absent confidentiality arrangements
reasonably satisfactory to the Company and Golden Books
Publishing) that requires the making of any changes in the
Shelf Registration Statement or the Prospectus so that, as
of such date, the Shelf Registration Statement and the
Prospectus do not contain an untrue statement of a material
fact and do not omit to state a material fact required to be
stated therein or necessary to make the statements therein
(in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading
(which advice shall be accompanied by an instruction to
suspend the use of the Prospectus until the requisite
changes have been made).
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<PAGE>
(d) The Company and Golden Books Publishing shall use their
best efforts to prevent the issuance, and, if issued, to obtain the
withdrawal, of any order suspending the effectiveness of any Shelf
Registration Statement at the earliest possible time.
(e) The Trust, Golden Books Publishing and the Company shall
furnish to each Holder of Registrable Securities included within the
coverage of any Shelf Registration Statement, without charge, at
least one copy of such Shelf Registration Statement and any
post-effective amendments thereto, including financial statements and
schedules contained therein, provided, that such parties shall not be
required to furnish to the Holders reports and other documents
incorporated by reference in the Shelf Registration Statement or any
exhibits thereto (including those incorporated by reference).
(f) The Trust, Golden Books Publishing and the Company
shall, during the Effectiveness Period, deliver to each Holder of
Registrable Securities included within the coverage of any Shelf
Registration Statement, without charge, as many copies of the
Prospectus (including each preliminary prospectus) included in such
Shelf Registration Statement and any amendment or supplement thereto
as such Holder may reasonably request; and each of the Trust, Golden
Books Publishing and the Company consents (except upon and during the
continuance of any event described in paragraphs 2(d) or 3(c)(2)(iii)
above) to the use of the Prospectus or any amendment or supplement
thereto by each of the selling Holders of Registrable Securities in
connection with the offering and sale of the Registrable Securities
covered by the Prospectus or any amendment or supplement thereto
during the Effectiveness Period.
(g) Prior to any offering of Registrable Securities pursuant
to any Shelf Registration Statement, the Trust, Golden Books
Publishing and the Company shall register or qualify or cooperate
with the Holders of Registrable Securities included therein and their
respective counsel in connection with the registration or
qualification of such Registrable Securities for offer and sale under
the securities or blue sky laws of such jurisdictions in the United
States as any such Holders reasonably request in writing and do any
and all other acts or things necessary or advisable to enable the
offer and sale in such jurisdictions of the Registrable Securities
covered by such Shelf Registration Statement; provided, however, that
in no event shall the Trust, Golden Books Publishing or the Company
be obligated to (i) qualify generally to do business or as a foreign
corporation or as a dealer in securities in any jurisdiction where it
would not otherwise be required to so qualify but for this Section
3(g), (ii) file any general consent to service of process in any
jurisdiction where it is not as of the date hereof then so subject or
(iii) subject itself to taxation in any such jurisdiction if it is
not so subject.
(h) Unless any Registrable Securities shall be in book-entry
only form, the Trust, Golden Books Publishing and the Company shall
cooperate with the Holders of Registrable Securities to facilitate
the timely preparation and delivery of certificates representing
Registrable Securities to be sold pursuant to any Shelf Registration
Statement free of any restrictive legends and in such permitted
denominations and registered in such
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<PAGE>
names as Holders may request in connection with the sale
of Registrable Securities pursuant to such Shelf Registration
Statement.
(i) Upon the occurrence of any event contemplated by
paragraph 3(c)(2)(iii) above, the Trust, Golden Books Publishing and
the Company shall, as promptly as reasonably practicable, file with
the Commission a post-effective amendment to any Shelf Registration
Statement or an amendment or supplement to the related Prospectus or
file any report required under the Exchange Act or other required
document so that, as thereafter delivered to purchasers of the
Registrable Securities included therein, the Prospectus will not
include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading
(except, in each case, for an untrue statement of a material fact or
omission of a material fact made in reliance on and in conformity
with written information furnished to the Company, Golden Books
Publishing or the Trust by or on behalf of Holders specifically for
use therein). The Trust, Golden Books Publishing and the Company
agree to notify the Holders to suspend use of the Prospectus, and the
Holders shall suspend use of the Prospectus, and not communicate such
material non-public information to any third party, and not sell or
purchase, or offer to sell or purchase, any securities of the Trust,
Golden Books Publishing or the Company, until the Trust, Golden Books
Publishing or the Company has amended or supplemented the Prospectus
so it does not contain any such misstatement or omission. Subject to
Section 2(d) above, at such time as such public disclosure is
otherwise made or the Trust, Golden Books Publishing and the Company
determine in good faith that such disclosure is not necessary, the
Trust, Golden Books Publishing and the Company agree to notify the
Holders of such determination and to amend or supplement the
Prospectus if necessary, so that the Prospectus does not contain any
such untrue statement or omission therein and to furnish the Holders
such numbers of copies of the Prospectus as so amended or
supplemented as the Holders may reasonably request.
(j) Not later than the effective date of any Shelf
Registration Statement hereunder, the Trust and the Company shall
provide a CUSIP number for the Preferred Securities registered under
such Shelf Registration Statement; in the event of and at the time of
any distribution of the Debentures to Holders, Golden Books
Publishing shall provide a CUSIP number for the Debentures and
provide the applicable trustee with certificates for such Registrable
Securities, in a form eligible for deposit with DTC (to the extent
that such Registrable Securities are so eligible).
(k) The Trust, Golden Books Publishing and the Company shall
use their best efforts to comply with all applicable rules and
regulations of the Commission and shall make generally available to
their security holders or otherwise provide in accordance with
Section 11(a) of the Securities Act as soon as practicable after the
effective date of the applicable Shelf Registration Statement an
earnings statement satisfying the provisions of Section 11 (a) of the
Securities Act.
7
<PAGE>
(l) The Trust, Golden Books Publishing and the Company shall
use their reasonable best efforts to cause the Indenture, the
Declaration and the Preferred Securities Guarantee Agreement to be
qualified under the Trust Indenture Act in a timely manner.
(m) The Trust, Golden Books Publishing and the Company may
require each Holder of Registrable Securities to be sold pursuant to
any Shelf Registration Statement to furnish to the Trust, Golden
Books Publishing and the Company such information regarding the
Holder and the distribution of such Registrable Securities as the
Trust, Golden Books Publishing and the Company may from time to time
reasonably require for inclusion in such Shelf Registration Statement
and the Company, Golden Books Publishing or the Trust may exclude
from such registration the Registrable Securities of any Holder that
fails to furnish such information within a reasonable time after
receiving such request.
(n) The Trust and the Company will each use their best
efforts to cause the Preferred Securities and the Common Stock
issuable upon conversion thereof to be listed on the Nasdaq National
Market on or prior to the effective date of any Shelf Registration
Statement hereunder.
(o) The Trust, Golden Books Publishing and the Company shall
use their reasonable best efforts to take all other steps necessary
to effect the registration, offering and sale of the Registrable
Securities covered by the Shelf Registration Statement contemplated
hereby pursuant to such Shelf Registration Statement.
4. REGISTRATION EXPENSES. Except as otherwise provided in
Section 6 hereof, the Company and Golden Books Publishing shall bear all fees
and expenses incurred in connection with the performance of their obligations
under Sections 2 and 3 hereof and shall bear or reimburse the Holders for the
reasonable fees and disbursements of one firm of counsel designated by the
Company and reasonably acceptable to the Initial Purchasers on behalf of the
Holders to act as counsel therefor in connection therewith.
5. INDEMNIFICATION AND CONTRIBUTION. (a) In connection with
any Shelf Registration Statement, the Company, Golden Books Publishing and the
Trust, jointly and severally, shall indemnify and hold harmless the Initial
Purchasers, each Holder, each underwriter who participates in an offering of
Registrable Securities, each person, if any, who controls any of such parties
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act and each of their respective directors, officers, employees,
trustees and agents, as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, arising out of any untrue statement
or alleged untrue statement of a material fact contained in any Shelf
Registration Statement (or any amendment thereto) covering
Registrable Securities, including all documents incorporated therein
by reference, or the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading or arising out of any untrue statement or
alleged untrue statement of a material fact contained in any
Prospectus (or any amendment or supplement
8
<PAGE>
thereto) or the omission or alleged omission therefrom of a
material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever, as incurred, to the extent of the aggregate
amount paid in settlement of any litigation or any investigation or
proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue statement or
omission, if such settlement is effected with the written consent of
the Company; and
(iii) against any and all expenses whatsoever, as incurred
(including reasonable fees and disbursements of counsel chosen by the
Holders, such Holder or any underwriter (except to the extent
otherwise expressly provided in Section 5(c) hereof), reasonably
incurred in investigating, preparing or defending against any
litigation, or any investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever
based upon any such untrue statement or omission, or any such alleged
untrue statement or omission, to the extent that any such expense is
not paid under subparagraph (i) or (ii) of this Section 5(a);
provided that this indemnity shall not apply to any loss, liability, claim,
damage or expense to the extent arising out of an untrue statement or omission
or alleged untrue statement or omission (i) made in reliance upon and in
conformity with written information furnished to the Trust, Golden Books
Publishing or the Company by the Initial Purchasers through Merrill Lynch,
such Holder or any underwriter participating in an offering of Registrable
Securities in writing expressly for use in the Shelf Registration Statement
(or any amendment thereto) or any Prospectus (or any amendment or supplement
thereto) or (ii) contained in any preliminary prospectus if the Initial
Purchasers, such Holder or any such underwriter failed to send or deliver a
copy of the Prospectus (or any amendment or supplement thereto) to the Person
asserting such losses, claims, damages or liabilities on or prior to the
delivery of written confirmation of any sale of securities covered thereby to
such Person in any case where such Prospectus (or any amendment or supplement
thereto) would have cured the defect giving rise to such loss, claim, damage
or liability. Any amounts advanced by the Company or Golden Books Publishing
to an indemnified party pursuant to this Section 5 as a result of such losses
shall be returned to the Company or Golden Books Publishing, as appropriate,
if it shall be finally determined by such a court in a judgment not subject to
appeal or final review that such indemnified party was not entitled to
indemnification by the Company or Golden Books Publishing, as the case may be.
(b) Each Holder agrees, severally and not jointly, to indemnify and
hold harmless the Trust, Golden Books Publishing, the Company, the Initial
Purchasers, each underwriter who participates in an offering of Registrable
Securities and the other selling Holders and each of their respective
directors, officers (including each officer of the Company and of Golden Books
Publishing who signed the Shelf Registration Statement), employees, trustees
and agents and each Person, if any, who controls the Trust, the Company,
Golden Books Publishing, the Initial Purchasers, any such underwriter or any
other selling Holder within the meaning of Section 15 of
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<PAGE>
the Securities Act or Section 20 of the Exchange Act, from and against any and
all loss, liability, claim, damage and expense whatsoever described in the
indemnity contained in Section 5(a) hereof, as incurred, but only with respect
to untrue statements or omissions, or alleged untrue statements or omissions,
made in the Shelf Registration Statement (or any amendment thereto) or any
Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Company or Golden Books
Publishing by such selling Holder expressly for use in the Shelf Registration
Statement (or any amendment thereto) or any Prospectus (or any amendment or
supplement thereto); provided, however, that no such Holder shall be liable
for any claims hereunder in excess of the amount of net proceeds received by
such Holder from the sale of Registrable Securities pursuant to the Shelf
Registration Statement.
(c) Each indemnified party shall give prompt notice to each
indemnifying party of any action commenced against it in respect of which
indemnity may be sought hereunder, enclosing a copy of all papers served on
such indemnified party, but failure to so notify an indemnifying party shall
not relieve such indemnifying party from any liability which it may have other
than on account of this indemnity agreement. An indemnifying party may
participate at its own expense in the defense of any such action. If an
indemnifying party so elects within a reasonable time after receipt of such
notice, such indemnifying party, jointly with any other indemnifying party,
may assume the defense of such action with counsel chosen by it (subject to
the approval of the indemnified parties defendant in such action, which
approval shall not be unreasonably withheld), unless such indemnified party
reasonably determines that there may be legal defenses available to such
indemnified party which are different from or in conflict with those available
to such indemnifying party. If an indemnifying party is not entitled to assume
the defense of such action as a result of the proviso to the preceding
sentence, counsel for such indemnifying party shall be entitled to conduct the
defense of such indemnifying party and counsel for each indemnified party or
parties shall be entitled to conduct the defense of such indemnified party or
parties. If an indemnifying party assumes the defense of an action in
accordance with and as permitted by the provisions of this paragraph, such
indemnifying party shall not be liable for any fees and expenses of counsel
for the indemnified parties incurred thereafter in connection with such
action. In no event shall the indemnifying party or parties be liable for the
fees and expenses of more than one counsel (in addition to any local counsel)
separate from its own counsel for all indemnified parties in connection with
any one action or separate but similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances.
(d) In order to provide for just and equitable contribution in
circumstances in which the indemnity provision agreement provided for in this
Section 5 is for any reason held to be unavailable to the indemnified parties
although applicable in accordance with its terms, the Company, Golden Books
Publishing, the Initial Purchasers and the Holders shall contribute to the
aggregate losses, liabilities, claims, damages and expenses of the nature
contemplated by said indemnity agreement incurred by the Company, Golden Books
Publishing, the Initial Purchasers and the Holders, as incurred; provided,
that no Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person that was not guilty of such fraudulent misrepresentation. As
between the Company, Golden Books Publishing, the Initial Purchasers and the
Holders, such parties shall contribute to such aggregate losses, liabilities,
claims, damages and expenses of the nature contemplated by such
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<PAGE>
indemnity agreement in such proportion as shall be appropriate to reflect the
relative fault of the Company and Golden Books Publishing, on the one hand,
and the Initial Purchasers and the Holders, on the other hand, with respect to
the statements or omissions which resulted in such loss, liability, claim,
damage or expense, or action in respect thereof, as well as any other relevant
equitable considerations. The relative fault of the Company and Golden Books
Publishing, on the one hand, and of the Initial Purchasers and the Holders, on
the other hand, 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 Company and Golden Books Publishing, on the one hand, or by or
on behalf of the Initial Purchasers or the Holders, on the other, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company, Golden Books
Publishing, the Initial Purchasers and the Holders of the Registrable
Securities agree that it would not be just and equitable if contributions
pursuant to this Section 5 were to be determined by pro rata allocation or by
any other method of allocation that does not take into account the relevant
equitable considerations. For purposes of this Section 5(d), each director,
officer, employee, trustee, agent and Person, if any, who controls an Initial
Purchaser or Holder within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act shall have the same rights to contribution as
such Initial Purchaser or Holder, and each director, officer, employee,
trustee and agent of each of the Company, Golden Books Publishing and the
Trust, and each Person, if any, who controls the Company, Golden Books
Publishing or the Trust within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act shall have the same rights to contribution
as the Company, Golden Books Publishing or the Trust, as the case may be. No
party shall be liable for contribution with respect to any action, suit,
proceeding or claim settled without its written consent.
6. UNDERWRITTEN OFFERING.
(a) The Holders of Registrable Securities covered by the
Shelf Registration Statement who desire to do so may sell such Registrable
Securities in an underwritten offering in accordance with the conditions set
forth below. In any such underwritten offering, the investment banker or
bankers and manager or managers that will administer such offering will be
selected by, and the underwriting arrangements with respect thereto will be
approved by, the Holders of a majority of the Registrable Securities to be
included in such offering; provided, however, that (i) such investment bankers
and managers and underwriting arrangements must be reasonably satisfactory to
the Company, Golden Books Publishing and the Trust and (ii) none of the
Company, Golden Books Publishing or the Trust shall be obligated to arrange
for more than one underwritten offering during the Effectiveness Period. No
Holder may participate in any underwritten offering contemplated hereby unless
(i) such Holder agrees to sell such Holder's Registrable Securities in
accordance with any approved underwriting arrangements, (ii) such Holder
completes and executes all reasonable questionnaires, powers of attorney,
indemnities, underwriting agreements, lock-up letters and other documents
required under the terms of such approved underwriting arrangements and (iii)
at least 30% of the Registrable Securities outstanding as of the Closing Time
(giving effect to antidilution adjustments, if applicable) are included in
such underwritten offering (including for purposes of this clause (iii) any
Additional Preferred Securities actually issued and sold under the Purchase
Agreement). The Holders participating in any underwritten offering shall be
responsible
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<PAGE>
for any expenses customarily borne by selling securityholders, including
underwriting discounts and commissions, fees and expenses of counsel to the
selling securityholders and transfer taxes, if any, and shall reimburse the
Trust, Golden Books Publishing and the Company for the fees and disbursements
of their counsel, their independent public accountants, any printing expenses
incurred in connection with such underwritten offering and any other
reasonable expenses incurred solely in connection therewith. Notwithstanding
the foregoing, upon receipt of a request from the Managing Underwriter or a
representative of Holders of a majority of the Registrable Securities
outstanding to prepare and file an amendment or supplement to the Shelf
Registration Statement and Prospectus in connection with an underwritten
offering, the Company and Golden Books Publishing may delay the filing of any
such amendment or supplement for up to 90 days if the Company and Golden Books
Publishing in good faith have a valid business reason for such delay, which
reason shall not be required to be disclosed if such disclosure would, in the
good faith judgment of the Company, be detrimental to the Company or the
Holders, absent confidentiality arrangements reasonably satisfactory to the
Company and Golden Books Publishing.
(b) The Trust, Golden Books Publishing and the Company shall
enter into such customary agreements (including underwriting agreements in
customary form) which are reasonably acceptable to the Trust, Golden Books
Publishing and the Company, and take all other reasonably requested actions in
order to expedite or facilitate the registration or the disposition of the
Registrable Securities (subject to the last sentence of paragraph (a) above),
and in connection therewith, if an underwriting agreement is entered into,
cause the same to contain indemnification provisions and procedures
substantially identical to those set forth in Section 5 hereof (or such other
customary provisions and procedures acceptable to the Managing Underwriters,
if any, the Company, Golden Books Publishing and the Trust) with respect to
all parties to be indemnified pursuant to Section 5 hereof.
(c) The Trust, Golden Books Publishing and the Company shall
(i) make available for inspection by the Holders of Registrable Securities to
be registered thereunder, any underwriter participating in any disposition
pursuant to such Shelf Registration Statement, and any attorney, accountant or
other agent retained by such Holders or any such underwriter all relevant
financial and other records, pertinent corporate documents and properties of
the Trust, Golden Books Publishing and the Company and its subsidiaries; (ii)
cause the Regular Trustees and the officers, directors and employees of each
of the Company and Golden Books Publishing to make reasonably available for
inspection all other relevant information reasonably requested by such Holders
or any such underwriter, attorney, accountant or agent in connection with any
such Shelf Registration Statement, in each case as is customary for similar
due diligence examinations; provided, however, that any information that is
designated in writing by the Trust, Golden Books Publishing or the Company, in
good faith, as confidential at the time of delivery of such information shall
be kept confidential by such Holders or any such underwriter, attorney,
accountant or agent, unless such disclosure is made in connection with a court
proceeding or required by law, or such information becomes available to the
public generally or through a third party without an accompanying obligation
of confidentiality; and provided further that the foregoing inspection and
information gathering shall, to the greatest extent possible, be coordinated
on behalf of the Holders and the other parties entitled thereto by one counsel
designated by and on behalf of such Holders and other parties reasonably
acceptable to the Company, Golden Books
12
<PAGE>
Publishing and the Trust; (iii) make such representations and warranties in
the related underwriting agreement to the Holders of Registrable Securities
registered thereunder and the underwriters, if any, in form, substance and
scope as are customarily made in primary underwritten offerings; (iv) obtain
opinions of counsel to the Trust, Golden Books Publishing and the Company and
updates thereof (which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to the Managing Underwriters, if any) in
customary form addressed to each selling Holder and the underwriters, if any,
covering such matters as are customarily covered in opinions requested in
underwritten offerings and such other matters as may be reasonably requested
by such Holders and underwriters (it being agreed that the matters to be
covered by such opinion or a written statement by such counsel delivered in
connection with such opinions shall include, without limitation, as of the
date of the opinion and as of the effective date of the Shelf Registration
Statement or most recent post-effective amendment thereto, as the case may be,
the absence from such Shelf Registration Statement and the Prospectus included
therein, as then amended or supplemented, including the documents incorporated
by reference therein, of an untrue statement of a material fact or the
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading); (v) obtain "comfort letters" and
updates thereof from the independent public accountants of the Company (and,
if necessary, any other independent public accountants of any subsidiary of
the Company or of any business acquired by the Company, including without
limitation Golden Books Publishing, for which financial statements and
financial data are, or are required to be, included in the Shelf Registration
Statement, addressed to each such Holder of Registrable Securities registered
thereunder and the underwriters, in customary form and covering matters of the
type customarily covered in "comfort letters" in connection with primary
underwritten offerings; and (vi) deliver such other customary documents and
certificates as may be reasonably requested by any such Holders and the
Managing Underwriters, if any, including those to evidence compliance with
Section 3(i) and with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Trust, Golden Books
Publishing or the Company. The foregoing actions set forth in clauses (iii),
(iv), (v) and (vi) of this Section 3(p) shall be performed at each closing
under any underwritten offering to the extent required thereunder.
(d) Upon the request of the Company, the Holders agree not
to effect any public sale or distribution (including sales pursuant to Rule
144) of Registrable Securities during the 10-trading day period prior to the
date that the Company has notified the Holders that it intends to commence a
Company Offering through the 180-day period immediately following the closing
date of such Company Offering (or such lesser period as may be required by the
underwriters of such Company Offering); provided, however, that (i) the
Holders shall not be obligated to comply with this Section 6(d) until the
first anniversary of the date of this Agreement and (ii) the Holders shall not
be obligated to comply with this Section 6(d) on more than one occasion in any
12-month period.
(e) Notwithstanding any other provision of this Section 6,
if the Managing Underwriters advise the Holders in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
number of shares included in the underwriting by each Holder shall be reduced
on a pro rata basis (based on the number of shares originally proposed to be
so included by such Holder) by such minimum number of shares as is necessary
to comply with
13
<PAGE>
such request. If any Holder who has requested inclusion in such underwriting
as provided above disapproves of the terms of the underwriting, such Holder
may elect to withdraw therefrom by written notice to the Company and the
Managing Underwriters.
7. MISCELLANEOUS.
(a) OTHER REGISTRATION RIGHTS. The Company may grant
registration rights that would permit any Person that is a third party the
right to piggyback on any Shelf Registration Statement; provided that if the
Managing Underwriter, if any, of such offering delivers an opinion to the
selling Holders that the total amount of securities which they and the holders
of such piggyback rights intend to include in any Shelf Registration Statement
is so large as to materially adversely affect the success of such offering
(including the price at which such securities can be sold), then only the
amount, number or kind of securities to be offered for the account of holders
of such piggyback rights will be reduced to the extent necessary to reduce the
total amount of securities to be included in such offering to the amount,
number or kind recommended by the Managing Underwriter prior to any reduction
in the amount of Registrable Securities to be included.
(b) AMENDMENTS AND WAIVERS. The provision of this Agreement,
including the provisions of this sentence, may not be amended, qualified,
modified or supplemented, and waivers or consents to departures from the
provisions hereof may not be given, unless the Trust, Golden Books Publishing
and the Company have obtained the written consent of the Initial Purchasers on
behalf of the Holders from time to time.
(c) NOTICES. All notices and other communications provided
for or permitted hereunder shall be made in writing by hand-delivery,
first-class mail, telex, telecopier, or air courier guaranteeing overnight
delivery:
1. if to a Holder, at the most current address given by such
Holder to the Company in accordance with the provisions of this Section 6(c);
2. if to the Initial Purchasers, initially at the address
set forth in the Purchase Agreement; and
3. if to the Trust, Golden Books Publishing or the Company,
initially at its address set forth in the Purchase Agreement.
All such notices and communications shall be deemed to have duly given when
received, if delivered in person or by fax; five days after mailing, if sent
by mail; or the day following transmission, if sent by overnight courier.
The Initial Purchasers, the Trust, Golden Books Publishing and the
Company by notice to the others may designate additional or different
addresses for subsequent notices or communications.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to
the benefit
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<PAGE>
of and be binding upon the permitted successors and assigns of each of the
parties and the Holders, including, without the need for an express assignment
or any consent by the Trust, Golden Books Publishing or the Company thereto,
subsequent Holders of Registrable Securities. The Trust, Golden Books
Publishing and the Company hereby agree to extend the benefits of this
Agreement to any Holder of Registrable Securities and any such Holder may
specifically enforce the provisions of this Agreement as if an original party
hereto.
(e) COUNTERPARTS. This agreement may be executed in any
number of counterparts and by the parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
(f) HEADINGS. The headings in this agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(G) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY THE
INTERNAL LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICTS OF LAW.
(h) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstances,
is held invalid, illegal or unenforceable in any respect for any reason, the
validity, legality and enforceability of any such provision in every other
respect and of the remaining provisions hereof shall not be in any way
impaired or affected thereby, it being intended that all of the rights and
privileges of the parties shall be enforceable to the fullest extent permitted
by law.
15
<PAGE>
Please confirm that the foregoing correctly sets forth the
agreement among the Company, Golden Books Publishing, the Trust and you.
Very truly yours,
GOLDEN BOOKS FINANCING TRUST
By: /s/ Philip E. Rowley
----------------------------------------
Name: Philip E. Rowley
Title: Regular Trustee
GOLDEN BOOKS FINANCING TRUST
By: /s/ Willa Perlman
----------------------------------------
Name: Willa Perlman
Title: Regular Trustee
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
By: /s/ Philip E. Rowley
----------------------------------------
Name: Philip E. Rowley
Title: Chief Financial Officer
and Executive Vice President
GOLDEN BOOKS PUBLISHING COMPANY, INC.
By: /s/ Philip E. Rowley
----------------------------------------
Name: Philip E. Rowley
Title: Chief Operating Officer
16
<PAGE>
The foregoing Registration Rights Agreement is hereby confirmed and accepted
as of the date first above written.
MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
DONALDSON, LUFKIN & JENRETTE SECURITIES CORPORATION
SBC WARBURG INC.
a subsidiary of Swiss Bank Corporation
By: MERRILL LYNCH & CO.
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
By: /S/ Dan Granirer
- ----------------------------
Name: Dan Granirer
Title: Associate
17
<PAGE>
[LETTERHEAD OF GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.]
July 30, 1996
Mr. Robert J. Druten
Vice President-Administration
and Chief Financial Officer
Hallmark Cards, Incorporated
2501 McGee
Kansas City, Missouri 64141
Re: Hallmark/Golden Books
Dear Bob:
I am very pleased that our people have been able to work
quickly to reach final terms on what I hope will be a long and mutually
prosperous relationship between our two companies. The enclosed Statement of
Terms reflects our binding agreements with Hallmark and will be reflected in
appropriate legal documentation to be executed at the closing of the initial
investment. Kindly, sign the enclosed copy of this letter and return it to me
by telecopy to be followed by a hard signature copy. We should also finalize
arrangements for our press release on this matter.
I am grateful that you have been able to move quickly so as
to accommodate our schedule on our upcoming offering, which I am hopeful of
announcing on Tuesday.
Best regards.
Sincerely yours,
/s/ Richard E. Snyder
Richard E. Snyder
ACCEPTED AND AGREED AS OF ACCEPTED AND AGREED AS OF
JULY 30, 1996: JULY 30, 1996 WITH RESPECT TO THE
DRAG ALONG/TAG ALONG RIGHTS:
HC CROWN CORP. GOLDEN PRESS HOLDING L.L.C.
BY: WARBURG, PINCUS VENTURES, L.P.
By: /s/ Robert J. Druten BY: WARBURG, PINCUS & CO.,
Robert J. Druten its general partner
Vice President-Administration By: /s/ David A. Tanner
and Chief Financial Officer David Tanner, partner
WARBURG, PINCUS VENTURES, L.P.
BY: WARBURG, PINCUS & CO.,
its general partner
By: /s/ David A. Tanner
David Tanner, partner
<PAGE>
HALLMARK/GOLDEN BOOKS STATEMENT OF TERMS
<TABLE>
<CAPTION>
<S> <C>
Purchaser: HC Crown Corp., a wholly owned subsidiary of
Hallmark Cards, Inc.
Issuer: Golden Books Family Entertainment, Inc. ("GBFE")
Securities: Common Stock of GBFE
Amount: $25 million
Price of Initial Purchase: 95% of the average closing price of GBFE common
stock on NASDAQ on the ten trading days after the
pricing of the Company's TOPrS, subject to a
collar of $8.00 and $12.00. If the TOPrS issue is
not priced before August 30, 1996, the price will
be 95% of the average closing price of GBFE common
stock on NASDAQ on the ten trading days prior to
the closing, subject to a collar of $10.00 and
$12.00. The collar represents the maximum and
minimum off which the 95% computation would be
made; however, the closing will not be affected
if such average closing price is above or below
the collar.
Timing: Definitive agreements signed, subject only to
Hart-Scott-Rodino approvals, by July 30, 1996. The
closing will occur within three business days
following termination or expiration of the
HSR waiting period. There are no other
conditions to closing.
Further Investment: The parties intend, in conjunction
with reaching the Operational Understanding, to
agree to an additional investment by the
Purchaser of $25 million in Company Common Stock.
Such further investment will be subject to
definitive documentation.
Registration Rights: (i) One demand registration right on the same terms as
the Golden Press Holding, L.L.C.
("GPH") registration rights agreement dated
as of May 8, 1996 (except as set forth
herein) commencing after one year from the
closing and (ii) (subject to preferential rights
contained in the foregoing GPH agreement and the
registration rights agreement dated as of January 31,
1996 with Richard A. Bernstein and related parties)
unlimited piggybacks for three years, and no worse than
pari passu with subsequent agreements, provided that
for the first 2 years after the closing, no piggyback
sales per quarter in excess of Rule 144 volume
limitations.
Standstill: Other than solely by reason of the purchase or the
further investment hereunder, Purchaser will not at any
time own 15% or more of GBFE's outstanding voting stock
without the consent of GBFE, except as a result of any
action taken solely by GBFE. If GBFE's Board of
Directors has determined to conduct a process with a
view to selling a majority interest in the Company,
Purchaser will be permitted to participate on the same
basis as third parties and will not be disadvantaged by
this limitation.
Transferability: Except as otherwise provided herein or in a broadly
distributed public offering, Purchaser will agree not
to sell its Securities to any buyer such that, after
the consummation of the purchase, such buyer would own
5% or more of GBFE's fully-diluted shares outstanding.
Subject to the drag along and tag along rights
described below, if GPH sells a majority of its
holdings in GBFE (as determined by the common stock
underlying its instruments) or if Warburg, Pincus
Ventures, L.P. ("Warburg Pincus") ceases to be a
majority owner of GPH, the transfer restrictions will
lapse and the demand registration right will become
effective immediately.
Board Seat: So long as (i) Purchaser owns 95% of the Securities
acquired, and (ii) the Purchaser has made its further
investment on or before December 31, 1996, the
Purchaser will be entitled to have Irvine O. Hockaday,
Jr., or his successor, retained as a Director to the
GBFE's Board of Directors.
Drag Along/Tag Along Rights: If GPH sells a majority of its equity interest in GBFE,
directly or indirectly, by private transaction or
public offering, or if Warburg Pincus sells a majority
of its interest in GPH, directly or indirectly, by
private transaction or public offering, as a condition
of such sale, Purchaser will be entitled to sell to the
purchaser of such interest a proportionate share of
Purchaser's common stock of GBFE. In addition, GPH
will be entitled to require Purchaser to sell to the
purchaser of such interest a proportionate share of
Purchaser's common stock of GBFE. In each case, such
purchase will be on the same or equivalent terms as the
purchase from GPH or Warburg Pincus.
Operational Understanding: It is agreed and understood that GBFE's willingness to
accept Hallmark's further investment and Hallmark's
willingness to make such further investment is premised
on each party's willingness to make good faith efforts
to work together to develop constructive working
relationships across appropriate lines of business,
including, but not limited to, personal expression,
family entertainment, and personal development products.
Assignability: The agreement represented hereby is binding on the
parties hereto and their successors and assigns.
</TABLE>
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of September 6, 1996, is
entered into by and between Golden Books Family Entertainment, Inc., a
Delaware corporation (the "Company"), and HC Crown Corp., a Delaware
corporation ("HCC").
WHEREAS, the Company has agreed to (i) issue to HCC shares of its common
stock, par value $.01 per share ("Common Stock") and (ii) grant to HCC and any
permitted subsequent holders of such Common Stock certain rights to have such
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, except as expressly
provided to the contrary, the following capitalized terms shall have the
meanings set forth below:
(a) "Affiliate" of any person means any other person that directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person. For purposes of the
definition of affiliate, "control" has the meaning specified in Rule 12b-2
under the Exchange Act as in effect on the date of this Agreement;
(b) the "Bernstein Agreement" shall mean the Registration Rights
Agreement, dated as of January 31, 1996, among Western Publishing Group;
Richard A. Bernstein; the Trust fbo Richard A. Bernstein u/a March 16, 1978,
Richard A. Bernstein and Stuart Turner, as trustees; The Richard A. and Amelia
Bernstein Foundation Inc. and the Trust fbo Richard A. Bernstein u/a Barry S.
Bernstein dated April 5, 1986, Fleet National Bank of Connecticut, as trustee;
<PAGE>
(c) "Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Act or any successor
rules or regulations thereto;
(d) "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended;
(e) the "GPH Agreement" shall mean the Registration Rights
Agreement, dated as of May 8, 1996, between Western Publishing Group and
Golden Press Holdings, L.L.C. ("GPH");
(f) the term "Holder" shall mean any permitted holder of
Registrable Securities;
(g) 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;
(h) "Piggyback Limitations" shall mean (i) the expiration on the
third anniversary of the date hereof of all rights of the Holders to include
the Registrable Securities in other registrations of the Company's equity
securities and (ii) the limitation, which limitation shall expire on the
second anniversary of the date hereof, that the sale of shares or units of
Registrable Securities included in any registration of the Company's equity
securities pursuant to Section 3 hereof in any three-month period shall not
exceed the volume limitations set forth in Rule 144(e) of the Act or any
successor provision thereto;
(i) 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;
2
<PAGE>
(j) the term "Registrable Securities" means (i) the shares of
Common Stock issued to HCC on the date hereof and in connection with any
subsequent purchase by HCC of up to $25 million of Common Stock pursuant to
the Statement of Terms, dated as of July 30, 1996 (the "Term Sheet"), among
the parties hereto GPH and Warburg, Pincus Ventures, L.P. and (ii) 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
clause (i) 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;
(k) "Registration Expenses" shall mean all expenses incurred by
the Company in compliance with Sections 2 and 3 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
(l) "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 a request that the Company effect registration with respect
to all or a part of the Registrable Securities, at any time after the earliest
of (i) one year from the date hereof, (ii) the
3
<PAGE>
date on which GPH sells a majority of its equity securities in the Company and
(iii) the date on which Warburg Pincus Ventures, L.P. (including all of its
Affiliates) ceases to be the owner of a majority of the equity securities of
GPH, 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 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
4
<PAGE>
(y) after the Company has effected one (1) such registration
pursuant to this Section 2 and such registration has 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.
(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
5
<PAGE>
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 representative 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.
SECTION 3. Company Registration.
(a) Request For Registration. Until the third anniversary of the
date hereof, 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
6
<PAGE>
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 and provided that any such
inclusion of the Registrable Securities shall be subject to the Piggyback
Limitations. Subject to the Piggyback Limitations, 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
7
<PAGE>
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 (in accordance with 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: (i) First, the securities of the Company
owned by persons who by contractual right demanded such registration
("Demanding Holders") shall be included in such registration and underwriting;
(ii) Second, the "Registrable Securities" held by "Holders" as defined by each
of the GPH Agreement and the Bernstein Agreement (to the extent they are not
Demanding Holders) shall be included in such registration and underwriting
pursuant to the terms of the applicable agreements and to the extent
permitted; and (iii) Third, the Registrable Securities hereunder (subject to
the Piggyback Limitations) and the securities of the Other Stockholders (not
otherwise granted a preference pursuant to the provisions hereof) shall be
included, and if a limitation on the number of shares included pursuant to
clause (iii) above is required, the number of shares that may be included in
the registration and underwriting by each of the Holders and the applicable
Other Stockholders 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; and
provided further that the Company shall not (after the date hereof) enter into
any agreement granting registration rights which prevents the inclusion in any
registration of the Company's equity securities
8
<PAGE>
(pursuant to clause (iii) above) of the Registrable Securities hereunder on at
least a pari passu basis with the Company's other equity securities. If any of
the Holders or any officer, director or Other Stockholder disapproves of the
terms of any underwriting described in Section 3(b), such person may elect to
withdraw therefrom by written notice to the Company and the underwriter. Any
Registrable Securities or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
(c) Number and Transferability. Each of the Holders shall be
entitled to have its shares included in an unlimited number of registrations
pursuant to this Section 3 provided that such entitlement is subject to the
Piggyback Limitations. The registration rights granted pursuant to this
Section 3 shall be assignable, in whole or in part, to any transferee of
Registrable Securities that is a direct or indirect wholly owned subsidiary of
Hallmark Cards, Incorporated ("Parent"), and Parent shall cause such
transferee to be, and such transferee shall be bound by all obligations of
this Section 3.
SECTION 4. Certain Registration Matters. The Company shall not be
required to effect a registration pursuant to this Agreement 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 for a period of not more than
90 days after receipt of the request of the Holder or Holders under this
Agreement.
9
<PAGE>
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
10
<PAGE>
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
11
<PAGE>
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
12
<PAGE>
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
13
<PAGE>
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.
SECTION 7. Indemnification.
(a) To the extent permitted by law, the Company will indemnify
each of the Holders, each of its officers, directors, partners, members,
managers, agents, representatives and affiliates of the foregoing, each
underwriter (as defined in the Act), if any, and each person controlling each
of the Holders or such underwriter within the meaning of the Act and the rules
and regulations thereunder, with respect to each registration which has been
effected pursuant to this Agreement, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or any
violation by the Company of the Act or any rule or regulation thereunder
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse each of the Holders, each of its officers, directors,
partners, members, managers, agents, representatives
14
<PAGE>
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,
15
<PAGE>
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
16
<PAGE>
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in
connection with the defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 7 is held
by a court of competent jurisdiction to be unavailable to an Indemnified Party
with respect to any loss, liability, claim, damage or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand and of the Indemnified Party on the
other in connection with the statements or omissions which resulted in such
loss, liability, claim, damage or expense, as well as any other relevant
equitable considerations, provided, however, that the obligations of each
Holder shall be limited to an amount equal to the proceeds to such Holder from
the sale of Registrable Securities as contemplated herein. The relative fault
of the Indemnifying Party and of the Indemnified Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Indemnifying Party or by
the Indemnified Party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Act), shall be entitled to contribution from any person
who is not guilty of such fraudulent misrepresentation.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in
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<PAGE>
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.
18
<PAGE>
SECTION 9. 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 wholly owned
subsidiary of Parent. The Company may not assign or transfer its rights or
obligations hereunder without the prior written consent of all the Holders.
SECTION 10. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
SECTION 11. 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 12. 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: Golden Books Family Entertainment, Inc.
850 Third Avenue
New York, New York 10022
Telecopy: (212) 583-6700
Attn: Phillip Rowley
with a copy to: Andre Weiss, Esq.
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Telecopy: (212) 593-5955
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,
19
<PAGE>
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 13. 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 14. 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 15. 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 16. Legend. Each certificate representing the Registrable
Securities shall be stamped or otherwise printed with a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED,
SOLD OR OFFERED FOR SALE OR OTHERWISE HYPOTHECATED OR DISTRIBUTED UNLESS
SUCH TRANSFER, SALE,
20
<PAGE>
HYPOTHECATION OR DISTRIBUTION COMPLIES WITH THE PROVISIONS OF THE
HALLMARK/GOLDEN BOOKS STATEMENT OF TERMS (THE "STATEMENT") DATED AS OF
JULY 30, 1996 (A COPY OF WHICH IS ON FILE AND AVAILABLE FOR INSPECTION
AT THE PRINCIPAL OFFICES OF GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. (THE
"COMPANY"). ANY TRANSFERS IN VIOLATION OF THE STATEMENT ARE NULL AND
VOID.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE
SECURITIES LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE SOLD OR OFFERED
FOR SALE OR OTHERWISE HYPOTHECATED OR DISTRIBUTED EXCEPT (A) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR
(B) PURSUANT TO A VALID EXEMPTION FROM SUCH REGISTRATION UNDER THE ACT
AND UNDER THE SECURITIES LAWS OF ANY STATE AND UPON RECEIPT BY THE
COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM AND
SUBSTANCE TO IT THAT ANY SUCH SALE IS IN COMPLIANCE WITH THE ACT AND THE
STATE SECURITIES LAWS.
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.
21
<PAGE>
IN WITNESS WHEREOF, the Company and each of the undersigned parties has
executed this Agreement effective for all purposes as of the date first above
written.
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
By: /s/ Richard E. Snyder
Name: Richard E. Snyder
Title: Chairman of the Board of Directors
and Chief Executive Officer
HC CROWN CORP.
By: /s/ Judith Whittaker
Name: Judith Whittaker
Title: Vice President
Address for notices:
HC Crown Corp.
Hallmark Cards, Incorporated
2501 McGee
Kansas City, Missouri 64141
Telecopy: 816-274-7171
Attn: Judith Whittaker
22
AMENDMENT NO. 1
TO
ASSET PURCHASE AGREEMENT
BY AND AMONG
BROADWAY VIDEO ENTERTAINMENT, L.P.
AND THE OTHER SELLERS NAMED HEREIN
AND
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.,
GOLDEN BOOKS PUBLISHING COMPANY, INC. as assignee of
GOLDEN BOOKS PRODUCTIONS, INC., AND
LRM ACQUISITION CORP.
DATED AS OF AUGUST 20, 1996
<PAGE>
AMENDMENT NO. 1 TO
ASSET PURCHASE AGREEMENT
------------------------
This AMENDMENT NO. 1, dated as of August 20, 1996 (this "Amendment")
to that certain ASSET PURCHASE AGREEMENT, dated as of July 30, 1996 (the
"Agreement") is made and entered into among BROADWAY VIDEO ENTERTAINMENT,
L.P., a New York limited partnership ("BVEL"); BROADWAY VIDEO ENTERPRISES,
INC., a New York corporation ("BVE"); LONE RANGER MUSIC, INC., a New York
corporation ("LRM"); and PALLADIUM LIMITED PARTNERSHIP, a New York limited
partnership ("Palladium", and together with BVEL, BVE and LRM, the "Sellers"
and each a "Seller") on the one hand; GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.,
a Delaware corporation ("Parent"); GOLDEN BOOKS PUBLISHING COMPANY, INC., a
Delaware corporation ("Publishing") as assignee of GOLDEN BOOKS PRODUCTIONS,
INC.; and LRM ACQUISITION CORP., a Delaware corporation ("LRM Acquisition,"
and together with Publishing, the "Buyers" and each a "Buyer") on the other
hand, with reference to the following facts:
A. The parties hereto desire to amend the Agreement to, among other
things, (i) clarify the allocation of the Assets (definitions of capitalized
terms not otherwise defined herein are set forth in the Agreement and Schedule
O thereto) acquired and the Obligations assumed between Publishing and LRM
Acquisition, (ii) provide that all of the Purchase Price Stock be deposited in
the Escrow Account rather than one-third of such stock and approximately
$6,700,000 in cash, (iii) modify certain arrangements with respect to the
Identified Employees and (iv) revise certain definitions set forth in Schedule
O thereto.
B. Section 11.1 of the Agreement permits amendments to the
Agreement by written instrument signed by the parties to the Agreement.
NOW, THEREFORE, based on the above premises and in consideration of
the mutual covenants and agreements contained herein, the parties agree as
follows:
1. AMENDMENT TO SECTION 1.1 "AGREEMENTS TO TRANSFER AND ASSIGN". The
first sentence of Section 1.1 shall be amended and restated to read in its
entirety as follows:
"At the Closing, on the terms and subject to the conditions of this
Agreement, the Buyers shall acquire, and the Sellers shall (and with
respect to certain of the Other Assets shall cause BVI to) sell,
assign, transfer, convey, grant and set over to the Buyers, their
successors and assigns, all of the Sellers' right, title and interest
in, to and under the Assets, provided that Productions shall acquire
all of the Assets other than (i) those Assets owned by LRM and (ii)
the Other Assets, which Assets shall be conveyed to and acquired by
LRM Acquisition."
2. AMENDMENT TO SECTION 1.3 "ASSUMPTION AND PAYMENT OF OBLIGATIONS".
Section 1.3 shall be amended to add the following at the end of the third line:
<PAGE>
"and those related to or arising from the Other Assets"
3. AMENDMENT TO SECTION 1.7 "ESCROW OF PURCHASE PRICE STOCK". The first
sentence of Section 1.7 shall be amended and restated to read in its entirety
as follows:
"At the Closing, the Sellers shall deliver or cause to be delivered
all of the Purchase Price Stock to SR&Z as escrow agent (the "Escrow
Agent") pursuant to the terms of an escrow agreement to be mutually
agreed to by the parties hereto (the "Escrow Agreement"), which stock
shall be placed by the Escrow Agent in an account (the "Escrow
Account") established by the Closing Date and remaining in existence
until the first anniversary of the Closing Date (or, if later, until
the resolution of any unresolved claims for which Buyer Indemnitees
may seek indemnity from any Seller pursuant to Article 9 below);
provided, however, until the first anniversary of the Closing Date
the Purchase Price Stock may be withdrawn by any Seller from the
Escrow Account so long as each share of Purchase Price Stock so
withdrawn is replaced by an amount of cash equal to twice the Market
Value of such stock on the Closing Date."
4. AMENDMENT TO SECTION 4.8 "IDENTIFIED EMPLOYEES". Section 4.8 of the
Agreement shall be amended to add the following sentence at the end of such
section:
For each of those Identified Employees who execute an employment
agreement (or term sheet containing the principal term of employment)
with Parent or any of its Affiliates within a reasonable period of
time after the Closing Date, Parent or such applicable Affiliate
shall reimburse the applicable Seller for any salary paid to such
employee after the earlier of September 10, 1996 or the date such
employment agreement (or term sheet) is executed.
5. AMENDMENT TO SECTION 11.1 "COMPLETE AGREEMENT; MODIFICATIONS."
Section 11.1 of the Agreement shall be amended and restated to read in its
entirety as follows:
"This Agreement and any documents executed in connection with this
Agreement and the other transactions contemplated hereby constitute
the parties entire agreement with respect to the subject matter
hereof and supersede all prior and contemporaneous agreements,
representations, warranties, statements, promises and understandings
whether oral or written, with respect to the subject matter hereof.
This Agreement and the other documents described in the preceding
sentence may not be amended, altered or modified except by a written
document signed by the parties."
6. AMENDMENT TO THE DEFINITION OF "MARKET VALUE". The definition of
"Market Value" set forth in Schedule O to the Agreement shall be amended and
restated to read in its entirety as follows:
"means with respect to any stock the average closing price of such
stock on the NASDAQ National Market System (or its primary exchange)
for the 20-day
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<PAGE>
trading period ending on the date which is two trading days
immediately preceding the date on which such value is to be
determined."
7. AMENDMENT TO THE DEFINITION OF "ASSETS". The definition of "Assets"
set forth in Schedule O to the Agreement shall be amended and restated to read
in its entirety as follows:
"means all of the Sellers' right, title and interest in and to the
(i) Trademarks, (ii) the Film Properties, (iii) the Copyrights, (iv)
the Literary Properties, (v) the Music Rights, (vi) the Music
Publishing Rights, (vii) the Outstanding Agreements, (viii) the
Physical Materials, (ix) the Warranty Rights, (x) the Other Assets,
(xi) such computers as will be delivered by the Sellers pursuant to
Section 1.2.3(x) and (xii) any property or assets similar to the
foregoing which is acquired by the Sellers after the date hereof and
prior to the Closing and excluding any of the foregoing property or
assets immaterial, individually or in the aggregate, in nature which
is disposed of by the Sellers in the ordinary course of business
consistent with past practice after the date hereof and prior to the
Closing, but not including the Excluded Assets."
8. AMENDMENT TO THE DEFINITION OF "OTHER ASSETS". The definition of
"Other Assets" set forth in Schedule O to the Agreement shall be amended and
restated to read in its entirety as follows:
"means Seller's (a) BVEL and BVI's 49.5% and 0.5% membership
interest, respectively, in McSpadden, (b) BVEL and BVI's 0.99% and
0.01% membership interest, respectively, in each of CMM, MHM, MM, MSP
and SM, (c) BVEL's rights under that certain Credit and Security
Agreement dated July 1, 1995 with MSM, including the promissory Note
issued to BVEL by MSM with respect thereto and (d) BVEL's 50%
partnership interest in, and repayment rights under the loans made by
BVEL to Broadway Comics."
9. AMENDMENT TO THE DEFINITION OF "MUSIC PUBLISHING RIGHTS". The
definition of "Music Publishing Rights" set forth in Schedule O to the
Agreement shall be amended and restated to read in its entirety as follows:
"means all rights owned by any Seller or any of its Affiliates to
exploit the musical compositions listed in Schedule 0.1."
10. ENTIRE AGREEMENT. All terms and provisions of the Agreement are
continued in full force and effect and shall remain unaffected and unchanged
except as specifically amended hereby.
11. GOVERNING LAW; JURISDICTION. This Amendment has been negotiated and
entered into in the State of New York and all questions with respect to the
Agreement and the rights and liabilities of the parties will be governed by
the laws of that state, regardless of the choice of law provisions of New York
or any other jurisdiction. Any and all disputes between the parties that may
arise pursuant to this Amendment will be heard and determined before a federal
or state court located in
3
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the Borough of Manhattan, New York, New York. The parties hereto acknowledge
that such court has the jurisdiction to interpret and enforce the provisions
of this Amendment and the parties waive any and all objections that they may
have as to personal jurisdiction or venue in any of the above courts.
12. COUNTERPARTS. This Amendment may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. A faxed signature shall have the same
effect as an original signature provided that an original signed copy shall be
provided promptly thereafter.
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of
the day and year set forth above.
BROADWAY VIDEO ENTERTAINMENT, L.P.
By: Broadway Video Enterprises, Inc.,
its General Partner
By: /s/ Stephen W. Shippee
----------------------------
Name: Stephen W. Shippee
Title: Chief Operating Officer
and Chief Financial
Officer
BROADWAY VIDEO ENTERPRISES, INC.
By: /s/ Stephen W. Shippee
----------------------------
Name: Stephen W. Shippee
Title: Chief Operating Officer
and Chief Financial
Officer
LONE RANGER MUSIC, INC.
By: /s/ Stephen W. Shippee
-----------------------------
Name: Stephen W. Shippee
Title: Chief Financial Officer
and Treasurer
PALLADIUM LIMITED PARTNERSHIP
By: Broadway Video Enterprises, Inc.,
its General Partner
By: /s/ Stephen W. Shippee
-----------------------------
Name: Stephen W. Shippee
Title: Chief Operating Officer
and Chief Financial
Officer
5
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
By: /s/ Richard E. Snyder
---------------------------
Name: Richard E. Snyder
Title: Chairman of the Board
of Directors and Chief
Executive Officer
GOLDEN BOOKS PUBLISHING COMPANY, INC.
By: /s/ Philip E. Rowley
----------------------------
Name: Philip E. Rowley
Title: Chief Operating Officer
LRM ACQUISITION CORP.
By: /s/ Richard E. Snyder
-----------------------------
Name: Richard E. Snyder
Title: Chairman of the Board
of Directors and Chief
Executive Officer and
President
6
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT is made and entered into this 20th day of
August, 1996, among Golden Books Family Entertainment, Inc., a Delaware
corporation ("Parent") and Broadway Video Entertainment, L.P., a New York
limited partnership ("BVEL").
R E C I T A L S
WHEREAS, pursuant to that certain Asset Purchase Agreement,
dated as of July 30, 1996, as amended (the "Asset Purchase Agreement"), among
the Parent, Buyers (as defined therein) and Sellers (as defined therein),
Buyer is purchasing certain assets of Sellers more particularly described in
the Asset Purchase Agreement, primarily motion pictures, television programs
and interests in music and comic book publishing (the "Assets");
WHEREAS, the Buyers have agreed to purchase the Assets by
paying and delivering to BVEL the "Purchase Price", as such term is defined on
Schedule O attached to the Asset Purchase Agreement;
WHEREAS, a portion of the Purchase Price consists of shares
of common stock, $.01 par value, of Parent (the "Purchase Price Stock"); and
WHEREAS, Parent has agreed to provide the registration
rights set forth herein with respect to such Purchase Price Stock;
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties and conditions set forth in this Agreement, the
parties hereto, intending to be legally bound, hereby agree as follows:
l. Definitions and References.
For purposes of this Agreement, in addition to the
definitions set forth above and elsewhere herein, the following terms shall
have the following respective meanings:
"Affiliate" of a Holder shall mean a person who
directly or indirectly controls, is controlled by or is
under common control with such Holder, the spouse or
children (or a trust exclusively for the benefit of a spouse
and/or children) of such Holder if such Holder is a natural
person or, in the case of a Holder which is a partnership,
its partners.
"Commission" shall mean the U.S. Securities and
Exchange Commission and any successor agency.
"Common Stock" shall mean shares of common stock,
$.01 par value, of Parent.
"Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended, or any successor federal statute,
and the rules and regulations of the Commission thereunder,
all as the same shall be in effect at the time. References
herein to a particular section of the Exchange Act shall
include a reference to the comparable section, if any, of
any such successor federal statute.
<PAGE>
"Holder" shall mean BVEL or any transferee or
assignee thereof to whom the rights under this Agreement are
assigned in accordance with the provisions of Section 12
hereof.
"Person" shall mean any individual, corporation,
partnership, limited liability company, trust, incorporated
or unincorporated association, joint venture, joint stock
company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Purchase Date" shall mean the date upon which the
Buyer purchases the Assets and pays and delivers the
Purchase Price pursuant to the Asset Purchase Agreement.
"Register," "registered" and "registration" shall
refer to a registration effected by preparing and filing a
registration statement or similar document in compliance
with the Securities Act and the declaration or ordering of
effectiveness of such registration statement or document.
"Registrable Stock" shall mean (i) Purchase Price
Stock and (ii) any Related Registrable Stock. For the
purposes of this Agreement, any Registrable Stock shall
cease to be Registrable Stock when (x) a registration
statement covering such Registrable Stock has been declared
effective and such Registrable Stock has been disposed of
pursuant to such effective registration statement, (y)
beneficial ownership of such Registrable Stock is
transferred in a transaction in which the rights and
obligations set forth herein are not assigned and assumed in
accordance with Section 12 hereof, or (z) all of the
Registrable Stock may be immediately sold pursuant to Rule
144(k) (or any similar provision then in force) under the
Securities Act without registration under such Act.
"Related Registrable Stock" means any Common Stock
or other securities of Parent issued or issuable in exchange
for or in replacement of Purchase Price Stock by way of a
dividend or stock split or in connection with a combination
of shares, recapitalization, merger, consolidation or other
reorganization or otherwise.
"Securities Act" shall mean the Securities Act of
1933, as amended, or any successor federal statute, and the
rules and regulations of the Commission thereunder, all as
the same shall be in effect at the time. References herein
to a particular section of the Securities Act shall include
a reference to the comparable section, if any, of any such
successor federal statute.
2. Restrictive Legend.
Each certificate representing Registrable Stock shall,
except as otherwise provided in this Section 2 or in Section 3, be stamped or
otherwise imprinted with a legend substantially in the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT")
OR UNDER THE SECURITIES LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE
SOLD OR OFFERED FOR
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<PAGE>
SALE OR OTHERWISE HYPOTHECATED OR DISTRIBUTED EXCEPT (A) PURSUANT TO
ANY EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE
ACT OR (B) PURSUANT TO A VALID EXEMPTION FROM SUCH REGISTRATION UNDER
THE ACT AND UNDER THE SECURITIES LAWS OF ANY STATE AND UPON RECEIPT
BY GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. OF AN OPINION OF COUNSEL
REASONABLY SATISFACTORY IN FORM AND SUBSTANCE TO IT THAT ANY SUCH
SALE IS IN COMPLIANCE WITH THE ACT AND THE STATE SECURITIES LAWS.
A certificate shall not bear such legend if in the opinion of counsel
satisfactory to Parent the securities being sold thereby may be publicly sold
without registration under the Securities Act.
3. Notice of Proposed Transfer.
Prior to any proposed transfer of any Registrable Stock by a
Holder (other than under the circumstances described in Section 4), such
Holder shall give written notice to Parent of its intention to effect such
transfer (each such notice, a "Transfer Notice"). Each Transfer Notice shall
set forth the name and address of the transferee, identify the securities to
be transferred and describe the manner of the proposed transfer and, if
requested by Parent, shall be accompanied by an opinion of counsel reasonably
satisfactory to Parent to the effect that the proposed transfer, as described
in such Transfer Notice, may be effected without registration under the
Securities Act, whereupon, subject to the transferee's compliance with clause
(ii) of Section 12 hereof, such Holder shall be entitled to transfer such
Registrable Stock in accordance with the terms of such Transfer Notice. Each
certificate for Registrable Stock transferred as above provided shall bear the
legend set forth in Section 2, except that such certificate shall not bear
such legend if (i) the opinion of counsel referred to above is to the further
effect that the transferee and any subsequent transferee would be entitled to
transfer such securities in a public sale without registration under the
Securities Act or (ii) Parent is otherwise satisfied that such transfer is
made in accordance with the provisions of Rule 144 (or any other rule
permitting public sale without registration under the Securities Act). The
restrictions provided for in this Section 3 shall not apply to securities
which are not required to bear the legend prescribed by Section 2 in
accordance with the provisions of that Section.
4. Shelf Registration.
Not later than the first anniversary of the Purchase Date,
Parent shall prepare and cause to be filed with the Commission a "shelf"
registration statement (including the prospectus required by the registration
form utilized) with respect to all of the Registrable Stock on any appropriate
form pursuant to Rule 415 under the Securities Act (the "Shelf Registration").
Parent shall use its best efforts to have the Shelf Registration declared
effective as soon as reasonably practicable after such filing and shall use
its best efforts to keep the Shelf Registration continuously effective from
the date such Shelf Registration is declared effective until the earlier of
(i) such time as all of the Registrable Stock shall cease to be Registrable
Stock and (ii) such time as all of the remaining Registrable Stock may be
distributed in a single broker's transaction in accordance with the volume
limitations of Rule 144(e) (or any successor provisions) under the Securities
Act.
Parent shall promptly supplement or amend, if necessary, the
Shelf Registration, as required by the registration form utilized by Parent or
by the instructions applicable to such registration form or by the Securities
Act or the rules and regulations promulgated thereunder or
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<PAGE>
as reasonably requested by the holder or holders of a majority of the
Registrable Stock (the "Majority Holders"), and Parent shall furnish to the
holders of the Registrable Stock to which the Shelf Registration relates
copies of any such supplement or amendment prior to its being used and/or
filed with the Commission. In no event shall the Shelf Registration include
securities other than Registrable Stock, unless (i) Parent and the Majority
Holders consent to such inclusion, (ii) Parent has a shelf registration
statement in effect covering all Common Stock whose holders are entitled to
registration by Parent or (iii) such securities are included pursuant to "tag
along" rights of security holders of Parent existing on the date hereof,
except that in no event shall the number of shares of Registrable Stock
included in the Shelf Registration be reduced as a result of the inclusion of
such other securities.
Notwithstanding the above, Parent may, by providing written
notice to the Holders, delay or suspend Holders' rights to sell shares of
Registrable Stock pursuant to this Section 4 for a specified period of time (a
"Suspension Period"), if Parent shall have determined upon advice of counsel
that it would be required to disclose any actions taken or proposed to be
taken by Parent in good faith and for valid business reasons, including
without limitation, the acquisition or divestiture of assets, which disclosure
would have a material effect on Parent or on such actions. The Suspension
Period shall not exceed ninety (90) days in any three hundred and sixty (360)
day period during which a registration statement on Form S-3 of Parent would
otherwise be effective.
5. Registration Procedures.
In connection with the registration of any securities by
Parent under this Agreement, the parties agree as follows:
(i) Parent shall furnish each Holder and its
underwriter(s) such number of copies of a summary prospectus
or other prospectus, including a preliminary prospectus in
conformity with the requirements of the Securities Act, and
such other documents as such Holder may reasonably request
in order to facilitate the public sale or other disposition
of such securities;
(ii) Parent shall use its best efforts to register
or qualify the securities covered by the registration
statement under the securities or "blue sky" laws of such
jurisdictions as each Holder shall reasonably request
(provided, however, that Parent shall not be required (i) to
consent to, or take any action which would subject it to,
general service of process for all purposes or (ii) to
qualify to do business in any jurisdiction where it is not
then subject or qualified) and do any and all other acts or
things which may be reasonably necessary or advisable to
enable the Holders to consummate the public sale or other
disposition of such securities in such jurisdictions;
(iii) At any time when a sale or other public
disposition pursuant to the registration statement is
subject to a prospectus delivery requirement, Parent shall
immediately notify each Holder and its underwriter(s) of the
occurrence of any event as a result of which the prospectus
included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or
necessary to make the statements therein not misleading in
the light of the circumstances then existing. Upon receipt
of such a notice, each Holder shall immediately discontinue
sales or other dispositions of Registrable Stock pursuant to
the registration statement. The
-4-
<PAGE>
Holders may resume sales pursuant to the registration
statement only upon receipt of amended prospectuses or after
such Holders have been advised by Parent that the use of the
previous prospectus may be legally resumed; and
(iv) Parent shall advise each Holder, promptly
after it shall receive notice or obtain knowledge thereof,
of the issuance of any stop order by the Commission
suspending the effectiveness of the registration statement
or the initiation or threatening of any proceeding for that
purpose and promptly use its best efforts (with the
reasonable cooperation of the Holders) to prevent the
issuance of any stop order or to obtain its withdrawal if
such stop order should be issued.
6. Listing
Parent shall use its best efforts to list the Registrable
Stock covered by the registration statement on any securities exchange or
market on which securities issued by Parent, which are of the same type, class
and par value as such Registrable Stock, are then listed.
7. Information to be Furnished.
It shall be a condition precedent to the obligations of
Parent to take any action pursuant to this Agreement that the Holders shall
furnish to Parent such information regarding themselves, the Registrable Stock
held by them, and the intended method of disposition of such securities as
Parent shall reasonably request and as shall be required under the Securities
Act in connection with the actions to be taken by Parent.
8. Expenses of Registration.
All expenses (other than commissions and similar costs and
other than fees and expenses of attorneys and accountants representing the
Holders) incurred in connection with each registration pursuant to Section 4
of this Agreement, including without limitation all registration, filing and
qualification fees, word processing, duplicating, printers' and accounting
fees (including the expenses of any special audits or "cold comfort" letters
required by or incident to such performance and compliance), fees of the
National Association of Securities Dealers, Inc. or listing fees, messenger
and delivery expenses, all fees and expenses of complying with state
securities or blue sky laws, fees and disbursements of counsel for Parent,
shall be paid by Parent.
9. Rule 144 and Rule 144A Information.
With a view to making available the benefits of certain
rules and regulations of the Commission which may, under certain
circumstances, permit the sale of Registrable Stock to the public without
registration, (a) at all times after the Purchase Date, Parent agrees to:
(i) make and keep public information available, as
those terms are understood and defined under Rule 144 under
the Securities Act;
(ii) use its best efforts to file with the
Commission in a timely manner all reports and other
documents required of Parent under the Securities Act and
the Exchange Act; and
(iii) furnish to any Holder of Registrable Stock,
as soon as reasonably practicable following a written
request by such Holder, a written statement by
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<PAGE>
Parent as to its compliance with the reporting requirements
of the Securities Act, including Rule 144, and the Exchange
Act, a copy of the most recent annual or quarterly report of
Parent, and such other reports and documents filed with the
Commission by Parent as such Holder may reasonably request
in availing itself of any rule or regulation of the
Commission allowing such Holder to sell any Registrable
Stock without registration.
(b) at all times during which Parent is not subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act,
Parent agrees in addition to the requirements of Section 9(a) above,
to provide to any prospective buyer of Registrable Stock designated
by Holder, as soon as reasonably practicable following a written
request by such Holder, all information required by Rule
144A(d)(4)(i) promulgated by the Commission under the Securities Act.
10. Indemnification.
In the event any Registrable Stock is included in a
registration statement under this Agreement:
(a) Parent shall indemnify and hold harmless each Holder,
such Holder's agents, partners, directors, officers and underwriters,
and each Person, if any, who controls such Holder within the meaning
of the Securities Act, against any losses, claims, damages or
liabilities, joint or several, to which they may become subject under
the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or proceedings in respect thereof) arise out
of or are based on any untrue or alleged untrue statement of any
material fact contained in such registration statement on the
effective date thereof (including any prospectus filed under Rule 424
under the Securities Act or any amendments or supplements thereto) or
arise out of or are based upon the omission or alleged omission
therein of a material fact required to be stated therein or necessary
to make the statements therein not misleading, and shall reimburse
each such Holder and such Holder's agents, partners, directors,
officers, underwriters or controlling Persons for any legal or other
expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this
Section 10(a) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is
effected without the written consent of Parent (which consent shall
not be unreasonably withheld, delayed or conditioned); and provided
further, that Parent shall not be liable to any Holder, such Holder's
agents, partners, directors, officers, underwriters or controlling
Person, in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission made in connection with such registration statement,
preliminary prospectus, final prospectus or amendments or supplements
thereto, in reliance upon and in conformity with written information
furnished by any such Holder, such Holder's agents, partners,
directors, officers, underwriters or controlling Person, expressly
for use in connection with such registration. Such indemnity shall
remain in full force and effect regardless of any investigation made
by or on behalf of any such Holder, such Holder's agents, partners,
directors, officers, underwriters or controlling Person, and shall
survive the transfer of such securities by such Holder.
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<PAGE>
(b) Each Holder joining in a registration severally and not
jointly shall indemnify and hold harmless Parent, each of its
directors and officers and agents and, each Person, if any, who
controls Parent within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which
Parent or any such director, officer, controlling Person, or agent
may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or proceedings in
respect thereof) arise out of or are based upon any untrue statement
or alleged untrue statement of any material fact contained in such
registration statement on the effective date thereof (including any
prospectus filed under Rule 424 under the Securities Act or any
amendments or supplements thereto) or arise out of or are based upon
the omission or alleged omission therein of a material fact required
to be stated therein or necessary to make the statements therein not
misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or
alleged omission was made in such registration statement, preliminary
or final prospectus, or amendments or supplements thereto, in
reliance upon and in conformity with written information furnished by
or on behalf of such Holder expressly for use in connection with such
registration; and each such Holder shall reimburse any legal or other
expenses reasonably incurred by Parent or any such director, officer,
agent or controlling Person in connection with investigating or
defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this
Section 10(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 written consent of such Holder (which consent
shall not be unreasonably withheld, delayed or conditioned), and
provided, further, that the liability of each Holder hereunder shall
be limited to the proportion of any such loss, claim, damage,
liability or expense which is equal to the proportion that the net
proceeds expected from the sale of the shares sold by such Holder
under such registration statement bears to the total net proceeds
expected from the sale of all securities sold thereunder, but in no
event shall the liability of such Holder exceed the net proceeds
actually received by such Holder from the sale of Registrable Stock
covered by such registration statement.
(c) Promptly after receipt by an indemnified party under
this Section of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against any indemnifying party under this Section, notify the
indemnifying party in writing of the commencement thereof and the
indemnifying party shall have the right to participate in and assume
the defense thereof with counsel selected by the indemnifying party
and reasonably satisfactory to the indemnified party; provided,
however, that an indemnified party shall have the right to retain its
own counsel, with all fees and expenses thereof to be paid by such
indemnified party, and to be apprised of all progress in any
proceeding the defense of which has been assumed by the indemnifying
party. The failure to notify an indemnifying party promptly of the
commencement of any such action, if and to the extent materially
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under
this Section, but the omission so to notify the indemnifying party
will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section. No indemnifying
party, in the defense of any such claim or action, shall, except with
the consent of each indemnified party (which shall not be
unreasonably withheld, delayed or conditioned), consent to entry of
any judgment or enter into any settlement that 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 of
such claim or action.
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<PAGE>
(d) To the extent any indemnification by an indemnifying
party is prohibited or limited by law, the indemnifying party, in
lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities in such proportion as is
appropriate to reflect the relative fault of the indemnifying party
and indemnified party in connection with the actions which resulted
in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by
reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of material fact or
omission or alleged omission to state a material fact, has been made
by, or relates to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
action. The amount paid or payable by a party as a result of the
losses, claims, damages or liabilities referred to above shall be
deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with any investigation or
proceeding.
The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 10(d) were
determined by pro rata allocation or by any other method of
allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph. No
Person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation.
11. [Intentionally Omitted]
12. Assignment of Registration Rights. The registration
rights of any Holder under this Agreement with respect to any Registrable
Stock may be assigned in connection with a transfer of such Registrable Stock
to any transferee of such Registrable Stock who (a) is an Affiliate, partner,
officer or former officer (which includes, without limitation, Eric
Ellenbogen)of such Holder, (b) is an Affiliate of Trust Company of the West or
(c) acquires at least twenty per cent (20%) of such Holder's shares of
Registrable Stock (adjusted for stock splits and stock consolidations after
the effective date of this Agreement); provided, however, that (i) the
transferring Holder shall have complied with the notice requirements set forth
in Section 3 hereof, (ii) the transferee shall have agreed in writing, in form
and substance reasonably satisfactory to Parent, to be bound as a Holder by
the provisions of this Agreement and (iii) immediately following such
transfer, the further disposition of such securities by such transferee is
restricted under the Securities Act, unless the certificates of the shares of
Registrable Stock to be transferred are not required to bear the legend set
forth in Section 2 hereof, as provided in Sections 2 and 3 hereof. Any merger,
consolidation, sale or other transaction with respect to a Holder which would
result in a transfer of Registrable Stock shall be subject to the provisions
of this Section 12.
13. Successors and Assigns. Except as otherwise expressly
provided herein, the terms and conditions of this Agreement shall inure to the
benefit of and be binding upon the respective successors and permitted assigns
of the parties hereto. Except as expressly provided in this Agreement, nothing
in this Agreement, express or implied, is intended to confer upon any Person
other than the parties hereto or their respective successors and permitted
assigns any rights, remedies, obligations, or liabilities under or by reason
of this Agreement. Each Person
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<PAGE>
who acquires Registrable Stock by means of succession, inheritance or
operation of law shall, as soon as reasonably practicable following such
acquisition, (a) provide a written notice to Parent containing the information
required to be set forth in a Transfer Notice pursuant to Section 3 hereof and
(b) execute the agreement described in clause (ii) of Section 12 hereof. The
acquisition of Registrable Stock by any other Person shall be subject to
compliance with the provisions of Section 12 hereof.
14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
15. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. A faxed signature shall
have the same effect as an original signature, provided that an original
signed copy shall be provided promptly thereafter.
16. Titles. The titles of the Sections of this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
17. Notices. Any notice required or permitted under this
Agreement shall be in writing and shall be delivered by personal service,
telecopy, Federal Express or comparable overnight service or certified mail
(if such service is not available, then by first class mail), postage prepaid,
directed to (a) Parent at the address set forth below its signature hereof,
(b) to a Holder at the address therefor as set forth in Parent's records or
(iii) if appropriate, to Parent at any address furnished by Parent, or, in any
such case, at such other address or addresses as shall have been furnished in
writing by such party to the others. The giving of any notice required
hereunder may be waived in writing by the parties hereto. Any notice sent by
certified mail shall be deemed to have been given three (3) days after the
date on which it is mailed. All other notices shall be deemed given when
received. No objection may be made to the manner of delivery of any notice
actually received in writing by an authorized agent of a party.
18. Amendments and Waivers. Any provision of this Agreement
may be amended and the observance of any provision of this Agreement may be
waived (either generally or in a particular instance and either retroactively
or prospectively), only with the written consent of Parent, Buyer (if
applicable) and the Holders of at least a majority of all Registrable Stock
then in existence. Any amendment or waiver effected in accordance with this
Section 18 shall be binding upon Parent, Buyer, each Holder and each future
Holder of any securities subject to this Agreement at the time outstanding
(including securities into which such securities are convertible).
19. Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provisions
shall be excluded from this Agreement and the balance of this Agreement shall
be interpreted as if such provisions were so excluded and shall be enforceable
in accordance with its terms.
20. Entire Agreement. All prior agreements of the parties
concerning the subject matter of this Agreement are expressly superseded by
this Agreement. This Agreement contains the entire Agreement of the parties
concerning the subject matter hereof. Any oral representations or
modifications of this Agreement shall be of no effect.
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IN WITNESS WHEREOF, the parties have entered into this
Agreement as of the day and year set forth above.
BROADWAY VIDEO ENTERTAINMENT, L.P.
By: Broadway Video Enterprises, Inc.,
its General Partner
By: /s/ Stephen W. Shippee
---------------------------------------
Name: Stephen W. Shippee
Title: Chief Operating Officer and
Chief Financial Officer
Address for Notices: 1619 Broadway
Ninth Floor
New York, New York 10019
Attention: Stephen W. Shippee
Telecopy: (212) 582-8097
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GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
By: /s/ Richard E. Snyder
---------------------------------------
Name: Richard E. Snyder
Title: Chairman of the Board of Directors
and Chief Executive Officer
Address for Notices: 850 Third Avenue
New York, New York 10022
Attention: Phillip Rowley
Telecopy: (212) 371-1091
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<PAGE>
LICENSE AGREEMENT
(The Abbott and Costello Show)
This LICENSE AGREEMENT (the "AGREEMENT") is made and entered
into this 20th day of August, 1996, by and between BROADWAY VIDEO
ENTERPRISES, INC., a New York corporation ("BVE") and BROADWAY VIDEO
ENTERTAINMENT, L.P., a New York limited partnership ("BVELP," and
collectively with BVE, "LICENSORS"), on the one hand, and GOLDEN BOOKS
PUBLISHING COMPANY, INC., a Delaware corporation ("GB"), on the other
hand, with reference to the following facts:
A. Licensors are the owners of certain television distribution
rights in and to the Programs (as defined in Section 1), such rights
being the only rights that Licensor owns in such Programs.
B. GB desires an exclusive license to exploit the Programs in a
manner consistent with the rights and obligations of Licensors and/or
any of Licensors' predecessors in interest pursuant to the agreements
with TCA Television Corp. ("TCA") dated (i) as of November 28, 1990,
(ii) June 5, 1986, (iii) April 1, 1984, (iv) April 16,1982, and
amendments thereto dated April 10, 1984, March 15, 1985 and April 11,
1986, (collectively, the "CONTRACTS") all attached hereto.
NOW, THEREFORE, based on the above premises, and in
consideration of the mutual covenants and agreements contained herein
and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties agree as follows:
1. PROGRAMS. The "PROGRAMS" shall mean, individually and collectively,
the television programs set forth on Schedule A attached hereto.
2. TERRITORY. The "TERRITORY" shall be the world, subject to the
availabilities in Schedule B and the Contracts.
3. LICENSE TERM; AVAILABILITY DATES.
3.1 License Term. The "LICENSE TERM" shall commence on August
21, 1996 and shall continue until September 30, 2006. Upon the
expiration or termination of the License Term for any reason, subject
to the terms and conditions of the Contracts, GB shall cease any and
all exploitation of the Programs and shall immediately return to
Licensors any and all physical elements and other materials used by GB
or any third party licensed by GB in connection with the Programs,
whether or not created by GB. GB shall not enter into any license with
any third party for the subdistribution, sublicense, exhibition or
other exploitation of any of the Programs which extends, or provides
for the exploitation of any of the Programs by any such third party,
beyond the License Term.
<PAGE>
3.2 Availability Dates. The availability dates with respect to
individual countries and territories for the Programs shall be in
accordance with the Contracts and Schedule B. The availability date for
countries and territories for which no availability date or other
designation is indicated in Schedule B shall be August 22, 1996.
4. RIGHTS.
4.1 Rights Licensed. Subject to the provisions of Section 4.2,
for the License Term, Licensors license exclusively to GB throughout
the Territory all of its television distribution rights in the Programs
(including but not limited to over-the-air, cable, satellite, pay,
subscription, commercial, public, and all other forms of television)
(collectively the "RIGHTS").
4.2 Limitations. The Rights licensed to GB by Licensors
hereunder are subject to the following terms and conditions:
4.2.1 GB agrees to comply with the terms and
conditions of the Contracts in all respects. Without limiting
the foregoing, GB acknowledges that the Contracts require that
the Programs be distributed through a professional
distribution organization, which shall mean an established
distribution organization staffed with personnel experienced
and skilled in television distribution. GB represents that it
is a professional distribution organization within the meaning
set forth above, and that any and all sublicenses by
Distributor of any of its rights and/or obligations hereunder
shall be subject to the terms and conditions hereof and of the
Contracts.
5. FINANCIAL TERMS.
5.1 Gross Receipts. "GROSS RECEIPTS" shall mean all monies
received from all sources for the exhibition or other exploitation of
the Episodes throughout the Territory (including non-returnable
advances from licenses).
5.2 Distribution Costs. "DISTRIBUTION COSTS" shall mean any
and all costs paid, accrued or incurred by GB in exploiting the
Programs, including but not limited to costs of prints, preprint
materials, masters, tapes, and other duplicating materials;
laboratory expenses; advertising and promotion costs; taxes, imposts,
and charges; costs of securing copyright protection and pursuing
infringement actions; and all other fees, costs or expenses paid in
connection with the exploitation of the Rights in the Programs, but
specifically excluding any and all subdistribution fees and
sublicense fees except to the extent that such fees are deductible by
Licensors as distribution costs under the Contracts.
5.3 Net Receipts. "NET RECEIPTS" shall mean any and all
Gross Receipts remaining after the "off-the-top" deduction from Gross
Receipts of any and all Distribution Costs. GB shall pay to Licensors
fifty percent (50%) of Net Receipts, if any. GB shall retain the
remaining fifty percent (50%) of Net Receipts; provided that, GB
shall pay any and all subdistribution fees and sublicense fees out of
its fifty percent (50%) share of the Net Receipts.
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<PAGE>
5.4 Accountings. If a Program is licensed with other works,
combined receipts and expenses shall be allocated among the works
reasonably and in good faith. GB shall retain true, complete and
accurate books in accordance with generally accepted accounting
principles consistent with the terms and conditions of this Agreement.
Beginning with the first quarter following the delivery of the
Programs, GB shall render to Licensors statements indicating on a
quarterly and cumulative basis the applicable Gross Receipts and shall
include with such statements any payments of Net Receipts then due to
Licensors and the basis of the calculation thereof. Such statements
shall be rendered within twenty (20) days after the end of the
applicable quarter. Licensors shall have the right once annually, at
their expense, to audit, examine and copy GB's records and accounts
relating to the Programs during normal business hours.
5.5 Reports. On a quarterly basis, GB shall provide to
Licensors a cumulative summary of all agreements entered into by GB
during the License Term with respect to the exploitation of the
Programs hereunder. With respect to each agreement, the summary shall
include any and all relevant information concerning the agreements,
including but not limited to the buyer, the term, the territories
licensed, the rights licensed, the number of runs allowed, the number
of episodes licensed, the total amount of the sale made and the fees,
royalties or other compensation payable to GB, and any special
provisions. GB shall also provide to Licensors copies of all agreements
entered into by GB during the License Term pertaining to the
distribution and exploitation of the Programs and any other documents
or data which Licensors may reasonably request.
6. DELIVERY. Licensors shall deliver or make available to GB, at
Licensors' expense, one (1) NTSC 1" Type C or D2 videotape master of
each Program and any other existing incidental materials which may be
required for GB's exploitation of the Programs hereunder upon GB's
reasonable, written request from time to time.
7. INDEMNITY.
7.1 Subject to Section 7.3, Licensors agree to indemnify,
defend and hold GB, including, without limitation, its parent,
affiliates, subsidiaries, successors and assigns and the officers,
directors and employees of the foregoing, harmless from and against any
actual liability, damage, demands, loss, claim, cost or expense
(including but not limited to reasonable attorneys' fees and other
litigation costs) occasioned by or arising out of Licensors' breach of
their representations, warranties and covenants hereunder.
7.2 Subject to Section 7.3, GB agrees to indemnify, defend and
hold Licensors, including, without limitation, their parents,
affiliates, subsidiaries, successors and assigns and the officers,
directors and employees of the foregoing, harmless from and against any
actual liability, damage, demands, loss, claim, cost or expense
(including but not limited to reasonable attorneys' fees and other
litigation costs) occasioned by or arising out of GB's exercise of the
Rights in the Programs licensed to GB hereunder, including but not
limited to GB's failure to comply with any and all obligations under
the Contracts (with the exception of the obligation to remit payment to
TCA, which obligation shall remain with Licensors),
-3-
<PAGE>
provided that such liability, damage, demand, loss, claim, cost or
expense does not arise out of any matter as to which Licensors are
required to indemnify GB hereunder.
7.3. Any amounts for which a party may seek indemnification
under Section 7.1 or 7.2 above shall be deemed to be "Losses" for
purposes of Article 9 of that certain Asset Purchase Agreement dated as
of July 30, 1996, as amended through the date hereof (the "Asset
Purchase Agreement"), between Licensors, Lone Ranger Music, Inc., and
Palladium Limited Partnership, on the one hand, and Golden Books Family
Entertainment, Inc., GB and LRM Acquisition Corp., on the other hand.
The remedies provided under Article 9 of the Asset Purchase Agreement
shall be the parties' sole and exclusive remedy with respect to such
indemnifiable amounts.
8. DEFAULT. In the event that either party breaches any of the
provisions of this Agreement, the non-breaching party shall have the
right to seek damages, injunctive and other equitable relief, and any
other remedies and rights as it may have in equity or at law.
9. GENERAL PROVISIONS.
9.1 Assignment. GB may not assign this Agreement without the
prior written consent of Licensors, except that nothing herein shall
prohibit GB from sublicensing its Rights hereunder to subdistributors
and sublicensees in accordance with the provisions of this Agreement.
9.2 Notices. All notices or other communications that shall or
may be given pursuant to this Agreement, shall be in writing, in
English, shall be sent by certified or registered mail with postage
prepaid, return receipt requested, by facsimile, telex or cable
communication, or by hand delivery. Such communications shall be deemed
given and received upon dispatch, if sent by facsimile, telex, or cable
communication; or upon delivery if hand delivered; or within five (5)
days of mailing, if sent by certified or registered mail, and shall be
addressed to the parties as set forth below or to such other addresses
as the parties may designate in writing from time to time. No objection
may be made to the manner of delivery of any notice actually received
in writing by an authorized agent of a party.
Licensors GB
Broadway Video Enterprises, Inc. Golden Books Publishing Co., Inc.
1619 Broadway, Ninth Floor 850 Third Avenue
New York, NY 10019 New York, NY 10022
Telephone: 212-603-0638 Telephone:
Facsimile: 212-582-8097 Facsimile: 212-371-1091
Attn.: Stephen Shippee Attn.: Philip Rowley
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<PAGE>
with a courtesy copy to: with a courtesy copy to:
Irell & Manella LLP Schulte Roth & Zabel LLP
1800 Avenue of the Stars 900 Third Avenue
Suite 900 New York, NY 10022
Los Angeles, CA 90067 Telephone: 212-758-0404
Telephone: 310-277-1010 Facsimile: 212-593-5955
Facsimile: 310-203-7199 Attn.: Andre Weiss
Attn.: Werner Wolfen
9.3 Headings. Captions and headings to sections are included
solely for convenience and are not intended to affect the
interpretation of any provision of this Agreement.
9.4 Governing Law. This Agreement has been negotiated and
entered into in the State of New York and all questions with respect to
this Agreement and the rights and liabilities of the parties shall be
governed by the laws of the State of New York, regardless of the choice
of law provisions of the State of New York or any other jurisdiction.
Any and all disputes between the parties that may arise pursuant to
this Agreement shall be heard and determined before a federal or state
court located in the Borough of Manhattan, New York, New York. The
parties hereto acknowledge that such court has the jurisdiction to
interpret and enforce the provisions of this Agreement and the parties
waive any and all objections that they may have as to personal
jurisdiction or venue in any of the above courts.
9.5 Severability. If any provision of this Agreement is found to
be illegal or unenforceable, then such provision shall be deemed
severable from the remainder of this Agreement, and the remaining
provisions shall continue in full force and effect.
9.6 Survival. The terms, conditions, rights, and obligations set
forth in Sections 7, 8 and 9 shall survive the termination or
expiration of this Agreement.
9.7 Remedies. All remedies, rights, undertaking and obligations
contained in this agreement shall be cumulative and none of them shall
be in limitation of any other remedy, rights, undertaking or obligation
of either party.
9.8 Independent Contractors. Each party is an independent
contractor, and this Agreement shall not be construed as creating a
joint venture, partnership, agency or employment relationship between
the parties hereto nor shall either party have the right, power or
authority to create any obligation or duty, express or implied, on
behalf of the other.
9.9 Modification and Waiver. None of the terms or provisions
hereof shall be modified or waived, and this Agreement may not be
amended, renewed or extended, except by a written instrument signed by
both parties. No waiver by either party, whether express or implied, of
any provision of this Agreement or of any breach or default of either
party shall constitute a continuing waiver of any other provision of
this Agreement, and no such waiver
-5-
<PAGE>
by either party shall prevent such party from enforcing any and all
provisions of this Agreement or from acting upon the same or upon any
subsequent breach or default of the other party.
9.10 Entire Agreement. This Agreement represents and expresses
the entire agreement of the parties hereto with respect to the subject
matter hereof. It replaces and supersedes all prior and contemporaneous
contracts, representations and understandings, whether written or oral,
express or implied, between the parties concerning the subject matter
hereof. No person has any authority to make any representation or
promise on behalf of any of the parties which is inconsistent with the
representations set forth in the Agreement and the Agreement has not
been executed in reliance on any promise or representation not set
forth in the Agreement. All schedules, exhibits and agreements attached
hereto or referred to herein are hereby incorporated by reference and
made a part hereof.
-6-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year set forth above.
BROADWAY VIDEO ENTERPRISES, INC.
By: /s/ Stephen W. Shippee
-------------------------------
Title: Chief Operating Officer and
Chief Financial Officer
BROADWAY VIDEO ENTERTAINMENT, L.P.
By: Broadway Video Enterprises, Inc.,
its sole general partner
By: /s/ Stephen W. Shippee
-------------------------------
Title: Chief Operating Officer and
Chief Financial Officer
GOLDEN BOOKS PUBLISHING COMPANY, INC.
By: /s/ Michael Kutchin
-------------------------------
Title: Vice President and
Chief Financial Officer
-7-
<PAGE>
LICENSE AGREEMENT
(Kids in the Hall)
This LICENSE AGREEMENT (the "AGREEMENT") is made and entered
into this 20th day of August, 1996, by and between BROADWAY VIDEO,
INC., a New York corporation ("BVI") and BROADWAY VIDEO INTERNATIONAL
LTD., an Ontario corporation ("BVIL," and collectively with BVI,
"LICENSORS"), on the one hand, and GOLDEN BOOKS PUBLISHING COMPANY,
INC., a Delaware corporation ("GB"), on the other hand, with reference
to the following facts:
A. Pursuant to that certain Asset Purchase Agreement dated as
of July 30, 1996, as amended, (the "ASSET PURCHASE AGREEMENT") among
Broadway Video Entertainment, L.P., a New York limited partnership
("BVELP"), Palladium Limited Partnership, a New York limited
partnership ("PALLADIUM"), Broadway Video Enterprises, Inc., a New York
corporation ("BVE") and Lone Ranger Music, Inc., a New York corporation
("LONE RANGER," and collectively with BVELP, Palladium and BVE,
"SELLERS"), on the one hand, and GB, Golden Books Family Entertainment,
Inc., a Delaware corporation ("PARENT") and LRM Acquisition Corp., a
Delaware corporation, on the other hand, on the date hereof GB is
purchasing from Sellers, and Sellers are selling to GB, certain assets
of Sellers.
B. Licensors possess certain rights in and to the Programs.
Licensors are affiliates of Sellers.
C.In connection with the transactions contemplated by the
Asset Purchase Agreement, Licensors have agreed to license to GB, and
GB has agreed to accept from Licensors, the Rights in the Programs in
the Territory, on the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, based on the above premises, and in
consideration of the mutual covenants and agreements contained herein
and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties agree as follows:
1. DEFINITIONS. Except as otherwise indicated, capitalized terms shall
have the meanings set forth in Schedule A attached hereto.
2. PROGRAMS. "PROGRAM(S)" means, individually and collectively, the one
hundred ten (110) thirty (30) minute program episodes entitled "Kids in
the Hall."
3. TERRITORY. The Territory shall be as set forth in Schedule B,
subject to the availabilities in Schedule C and the Outstanding
Agreements.
<PAGE>
4. LICENSE TERM; SUBLICENSING.
4.1 License Term. The "LICENSE TERM" shall be the ten (10)
year period starting on the Closing Date (as defined in the Asset
Purchase Agreement); provided, however, that Licensors shall have the
right, for any reason (or for no reason) in their sole discretion, to
terminate the License Term by written notice to GB at any time at least
one (1) year prior to the date that is five (5) years after the Closing
Date (such fifth anniversary herein referred to as the "EARLY
TERMINATION DATE"), and such termination shall become effective as of
the Early Termination Date. Upon the expiration or termination of the
License Term for any reason, GB shall cease, and shall cause any and
all third parties licensed by GB to cease, any and all exploitation of
the Programs and shall immediately return to Licensors any and all
physical elements and other materials used by GB or any third party
licensed by GB in connection with the Programs, whether or not created
by GB.
4.2 Distribution Licenses. GB shall not enter into any license
with any third party for the subdistribution, sublicense, exhibition or
other exploitation of any of the Programs ("DISTRIBUTION LICENSES")
which extends, or provides for the exploitation of any of the Programs
by any such third party, beyond the Early Termination Date; provided
that if Licensors elect not to terminate the License Term pursuant to
Section 4.1, GB shall have the right to enter into Distribution
Licenses which extend up to an additional five (5) years after the
Early Termination Date, provided that no such Distribution License
shall extend, or provide for the exploitation of any of the Programs by
any such third party, beyond the date that is five (5) years after the
Early Termination Date.
4.3 Availability Dates. The availability dates with respect to
individual countries and territories for the Programs shall be in
accordance with the Outstanding Agreements and Schedule C. Prior to the
availability date for a given country or territory, GB may not exercise
or authorize the exercise of the Rights in the Programs in such country
or territory, provided that, to the extent permitted by the Outstanding
Agreements, GB may exercise Incidental Rights in the Programs and may
enter into licenses and other agreements for exercise of Rights in such
country or territory after the availability date and during the License
Term. The availability date for countries and territories for which no
availability date or other designation is indicated in Schedule C shall
be one (1) day subsequent to the Closing Date.
5. RIGHTS.
5.1 Rights Licensed. Subject to the provisions of Section 5.2,
for the License Term, Licensors license to GB exclusively throughout
the Territory the distribution rights in the Programs set forth in
Schedule B and the non-exclusive Incidental Rights in the Programs
(collectively the "RIGHTS").
5.2 Limitations. The Rights licensed to GB by Licensors
hereunder are subject to the following terms and conditions:
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<PAGE>
5.2.1 GB agrees to comply with the terms and
conditions of the Outstanding Agreements in all respects,
including but not limited to any and all obligations to
consult with and/or obtain consents from third parties.
5.2.2 GB shall use its best efforts consistent with
good business judgment to obtain as wide and complete
distribution of the Programs throughout the Territory as is
reasonably possible and at the highest rental, distribution
and license fees obtainable and, at the same time, consistent
with sound business practice. GB shall promptly inform and
consult with Licensors with respect to all distribution
activities pertaining to the Programs and shall not exploit
the Programs in a manner which might, in Licensors' reasonable
judgment and in light of customary industry standards, harm
Licensors' relationships with one or more third parties or
diminish the value of the Programs.
5.2.3 GB shall not enter into any Distribution
License for the subdistribution, sublicense, exhibition or
other exploitation of any of the Programs in the United
States, Canada, Puerto Rico and/or their respective
territories and possessions, without the prior written
approval of Licensors to be exercised in their reasonable
business judgment. Notwithstanding the foregoing, GB agrees
that it shall sublicense the right to distribute the Programs
in any Canadian market or media only to a Canadian owned and
controlled distributor.
5.2.4. GB shall not authorize any person to make
any telecast of any of the Programs by satellite or any other
means where such telecast is intended for primary reception
outside the Territory or is capable of reception by more than
an insignificant number of home television receivers outside
the Territory.
5.2.5 GB shall not, nor shall GB allow any person
to, adapt, change, edit, abridge or rearrange any Program or
portion thereof, or combine same with other works, except as
expressly set forth in Paragraph 3.g. of Schedule A attached
hereto.
5.2.6 Any and all rights not expressly licensed to
GB hereunder are reserved and retained by Licensors, including
but not limited to the right to license clips of the Programs
to third parties, the right to produce sequels, remakes and
compilations of the Programs, and the right to license the
Programs for distribution or other exploitation in any and all
media not expressly licensed to GB hereunder.
6. FINANCIAL TERMS.
6.1 Gross Receipts. "GROSS RECEIPTS" shall mean all monies
actually derived by or credited to GB (including its subdistributors,
sublicensees, subsidiaries, parents, affiliates, other related
entities) attributable to exploitation of the Programs. All such monies
shall be included in Gross Receipts when received by or credited to GB,
whichever is earlier. Gross Receipts shall include, but shall not be
limited to, all royalty and secondary transmission income, barter
income when used or converted to cash, and any and all recoveries from
infringement actions. Without limiting the foregoing, GB may enter into
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<PAGE>
barter agreements only if other sales methods prove unsuccessful on a
market-by-market basis, and provided that such barter arrangements are
profitable and convertible into cash at an acceptable rate.
6.2 Third Party Payments. The "THIRD PARTY PAYMENTS" shall
mean any and all scale residuals, over-scale residuals, royalties,
re-use fees, commissions, bonuses, third party participations, music
synchronization license fees, and any other form of compensation,
whether deferred, contingent or otherwise, however denominated,
incurred as a result of GB's exploitation of its Rights in the
Programs.
6.3 Distribution Costs. The "DISTRIBUTION COSTS" shall mean
any and all costs paid, accrued or incurred by GB in exploiting the
Programs, including but not limited to subdistribution fees and
sublicense fees; costs of prints, preprint materials, masters, tapes,
and other duplicating materials; laboratory expenses; advertising and
promotion costs; taxes, imposts, and charges; costs of securing
copyright protection and pursuing infringement actions; and all other
fees, costs or expenses paid in connection with the exploitation of the
Rights in the Programs, excluding the Third Party Payments only.
6.4 Revenue. GB shall pay seventy-five percent (75%) of Gross
Receipts ("BV RECEIPTS"), if any, to Licensors. Licensors shall pay the
Third Party Payments out of the BV Receipts pursuant to Section 6.2. GB
shall retain the remaining twenty-five percent (25%) of Gross Receipts
("GB RECEIPTS").
GB shall pay the Distribution Costs out of the GB Receipts.
6.5 Accountings. If a Program is licensed with other works,
combined receipts and expenses shall be allocated among the works
reasonably and in good faith. GB shall retain true, complete and
accurate books in accordance with generally accepted accounting
principles consistent with the terms and conditions of this Agreement.
Beginning with the first quarter following the delivery of the
Programs, GB shall render to Licensors statements indicating on a
quarterly and cumulative basis the applicable Gross Receipts and shall
include with such statements any payments of BV Receipts then due and
the basis of the calculation thereof. Such statements shall be rendered
within forty-five (45) days after the end of the applicable quarter.
Licensors and the Canadian Broadcasting Corporation shall each have the
right once annually, at their expense, to audit, examine and copy GB's
records and accounts relating to the Programs during normal business
hours.
6.6 Reports. On a quarterly basis, GB shall provide to
Licensors a cumulative summary of all agreements entered into by GB
during the License Term with respect to the exploitation of the
Programs hereunder. With respect to each agreement, the summary shall
include any and all relevant information concerning the agreements,
including but not limited to the buyer, the term, the territories
licensed, the rights licensed, the number of runs allowed, the number
of episodes licensed, the total amount of the sale made and the fees,
royalties or other compensation payable to GB, and any special
provisions. GB shall also provide to Licensors copies of all agreements
entered into by GB during the License Term pertaining to
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<PAGE>
the distribution and exploitation of the Programs and any other
documents or data which Licensors may reasonably request.
7. DELIVERY. Licensors shall deliver or make available to GB, at BVE's
expense, one (1) NTSC 1" Type C or D2 videotape master of each Program
and any other existing incidental materials which may be required for
GB's exploitation of the Programs hereunder upon GB's reasonable,
written request from time to time.
8. CREDIT. GB shall comply with all on-screen credit requirements and
GB shall contractually require all licensees to do the same with
respect to any and all exploitation of the Programs. GB shall not
delete or authorize deletion of any credits or copyright notices in the
Programs, including but not limited to the credits accorded to the
Canadian Broadcasting Corporation. GB shall use best efforts to
prospectively cure any failure to accord proper credit of which GB
receives written notice.
9. INDEMNITY.
9.1 Subject to Section 9.3, Licensors agree to indemnify,
defend and hold GB, including, without limitation, its parent,
affiliates, subsidiaries, successors and assigns and the officers,
directors and employees of the foregoing, harmless from and against any
actual liability, damage, demands, loss, claim, cost or expense
(including but not limited to reasonable attorneys' fees and other
litigation costs) occasioned by or arising out of Licensors' breach of
their representations, warranties and covenants hereunder.
9.2 Subject to Section 9.3, GB agrees to indemnify, defend and
hold Licensors, including, without limitation, their parents,
affiliates, subsidiaries, successors and assigns and the officers,
directors and employees of the foregoing, harmless from and against any
actual liability, damage, demands, loss, claim, cost or expense
(including but not limited to reasonable attorneys' fees and other
litigation costs) occasioned by or arising out of GB's exercise of the
Rights in the Programs licensed to GB hereunder, provided that such
liability, damage, demand, loss, claim, cost or expense does not arise
out of any matter as to which Licensors are required to indemnify GB
hereunder.
9.3 Any amounts for which a party may seek indemnification
under Section 9.1 or 9.2 above shall be deemed to be "Losses" for
purposes of Article 9 of the Asset Purchase Agreement. The remedies
provided under Article 9 of the Asset Purchase Agreement with respect
to Losses shall be the parties' sole and exclusive remedies with
respect to such indemnifiable amounts.
10. DEFAULT. In the event of a material breach by either party, the
non-breaching party shall have the right to terminate this Agreement if
the alleged breaching party fails to cure such material breach within
thirty (30) business days following written notice of such material
breach by the non-breaching party. Notwithstanding the foregoing, in
the event that GB: (i) materially breaches any of the provisions of
this Agreement or of that certain agreement
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<PAGE>
entered into by GB and BVELP of even date herewith with respect to the
programs known as "Night Music" and "Best of the Blues Brothers"
(including but not limited to any obligation to make Third Party
Payments (as defined in that agreement)) after the failure to cure as
provided herein; (ii) seeks or is otherwise subject to any relief under
any bankruptcy, reorganization, receivership, or liquidation statutes,
or petitions for the appointment of a bankruptcy receiver, liquidator,
trustee or custodian for all or a substantial portion of its assets; or
(iii) makes an assignment of substantially all of its assets for the
benefit of its creditors, Licensors may exercise all or any of the
following remedies: (a) to obtain injunctive and other equitable
relief; (b) to terminate this Agreement and require the immediate
delivery to Licensors of the Programs and other materials in GB's
possession or control; (c) to service all then existing license and
sub-distribution agreements (copies of which must immediately be
provided to Licensors if not previously provided) and to receive and
retain 100% of all revenues derived therefrom; and (d) to obtain
damages and other remedies and exercise such other rights as it may
have at law. The foregoing shall not impair either party's right to
seek relief in equity or at law for any breach of this Agreement.
11. GENERAL PROVISIONS.
11.1 Assignment. GB may not assign this Agreement without the
prior written consent of Licensors, except that nothing herein shall
prohibit GB from sublicensing its Rights hereunder to subdistributors
and sublicensees in accordance with the provisions of this Agreement.
11.2 Notices. All notices or other communications that shall
or may be given pursuant to this Agreement, shall be in writing, in
English, shall be sent by certified or registered mail with postage
prepaid, return receipt requested, by facsimile, telex or cable
communication, or by hand delivery. Such communications shall be deemed
given and received upon dispatch, if sent by facsimile, telex, or cable
communication; or upon delivery if hand delivered; or within five (5)
days of mailing, if sent by certified or registered mail, and shall be
addressed to the parties as set forth below or to such other addresses
as the parties may designate in writing from time to time. No objection
may be made to the manner of delivery of any notice actually received
in writing by an authorized agent of a party.
Licensors GB
Broadway Video, Inc. Golden Books Publishing Company, Inc.
1619 Broadway, Ninth Floor 850 Third Avenue
New York, NY 10019 New York, NY 10022
Telephone: 212-603-0638 Telephone:
Facsimile: 212-582-8097 Facsimile: 212-371-1091
Attn.: Stephen Shippee Attn.: Philip Rowley
-6-
<PAGE>
with a courtesy copy to: with a courtesy copy to:
Irell & Manella LLP Schulte, Roth & Zabel
1800 Avenue of the Stars 900 Third Avenue
Suite 900 New York, NY 10022
Los Angeles, CA 90067 Telephone: 212-758-0404
Telephone: 310-277-1010 Facsimile: 212-593-5955
Facsimile: 310-203-7199 Attn.: Andre Weiss
Attn.: Werner Wolfen
11.3 Headings. Captions and headings to sections are included
solely for convenience and are not intended to affect the
interpretation of any provision of this Agreement.
11.4 Governing Law. This Agreement has been negotiated and
entered into in the State of New York and all questions with respect to
this Agreement and the rights and liabilities of the parties shall be
governed by the laws of the State of New York, regardless of the choice
of law provisions of the State of New York or any other jurisdiction.
Any and all disputes between the parties that may arise pursuant to
this Agreement shall be heard and determined before a federal or state
court located in the Borough of Manhattan, New York, New York. The
parties hereto acknowledge that such court has the jurisdiction to
interpret and enforce the provisions of this Agreement and the parties
waive any and all objections that they may have as to personal
jurisdiction or venue in any of the above courts.
11.5 Severability. If any provision of this Agreement is found
to be illegal or unenforceable, then such provision shall be deemed
severable from the remainder of this Agreement, and the remaining
provisions shall continue in full force and effect.
11.6 Survival. The terms, conditions, rights, and obligations
set forth in Sections 9, 10 and 11 shall survive the termination or
expiration of this Agreement.
11.7 Remedies. All remedies, rights, undertaking and
obligations contained in this agreement shall be cumulative and none of
them shall be in limitation of any other remedy, rights, undertaking or
obligation of either party.
11.8 Independent Contractors. Each party is an independent
contractor, and this Agreement shall not be construed as creating a
joint venture, partnership, agency or employment relationship between
the parties hereto nor shall either party have the right, power or
authority to create any obligation or duty, express or implied, on
behalf of the other.
11.9 Modification and Waiver. None of the terms or provisions
hereof shall be modified or waived, and this Agreement may not be
amended, renewed or extended, except by a written instrument signed by
both parties. No waiver by either party, whether express or implied, of
any provision of this Agreement or of any breach or default of either
party shall constitute a continuing waiver of any other provision of
this Agreement, and no such waiver
-7-
<PAGE>
by either party shall prevent such party from enforcing any and all
provisions of this Agreement or from acting upon the same or upon any
subsequent breach or default of the other party.
11.10 Entire Agreement. This Agreement represents and
expresses the entire agreement of the parties hereto with respect to
the subject matter hereof. It replaces and supersedes all prior and
contemporaneous contracts, representations and understandings, whether
written or oral, express or implied, between the parties concerning the
subject matter hereof. No person has any authority to make any
representation or promise on behalf of any of the parties which is
inconsistent with the representations set forth in the Agreement and
the Agreement has not been executed in reliance on any promise or
representation not set forth in the Agreement. All schedules, exhibits
and agreements attached hereto or referred to herein are hereby
incorporated by reference and made a part hereof.
-8-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year set forth above.
BROADWAY VIDEO, INC.
By: /s/ Stephen W. Shippee
-----------------------------------
Title: Chief Operating Officer and
Chief Financial Officer
BROADWAY VIDEO INTERNATIONAL LTD.
By: /s/ Stephen W. Shippee
-----------------------------------
Title: Chief Operating Officer and
Chief Financial Officer
GOLDEN BOOKS PUBLISHING COMPANY, INC.
By: /s/ Philip E. Rowley
-----------------------------------
Title: Chief Operating Officer
-9-
<PAGE>
SCHEDULE A
GLOSSARY
1. Advertising Materials means the Artist Identification
(subject to the terms and conditions of the Outstanding Agreements and
any other restrictions of which GB is informed by Licensors) and any
materials available to be used by GB in the exercise of its rights
hereunder, including any trailers, teasers, key artwork, advertising
accessories or lithographs, whether prepared by GB or delivered to GB
by Licensors. Licensors shall have the right to approve any and all
Advertising Materials in their reasonable business judgment, such
approval not to be unreasonably withheld.
2. Artist Identification means the name or any photograph,
likeness, silhouette, signature, reproduction of voice or sound
effects, mannerisms or other identification of any person rendering
services or providing rights in connection with the Programs.
3. Incidental Rights Incidental Rights means the right to use
and authorize other persons to do any or all of the following subject
to the provisions of the Outstanding Agreements:
a. The right to perform all music, lyrics, scores and musical
works embodied in or synchronized with the Programs or with the
soundtrack thereof only as synchronized with and embodied in the
Programs or Advertising Material as delivered to GB.
b. The right to use the title of the Programs (including
translation into languages other than English).
c. The right to make and use dubbed and subtitled versions of
the Programs and their trailers, including but not limited to
cut-in, synchronized and superimposed versions.
d. The right to permit commercial messages to be broadcast or
telecast before, during and after the Programs.
e. The right to publicize and advertise the Programs and to
authorize other persons to do so by use of the Advertising
Materials, subject to the terms and conditions of the
Outstanding Agreements and subject to the approval of Licensors
to be exercised in their reasonable business judgment, such
approval not to be unreasonably withheld. For purposes of
publicity and advertising of the Programs only, the Incidental
Rights shall include the following, all subject to the terms and
conditions of the Outstanding Agreements and subject to the
approval of Licensors to
<PAGE>
be exercised in their reasonable business judgment, such
approval not to be unreasonably withheld:
i. The right to publish or authorize to be published, and
in such form as GB may deem advisable, synopses,
summaries, resumes or abridgements of the Programs or
screenplays upon which the Programs are based in
newspapers, magazines, trade periodicals, and other
publications and in all other media of advertising and
publicity, none of which shall include more than 2500
words taken from any Program or screenplays and
properties upon which the Programs is based.
ii. The right to use any Artist Identification in a form
which has been reasonably approved by Licensors.
iii. The right to advertise and publicize the exhibition
or delivery of the Programs and all the elements thereof
in the Territory.
f. The right to assert and prosecute all claims, demands or
causes of actions against any and all persons for the
unauthorized or illegal use in the Territory of any Rights or
any materials upon which the Programs are based and to
otherwise enforce, protect and defend any Rights.
g. Subject to the terms and conditions of the Outstanding
Agreements and subject to the approval of Licensors to be
exercised in their reasonable business judgment (such approval
not to be unreasonably withheld), the right to make such
additions, alterations, cuts, or other changes in the Programs
or Advertising Materials solely for the following purposes;
(a) to comply with any law in any area of the Territory (such
as censorship or restrictive ratings); (b) to add to the end
of the Programs (either before or after delivery) a credit to
GB indicating that it is the distributor of the Programs in
the Territory and to grant a similar right to other
distributors or exhibitors in the Territory, all of which may
embody logos and artwork as customary for such credit; (c) to
enable the Programs to comply with the terms and conditions of
this Agreement.
4. Literary Properties means any and all rights to underlying
literary, dramatic or other works, screenplays, stories, adaptations,
treatments, scenarios and any and all other literary or dramatic
materials of any kind on which any of the Programs are based necessary
to permit the use of such materials as part of the Programs.
5. Music Rights means any and all music synchronization and
performance rights in and to any of the music or musical compositions
or sound recordings embodied in the Programs.
6. Outstanding Agreements means the rights and obligations of
Licensors under any written or oral agreement now in effect pursuant to
which Licensors or any of their Predecessors acquired or purchased from
or sold, licensed or granted to any other person or
<PAGE>
entity any rights to distribute, exhibit, sublicense, use or exploit,
or to exercise or exploit any rights in or to, or providing for the
acquisition, sale, purchase, lease, license or other disposition of,
any rights in any of the Programs including, without limitation, any
Underlying Agreements now in effect.
7. Underlying Agreements means any and all agreements with
writers, directors, producers, actors, composers or other parties who
rendered services or otherwise participated in preparation or
production of each of the Programs, or with third parties owning or
controlling rights in the results and proceeds of such parties, under
which Licensors hold rights, if any, in Literary Properties and/or
Music Rights, but only to the extent such agreements relate to the
Programs.
<PAGE>
LICENSE AGREEMENT
(Night Music and Best of the Blues Brothers)
This LICENSE AGREEMENT (the "AGREEMENT") is made and entered
into this 20th day of August, 1996, by and between BROADWAY VIDEO
ENTERPRISES, INC., a New York corporation ("BVE") and GOLDEN BOOKS
PUBLISHING COMPANY, INC., a Delaware corporation ("GB"), with reference
to the following facts:
A. Pursuant to that certain Asset Purchase Agreement dated as of
July 30, 1996, as amended, (the "ASSET PURCHASE AGREEMENT") among BVE,
Broadway Video Entertainment, L.P., a New York limited partnership
("BVELP"), Palladium Limited Partnership, a New York limited
partnership ("PALLADIUM") and Lone Ranger Music, Inc., a New York
corporation ("LONE RANGER," and collectively with BVE, BVELP and
Palladium, "SELLERS"), on the one hand, and GB, Golden Books Family
Entertainment, Inc., a Delaware corporation ("PARENT") and LRM
Acquisition Corp., a Delaware corporation, on the other hand, on the
date hereof GB is purchasing from Sellers, and Sellers are selling to
GB, certain assets of Sellers.
B. BVE possesses certain rights in and to the Programs. BVE is an
affiliate of Sellers.
C. In connection with the transactions contemplated by the Asset
Purchase Agreement, BVE has agreed to license to GB, and GB has agreed
to accept from BVE, the Rights in the Programs in the Territory, on the
terms and subject to the conditions set forth herein.
NOW, THEREFORE, based on the above premises, and in
consideration of the mutual covenants and agreements contained herein
and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties agree as follows:
1. DEFINITIONS. Except as otherwise indicated, capitalized terms shall
have the meanings set forth in Schedule A attached hereto.
2. PROGRAMS. "PROGRAM(S)" means, individually and collectively, the
forty-four (44) sixty (60) minute program episodes entitled "Night
Music" and the one (1) sixty (60) minute program entitled "Best of the
Blues Brothers."
3. TERRITORY. The Territory shall be as set forth in Schedule B,
subject to the availabilities in Schedule C and the Outstanding
Agreements.
<PAGE>
4. LICENSE TERM; SUBLICENSING.
4.1 License Term. The "LICENSE TERM" shall be the ten (10)
year period starting on the Closing Date (as defined in the Asset
Purchase Agreement); provided, however, that BVE shall have the right,
for any reason (or for no reason) in its sole discretion, to terminate
the License Term by written notice to GB at any time at least one (1)
year prior to the date that is five (5) years after the Closing Date
(such fifth anniversary herein referred to as the "EARLY TERMINATION
DATE"), and such termination shall become effective as of the Early
Termination Date. Upon the expiration or termination of the License
Term for any reason, GB shall cease, and shall cause any and all third
parties licensed by GB to cease, any and all exploitation of the
Programs and shall immediately return to BVE any and all physical
elements and other materials used by GB or any third party licensed by
GB in connection with the Programs, whether or not created by GB.
4.2 Distribution Licenses. GB shall not enter into any license
with any third party for the subdistribution, sublicense, exhibition or
other exploitation of any of the Programs ("DISTRIBUTION LICENSES")
which extends, or provides for the exploitation of any of the Programs
by any such third party, beyond the Early Termination Date; provided
that if BVE elects not to terminate the License Term pursuant to
Section 4.1, GB shall have the right to enter into Distribution
Licenses which extend up to an additional five (5) years after the
Early Termination Date, provided that no such Distribution License
shall extend, or provide for the exploitation of any of the Programs by
any such third party, beyond the date that is five (5) years after the
Early Termination Date.
4.3 Availability Dates. The availability dates with respect to
individual countries and territories for "Night Music" and "Best of the
Blues Brothers" respectively shall be in accordance with the
Outstanding Agreements and Schedule C. Prior to the availability date
for a given country or territory, GB may not exercise or authorize the
exercise of the Rights in the respective Programs in such country or
territory, provided that, to the extent permitted by the Outstanding
Agreements, GB may exercise Incidental Rights in the Programs and may
enter into licenses and other agreements for exercise of Rights in such
country or territory after the availability date and during the License
Term. The availability date for countries and territories for which no
availability date or other designation is indicated in Schedule C shall
be one (1) day subsequent to the Closing Date.
5. RIGHTS.
5.1 Rights Licensed. Subject to the provisions of Section 5.2,
for the License Term, BVE licenses to GB exclusively throughout the
Territory the distribution rights in the Programs set forth in Schedule
B and the non-exclusive Incidental Rights in the Programs (collectively
the "RIGHTS").
5.2 Limitations. The Rights licensed to GB by BVE hereunder are
subject to the following terms and conditions:
-2-
<PAGE>
5.2.1 GB agrees to comply with the terms and
conditions of the Outstanding Agreements in all respects,
including but not limited to any and all obligations to
consult with, obtain consents from, and/or make payments to,
third parties.
5.2.2. GB shall exploit the Programs in accordance
with good faith, sound business judgment. GB shall promptly
inform and consult with BVE with respect to all distribution
activities pertaining to the Programs and shall not exploit
the Programs in a manner which might, in BVE's reasonable
judgment and in light of customary industry standards, harm
BVE's relationships with one or more third parties or diminish
the value of the Programs.
5.2.3. GB shall not enter into any Distribution
License for the subdistribution, sublicense, exhibition or
other exploitation of any of the Programs in the United
States, Canada, Puerto Rico and/or their respective
territories and possessions, without the prior written
approval of BVE to be exercised in its reasonable business
judgment.
5.2.4. GB shall not authorize any person to make any
telecast of any of the Programs by satellite or any other
means where such telecast is intended for primary reception
outside the Territory or is capable of reception by more than
an insignificant number of home television receivers outside
the Territory.
5.2.5. GB shall not, nor shall GB allow any person
to, adapt, change, edit, abridge or rearrange any Program or
portion thereof, or combine same with other works, except as
expressly set forth in Paragraph 3.g. of Schedule A attached
hereto.
5.2.6. Any and all rights not expressly licensed to
GB hereunder are reserved and retained by BVE, including but
not limited to the right to license clips of the Programs to
third parties, the right to produce sequels, remakes and
compilations of the Programs, and the right to license the
Programs for distribution or other exploitation in any and all
media not expressly licensed to GB hereunder.
6. FINANCIAL TERMS.
6.1 Financial Basis. GB shall have the right to retain one
hundred percent (100%) of the balance, if any, of all monies remaining
after the payment of any and all Third Party Payments (as defined in
Section 6.2). GB shall have no obligation to pay to BVE, and BVE shall
have no right to receive, any monies received by GB from the
exploitation of the Programs in accordance with the terms and
conditions of this Agreement.
6.2 Third Party Payments. GB shall be responsible for, and
shall pay as and when due, any and all scale residuals, over-scale
residuals, royalties, re-use fees, commissions, bonuses, third party
participations, music synchronization license fees, and any other form
of compensation, whether deferred, contingent or otherwise, however
denominated, incurred or required as a result of GB's exploitation of
its Rights in the
-3-
<PAGE>
Programs, including but not limited to any and all such compensation
payable in connection with the exploitation of the Programs pursuant to
the Outstanding Agreements and the amounts set forth in Schedule D
attached hereto ("THIRD PARTY PAYMENTS"). Without limiting the
foregoing, GB shall be responsible for, and shall pay as and when due,
any Third Party Payments which remain or become payable after the
expiration of the License Term to the extent that the obligation to pay
such Third Party Payments arises from the exploitation of the Programs
by GB during the License Term. Without limiting the foregoing, GB shall
engage and report any and all necessary sales information to
Entertainment Partners, Ltd. ("ELP"), located in Burbank, California,
and shall pay to ELP, on behalf of any and all relevant third parties,
any guild residuals due pursuant to ELP's invoices.
6.3 Reporting. On a quarterly basis, GB shall provide to BVE a
cumulative summary of all agreements entered into by GB during the
License Term with respect to the exploitation of the Programs
hereunder. With respect to each agreement, the summary shall include
any and all relevant information concerning the agreements, including
but not limited to the term, the territories licensed, the rights
licensed, the total amount of the sale made and the fees, royalties or
other compensation payable to GB, and any special provisions. GB shall
also provide to BVE copies of all sublicenses entered into by GB during
the License Term and any other documents or data which BVE may
reasonably request.
7. DELIVERY. BVE shall deliver or make available to GB, at BVE's
expense, one (1) NTSC 1" Type C or D2 videotape master of each Program
and any other existing incidental materials which may be required for
GB's exploitation of the Programs hereunder upon GB's reasonable,
written request from time to time.
8. CREDIT. GB shall comply with all on-screen credit requirements and
GB shall contractually require all licensees to do the same. GB shall
not delete or authorize deletion of any copyright notices in the
Programs. GB shall use best efforts to prospectively cure any failure
to accord proper credit of which GB receives written notice.
9. INDEMNITY.
9.1 Subject to Section 9.3, BVE agrees to indemnify, defend
and hold GB, including, without limitation, its parent, affiliates,
subsidiaries, successors and assigns and the officers, directors and
employees of the foregoing, harmless from and against any actual
liability, damage, demands, loss, claim, cost or expense (including but
not limited to reasonable attorneys' fees and other litigation costs)
occasioned by or arising out of BVE's breach of its representations,
warranties and covenants hereunder.
9.2 Subject to Section 9.3, GB agrees to indemnify, defend and
hold BVE, including, without limitation, its parents, affiliates,
subsidiaries, successors and assigns and the officers, directors and
employees of the foregoing, harmless from and against any actual
liability, damage, demands, loss, claim, cost or expense (including but
not limited to reasonable attorneys' fees and other litigation costs)
occasioned by or arising out of GB's exercise of the Rights in the
Programs licensed to GB hereunder, provided that such liability,
-4-
<PAGE>
damage, demand, loss, claim, cost or expense does not arise out of any
matter as to which BVE is required to indemnify GB hereunder.
9.3 Any amounts for which a party may seek indemnification
under Section 9.1 or 9.2 above shall be deemed to be "Losses" for
purposes of Article 9 of the Asset Purchase Agreement. The remedies
provided under Article 9 of the Asset Purchase Agreement with respect
to Losses shall be the parties' sole and exclusive remedies with
respect to such indemnifiable amounts.
10. DEFAULT. In the event of a material breach by either party, the
non-breaching party shall have the right to terminate this Agreement if
the alleged breaching party fails to cure such material breach within
thirty (30) business days following written notice of such material
breach by the non-breaching party. Notwithstanding the foregoing, in
the event that GB: (i) materially breaches any of the provisions of
this Agreement (including but not limited to the obligation to make
Third Party Payments as and when due) or of that certain agreement
entered into by GB, on the one hand, and Broadway Video, Inc. and
Broadway Video International, Ltd., on the other hand, of even date
herewith with respect to the television series known as "Kids in the
Hall," after the failure to cure as provided herein; (ii) seeks or is
otherwise subject to any relief under any bankruptcy, reorganization,
receivership, or liquidation statutes, or petitions for the appointment
of a bankruptcy receiver, liquidator, trustee or custodian for all or a
substantial portion of its assets; or (iii) makes an assignment of
substantially all of its assets for the benefit of its creditors, BVE
may exercise all or any of the following remedies: (a) to obtain
injunctive and other equitable relief; (b) to terminate this Agreement
and require the immediate delivery to BVE of the Programs and other
materials in GB's possession or control; (c) to service all then
existing license and sub-distribution agreements (copies of which must
immediately be provided to BVE if not previously provided) and to
receive and retain 100% of all revenues derived therefrom; and (d) to
obtain damages and other remedies and exercise such other rights as it
may have at law. The foregoing shall not impair either party's right to
seek relief in equity or at law for any breach of this Agreement.
11. GENERAL PROVISIONS.
11.1 Assignment. GB may not assign this Agreement without the
prior written consent of BVE, except that nothing herein shall prohibit
GB from sublicensing its Rights hereunder to subdistributors and
sublicensees in accordance with the provisions of this Agreement.
11.2 Notices. All notices or other communications that shall
or may be given pursuant to this Agreement, shall be in writing, in
English, shall be sent by certified or registered mail with postage
prepaid, return receipt requested, by facsimile, telex or cable
communication, or by hand delivery. Such communications shall be deemed
given and received upon dispatch, if sent by facsimile, telex, or cable
communication; or upon delivery if hand delivered; or within five (5)
days of mailing, if sent by certified or registered mail, and shall be
addressed to the parties as set forth below or to such other addresses
as the parties
-5-
<PAGE>
may designate in writing from time to time. No objection may be made to
the manner of delivery of any notice actually received in writing by an
authorized agent of a party.
BVE GB
Broadway Video Enterprises, Inc. Golden Books Publishing Company, Inc.
1619 Broadway, Ninth Floor 850 Third Avenue
New York, NY 10019 New York, NY 10022
Telephone: 212-603-0638 Telephone:
Facsimile: 212-582-8097 Facsimile: 212-371-1091
Attn.: Stephen Shippee Attn.: Philip Rowley
with a courtesy copy to: with a courtesy copy to:
Irell & Manella LLP Schulte, Roth & Zabel
1800 Avenue of the Stars 900 Third Avenue
Suite 900 New York, NY 10022
Los Angeles, CA 90067 Telephone: 212-758-0404
Telephone: 310-277-1010 Facsimile: 212-593-5955
Facsimile: 310-203-7199 Attn.: Andre Weiss
Attn.: Werner Wolfen
11.3 Headings. Captions and headings to sections are included
solely for convenience and are not intended to affect the
interpretation of any provision of this Agreement.
11.4 Governing Law. This Agreement has been negotiated and
entered into in the State of New York and all questions with respect to
this Agreement and the rights and liabilities of the parties shall be
governed by the laws of the State of New York, regardless of the choice
of law provisions of the State of New York or any other jurisdiction.
Any and all disputes between the parties that may arise pursuant to
this Agreement shall be heard and determined before a federal or state
court located in the Borough of Manhattan, New York, New York. The
parties hereto acknowledge that such court has the jurisdiction to
interpret and enforce the provisions of this Agreement and the parties
waive any and all objections that they may have as to personal
jurisdiction or venue in any of the above courts.
11.5 Severability. If any provision of this Agreement is found
to be illegal or unenforceable, then such provision shall be deemed
severable from the remainder of this Agreement, and the remaining
provisions shall continue in full force and effect.
11.6 Survival. The terms, conditions, rights, and obligations
set forth in Sections 9, 10 and 11 shall survive the termination or
expiration of this Agreement.
-6-
<PAGE>
11.7 Remedies. All remedies, rights, undertaking and
obligations contained in this agreement shall be cumulative and none of
them shall be in limitation of any other remedy, rights, undertaking or
obligation of either party.
11.8 Independent Contractors. Each party is an independent
contractor, and this Agreement shall not be construed as creating a
joint venture, partnership, agency or employment relationship between
the parties hereto nor shall either party have the right, power or
authority to create any obligation or duty, express or implied, on
behalf of the other.
11.9 Modification and Waiver. None of the terms or provisions
hereof shall be modified or waived, and this Agreement may not be
amended, renewed or extended, except by a written instrument signed by
both parties. No waiver by either party, whether express or implied, of
any provision of this Agreement or of any breach or default of either
party shall constitute a continuing waiver of any other provision of
this Agreement, and no such waiver by either party shall prevent such
party from enforcing any and all provisions of this Agreement or from
acting upon the same or upon any subsequent breach or default of the
other party.
11.10 Entire Agreement. This Agreement represents and
expresses the entire agreement of the parties hereto with respect to
the subject matter hereof. It replaces and supersedes all prior and
contemporaneous contracts, representations and understandings, whether
written or oral, express or implied, between the parties concerning the
subject matter hereof. No person has any authority to make any
representation or promise on behalf of any of the parties which is
inconsistent with the representations set forth in the Agreement and
the Agreement has not been executed in reliance on any promise or
representation not set forth in the Agreement. All schedules, exhibits
and agreements attached hereto or referred to herein are hereby
incorporated by reference and made a part hereof.
-7-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year set forth above.
BROADWAY VIDEO ENTERPRISES, INC.
By: /s/ Stephen W. Shippee
--------------------------------
Title: Chief Operating Officer and
Chief Financial Officer
GOLDEN BOOKS PUBLISHING COMPANY, INC.
By: /s/ Philip E. Rowley
--------------------------------
Title: Chief Operating Officer
-8-
<PAGE>
SCHEDULE A
GLOSSARY
1. Advertising Materials means the Artist Identification
(subject to the terms and conditions of the Outstanding Agreements and
any other restrictions of which GB is informed by BVE) and any
materials available to be used by GB in the exercise of its rights
hereunder, including any trailers, teasers, key artwork, advertising
accessories or lithographs, whether prepared by GB or delivered to GB
by BVE. BVE shall have the right to approve any and all Advertising
Materials in its reasonable business judgment, such approval not to be
unreasonably withheld.
2. Artist Identification means the name or any photograph,
likeness, silhouette, signature, reproduction of voice or sound
effects, mannerisms or other identification of any person rendering
services or providing rights in connection with the Programs.
3. Incidental Rights Incidental Rights means the right to use
and authorize other persons to do any or all of the following subject
to the provisions of the Outstanding Agreements:
a. The right to perform all music, lyrics, scores and musical
works embodied in or synchronized with the Programs or with the
soundtrack thereof only as synchronized with and embodied in the
Programs or Advertising Material as delivered to GB.
b. The right to use the title of the Programs (including
translation into languages other than English).
c. The right to make and use dubbed and subtitled versions of
the Programs and their trailers, including but not limited to
cut-in, synchronized and superimposed versions.
d. The right to permit commercial messages to be broadcast or
telecast before, during and after the Programs.
e. The right to publicize and advertise the Programs and to
authorize other persons to do so by use of the Advertising
Materials, subject to the terms and conditions of the
Outstanding Agreements and subject to the approval of BVE to be
exercised in its reasonable business judgment, such approval not
to be unreasonably withheld. For purposes of publicity and
advertising of the Programs only, the Incidental Rights shall
include the following, all subject to the terms and conditions
of the Outstanding Agreements and subject to the approval of BVE
to be exercised in its reasonable business judgment, such
approval not to be unreasonably withheld:
-9-
<PAGE>
i. The right to publish or authorize to be published, and
in such form as GB may deem advisable, synopses,
summaries, resumes or abridgements of the Programs or
screenplays upon which the Programs are based in
newspapers, magazines, trade periodicals, and other
publications and in all other media of advertising and
publicity, none of which shall include more than 2500
words taken from any Program or screenplays and
properties upon which the Programs is based.
ii. The right to use any Artist Identification in a form
which has been reasonably approved by BVE.
iii. The right to advertise and publicize the exhibition
or delivery of the Programs and all the elements thereof
in the Territory.
f. The right to assert and prosecute all claims, demands or
causes of actions against any and all persons for the
unauthorized or illegal use in the Territory of any Rights or
any materials upon which the Programs are based and to
otherwise enforce, protect and defend any Rights.
g. Subject to the terms and conditions of the Outstanding
Agreements and subject to the approval of BVE to be exercised
in its reasonable business judgment (such approval not to be
unreasonably withheld), the right to make such additions,
alterations, cuts, or other changes in the Programs or
Advertising Materials solely for the following purposes; (a)
to comply with any law in any area of the Territory (such as
censorship or restrictive ratings); (b) to add to the end of
the Programs (either before or after delivery) a credit to GB
indicating that it is the distributor of the Programs in the
Territory and to grant a similar right to other distributors
or exhibitors in the Territory, all of which may embody logos
and artwork as customary for such credit; (c) to enable the
Programs to comply with the terms and conditions of this
Agreement.
4. Literary Properties means any and all rights to underlying
literary, dramatic or other works, screenplays, stories, adaptations,
treatments, scenarios and any and all other literary or dramatic
materials of any kind on which any of the Programs are based necessary
to permit the use of such materials as part of the Programs.
5. Music Rights means any and all music synchronization and
performance rights in and to any of the music or musical compositions
or sound recordings embodied in the Programs.
6. Outstanding Agreements means the rights and obligations of
BVE under any written or oral agreement now in effect pursuant to which
BVE or any of its Predecessors acquired or purchased from or sold,
licensed or granted to any other person or entity any rights to
distribute, exhibit, sublicense, use or exploit, or to exercise or
exploit any rights in or to, or providing for the acquisition, sale,
purchase, lease, license or other disposition of, any
-10-
<PAGE>
rights in any of the Programs including, without limitation, any
Underlying Agreements now in effect.
7. Underlying Agreements means any and all agreements with
writers, directors, producers, actors, composers or other parties who
rendered services or otherwise participated in preparation or
production of each of the Programs, or with third parties owning or
controlling rights in the results and proceeds of such parties, under
which BVE holds rights, if any, in Literary Properties and/or Music
Rights, but only to the extent such agreements relate to the Programs.
-11-
<PAGE>
TRADEMARK LICENSE AGREEMENT
THIS TRADEMARK LICENSE AGREEMENT (this "Agreement") is made
and entered into as of this 20th day of August, 1996, by and between
Broadway Video, Inc., a New York corporation ("BVI"), and Broadway
Video Entertainment, L.P., a New York limited partnership ("BVEL," and
together with BVI, "Licensors"), on the one hand, and Golden Books
Publishing Company, Inc., a Delaware corporation ("GBPCI"), and LRM
Acquisition Corp., a Delaware corporation ("LRM Acquisition," and
together with GBPCI, "Licensees," and each of them a "Licensee"), on
the other hand, in accordance with the terms and conditions of that
certain Asset Purchase Agreement dated as of July 30, 1996, as amended
(the "Asset Purchase Agreement"), by and among BVEL, Broadway Video
Enterprises, Inc., a New York corporation ("BVE"), Lone Ranger Music,
Inc., a New York corporation ("LRM") and Palladium Limited Partnership,
a New York limited partnership ("Palladium," and together with BVEL,
BVE and LRM, the "Sellers," and each of them a "Seller") on the one
hand, and Golden Books Family Entertainment, Inc., a Delaware
corporation ("Parent"), GBPCI as assignee of Golden Books Productions,
Inc., and LRM Acquisition, on the other hand, with reference to the
following facts and circumstances (capitalized terms not otherwise
defined herein shall have the meaning ascribed to them in the Asset
Purchase Agreement):
A. The Sellers are selling the Assets to Licensees, and
Licensees are assuming the Obligations, pursuant to the Asset Purchase
Agreement. The Asset Purchase Agreement provides that Licensors and
Licensees shall enter into this Agreement.
B. BVEL owns the trade name BROADWAY VIDEO ENTERTAINMENT, L.P.
(the "Trade Name") and BVI owns the trademarks BROADWAY COMICS and
BROADWAY COMICS & design (collectively, the "Comics Trademarks") and
the trademarks BROADWAY VIDEO and BROADWAY VIDEO & design
(collectively, the "Video Trademarks"), and the associated applications
and registrations for such trademarks in the United States and Canada
as set forth on Exhibit A hereto, for use in connection with a variety
of media goods and services, including, without limitation, comic books
and videotapes.
C. Licensees desire to acquire a license to the Comics
Trademarks, the Video Trademarks and the Trade Name (collectively, the
"Marks") for the specific purposes set forth herein, and Licensors are
willing to grant Licensees a license for such specific purposes.
NOW THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties
hereto hereby agree as follows:
1. Grant of License. Licensors hereby grant to Licensees for
the "Term" (as defined below) of this Agreement a, nontransferable,
royalty-free license (i) to use the Comics Trademarks solely and only
upon and in connection with the sale or other disposition of new
editions of the comic book titles of Sellers existing on the date hereof
that
<PAGE>
are produced by Licensees within one year of the date hereof (the "New
Comic Books") and comic book inventory of Sellers' existing on the date
hereof ("Existing Comic Books," and together with the New Comic Books,
the "Comic Books"), and (ii) to use the Trade Name and the Video
Trademarks solely and only upon and in connection with the sale or
other disposition of the Physical Materials of BVEL existing on the
date hereof (the "Existing Physical Materials"). The license granted
hereby shall be exclusive for the purposes set forth in clauses (i) and
(ii) in the preceding sentence.
2. Acknowledgment of Ownership. Each Licensee acknowledges the
sole and exclusive ownership of the Marks in Licensors, and agrees that
it will do nothing inconsistent with such ownership. Each Licensee
agrees that nothing in the Asset Purchase Agreement shall give such
Licensee any right, title, or interest in the Marks other than the
right to use the Marks in accordance with this Agreement. Each Licensee
agrees that it shall not attack the title of Licensors to the Marks,
the validity of the Marks, or the validity of this Agreement. Neither
Licensee shall attempt to register the Marks alone or as part of its
own trademark nor shall either Licensee use or attempt to register any
marks or names confusingly similar to the Marks.
3. Quality Control.
3.1 Licensees shall use the Marks only in
connection with the Comic Books and Existing Physical Materials (the
"Licensed Products"), shall not alter, change, or otherwise modify the
Existing Comic Books or the Existing Physical Materials, and shall
under no circumstances use the Marks on any other goods or in
connection with any services. Each Licensee agrees that the New Comic
Books on which it may use the Comics Trademarks shall be of a standard
of quality at least as high as that of the Existing Comic Books upon
the date of this Agreement. Each Licensee shall offer for sale or sell
any damaged or "second quality" Licensed Products that bear a Mark only
in a manner consistent with Licensors' practices as of the date hereof.
In advertising the sale or other disposition of the Licensed Products,
neither Licensee shall in any manner use the Marks; provided that
Licensees may use photographs of the Licensed Products in such
advertising. Furthermore, in advertising the sale or other disposition
of the Licensed Products, Licensees shall meet all reasonable standards
of quality established by Licensors, which standards shall be
consistent with industry custom for similar products targeted at
similar customers. Licensors alone shall judge, in its reasonable
discretion, whether or not Licensees have met or are meeting the
standards of quality so established.
3.2 Each Licensee shall, upon Licensors' reasonable
request, (i) make available samples of the New Comic Books and the
advertisements for the Licensed Products and (ii) permit inspection of
such Licensee's operation.
3.3 If at any time either Licensee fails to meet
the quality standards set forth in Subsections 3.1 hereof as reasonably
determined by Licensors, Licensors shall have the right to require
Licensees to discontinue the use of the Marks unless modifications
reasonably satisfactory to Licensors are made within thirty (30) days
from notice of disapproval.
-2-
<PAGE>
3.4 Each Licensee shall comply in all material
respects with all applicable laws and regulations and obtain all
appropriate governmental approvals pertaining to the sale, distribution
and advertising of the Licensed Products.
4. Infringement Proceedings. Each Licensee agrees to promptly
notify Licensors of any unauthorized use of the Marks by third parties
of which such Licensee becomes aware. Licensors shall have the sole
right and discretion to bring infringement or unfair competition
proceedings involving the Marks.
5. Term. This Agreement shall continue in force and effect for a
period of one year from the date hereof; provided, however, that such
period shall be automatically extended for so long as is necessary to
permit Licensees to use their reasonable best efforts to sell or
otherwise dispose of the Licensed Products (such period, including the
extensions thereof provided for in this Section 5, shall be referred to
as the "Term").
6. Termination; Remedies.
6.1 If either Licensee breaches any of the
provisions herein in any material respect, Licensors shall have the
right to terminate this Agreement upon thirty (30) days written notice,
unless the applicable Licensee cures such breaches within such thirty
(30) day period.
6.2 If either Licensee files a petition in
bankruptcy or is adjudicated a bankrupt or if a petition in bankruptcy
is filed against either Licensee or if it becomes insolvent, or makes
an assignment for the benefit of its creditors or an arrangement
pursuant to any bankruptcy law, or if either Licensee discontinues all
or a significant portion of its business to which this Agreement
relates, or if a receiver is appointed for it or its business, this
Agreement shall automatically terminate without notice of any type. In
the event this Agreement is so terminated, neither of the Licensees nor
any of their respective receivers, representatives, trustees, agents,
administrators, successors, and assigns shall have any right to exploit
or in any way deal with or in any of the Marks.
6.3 Termination of this Agreement under the
provisions of this Section 6 shall be without prejudice to any rights
that Licensors may otherwise have against Licensees.
6.4 Upon termination of this Agreement for whatever
reason, each Licensee agrees (i) to immediately discontinue all use of
the Marks and any mark confusingly similar thereto, (ii) to immediately
place on all goods bearing Marks stickers that completely cover the
Marks and to destroy all such goods that are not amenable to such
restickering, and (iii) to cooperate generally with Licensors to ensure
that all rights in the Marks and the goodwill connected therewith shall
remain the property of Licensors.
6.5 Each Licensee acknowledges that the remedy at
law for any breach, or threatened breach, of any of the provisions of
Sections 1, 2 or 3 hereof will be inadequate and, accordingly,
covenants and agrees that Licensors will, in addition to any other
rights or remedies that they may have and regardless of whether such
other rights or remedies have
-3-
<PAGE>
been previously exercised, be entitled to such equitable and injunctive
relief as may be available under applicable law.
7. Miscellaneous.
7.1 Incorporation by Reference. The following Sections
and provisions of the Asset Purchase Agreement are hereby incorporated
into this Agreement in their entirety as if set forth herein: Sections
11.1 (Complete Agreement; Modifications), 11.3 (Remedies Not Exclusive,
excluding the first clause thereof), 11.5 (Notices; provided that, for
purposes of this Agreement, references in said Section 11.5 to
"Sellers" shall mean Licensors, and references to "Buyers" or "Parent"
shall mean GBPCI and LRM Acquisition), 11.7 (Governing Law;
Jurisdiction), 11.9 (Waivers Strictly Construed) and 11.10 (Rules of
Construction).
7.2 No Assignment. Neither Licensee shall assign any of
its rights, interests or obligations hereunder without the prior written
consent of Licensors, except to Parent or any direct or indirect
wholly-owned Subsidiary (as defined in the Asset Purchase Agreement) of
Parent. Subject to the preceding sentence, this Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties
hereto and their respective successors and assigns.
7.3 Attorneys' Fees. In any action arising out of or
relating to this Agreement, the prevailing party shall be entitled to
recover all attorneys' fees and costs.
7.4 No Third-Party Benefits. None of the provisions of
this Agreement shall be for the benefit of, or enforceable by, any
third-party beneficiary.
7.5 Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed
an original, but all of which together shall constitute one and the same
agreement.
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<PAGE>
[SIGNATURE PAGE TO TRADEMARK LICENSE AGREEMENT]
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of
the date first above written.
BROADWAY VIDEO ENTERTAINMENT, L.P.
By: Broadway Video Enterprises, Inc.,
its General Partner
By: /s/ Stephen W. Shippee
-------------------------------
Its: Chief Operating Officer and
Chief Financial Officer
GOLDEN BOOKS PUBLISHING COMPANY, INC.
By: /s/ Philip E. Rowley
-------------------------------
Its: Chief Operating Officer
-5-
<PAGE>
BROADWAY VIDEO, INC.
By: /s/ Stephen W. Shippee
-------------------------------
Its: Chief Operating Officer and
Chief Financial Officer
-6-
<PAGE>
LRM ACQUISITION CORP.
By: /s/ Richard E. Synder
-------------------------------
Its: Chairman of the Board of Directors,
Chief Executive Officer and President
-7-
<PAGE>
SUBLEASE
AGREEMENT dated as of
August 20, 1996
("Agreement"), by and
between BROADWAY VIDEO,
INC., a New York
corporation ("BV"), and
LRM ACQUISITION CORP., a
Delaware Corporation
("LRM").
Pursuant to an asset purchase agreement dated as of July 30,
1996 (the "Asset Agreement"), among the parties hereto and other firms and
corporations, certain Assets (as that term is defined in the Asset Agreement)
are being sold to LRM and its affiliated entities.
BV is the tenant under a lease dated October 5, 1995,
between LANDPEN CO., L.P., as owner ("Owner" or "Landlord"), and BV, as
tenant, as amended by amendments dated October 5, 1995 and March 5, 1996
(collectively, the "Lease"). Copies of the Lease have been delivered to LRM.
The leased premises consists of the entire eighth Floor and the entire
eleventh Floor (the "11 Floor") at 254 West 54th Street, New York, New York
10019. The term of the Lease commenced February 7, 1996 and will expire
February 6, 2006, subject to the terms and provisions thereof.
The 11 Floor is presently utilized by BV is connection with
its use of the Assets.
The transactions contemplated by the Asset Agreement are
being consummated simultaneously with the execution and delivery of this
Agreement.
Articles 11 and 48 of the Lease give BV the right to sublet
the 11 Floor to LRM, subject to the consent of the Owner. BV desires so to do,
and LRM desires to sublet the 11 Floor, on the terms and subject to the
conditions hereof.
NOW, THEREFORE, in consideration of the premises, the
parties hereto, intending to be bound legally, hereby agree that:
1. On the terms and subject to the provisions hereof, BV
hereby sublets the 11 Floor, together with the furniture and fixtures of
Seller presently located thereat, to LRM, for the term of this Agreement.
2. The term of this Agreement ("Term") shall commence on the
date hereof, and shall terminate one year following the date hereof. If the
Lease is theretofore terminated by the Owner, the Term shall terminate on the
date of the termination of the Lease. LRM shall not have any right to extend
the Term.
3. During the Term, the 11 Floor may be used for any purpose
permitted by the Lease.
4. (a) The annual rent under this Agreement is as $102,000,
payable in equal monthly installments of $8,500 per month. Payments shall be
made in advance on the first
<PAGE>
day of each month during the Term. Prorations for the month of August in each
year shall be made. If rent is abated under Article 9 of the Lease, rent will
be proportionately abated hereunder.
(b) In addition, during the Term, LRM shall pay to BV
amounts equal to one-half of all sums (other than late charges) billed to BV
by the Owner as additional rent under the Lease, including without limitation
all sums billed as tax escalations under Article 38 thereof, together with one
half of all sums paid by BV for electric (unless the floors are metered
separately, in which case LRM shall pay all sums billed for the 11 Floor.
Appropriate apportionments shall be made for the months in which the
commencement of the Term of this Agreement and its ending occur. BV will agree
with the electric utility servicing the 11 Floor to cause that utility to
supply electric service to LRM on the same terms that such service is supplied
to BV.
(c) LRM shall reimburse BV, from time to time during the
Term, for one-half of the cost to BV of providing the insurance required by
Article 45 of the Lease. A certificate from BV's broker as to the amounts due
shall be sufficient evidence of the same. BV shall have LRM named as
additional named insured with respect to the 11 Floor, and LRM shall be
entitled to 30 days' notice prior to cancellation or amendment.
5. The parties hereto shall, promptly after the execution
and delivery of this Agreement, use reasonable efforts to procure the consent
of the Owner to this Agreement and the transactions contemplated hereby as
required by Article 48 of the Lease. LRM and BV shall furnish to Landlord
whatever information Landlord reasonably requires under the provisions of
Article 48 of the Lease.
6. The provisions of Article 58 of the Lease shall govern
the method and timing of the giving of notices given under this Agreement.
LRM's address shall be that provided in the Asset Agreement, and may be
changed in the manner provided in the Lease.
7. This Agreement is subject and subordinate to the Lease,
and to any agreement to which the Lease is subject. LRM has received a copy of
the Lease, and will not violate it or give Owner cause to terminate it. The
provisions of the Lease applying to BV, as tenant, shall apply to LRM under
this Agreement, except as expressly modified hereby, e.g. with respect to
rent. BV will not violate the Lease or give Owner cause to terminate it.
8. The Lease describes the Owner's duties thereunder. BV
shall not be required to perform the Landlord's duties. If the Landlord fails
to perform, LRM may send BV a notice. Upon receipt of that notice, BV will
promptly notify the Owner and demand that the Lease be carried out. BV shall
continue such demands until the Owner performs.
9. Neither party shall have the right to assign this
Agreement, or to assign or sub-let the 11 Floor. LRM shall make no agreement
with the Owner about the 11 Floor or the Lease. LRM shall not pay rent or
other charges to the Owner, but only to BV.
10. This Agreement may not be changed or terminated orally.
Subject to the provisions of the previous paragraph, it shall be binding upon
and inure to the benefit of the parties hereto, their successors and assigns,
and upon any successor in interest to the Owner. It shall be
2
<PAGE>
governed by the laws of the State of New York applicable to contracts made and
to be wholly performed therein.
11. BV represents and warrants that air conditioning has
been installed in the 11 Floor as contemplated by the provisions of paragraph
3 of the March 5, 1996 amendment to the Lease. BV agrees that LRM shall not
bear any sums payable by BV pursuant to paragraph 4 of that amendment.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed as of the day and year first above written.
BROADWAY VIDEO, INC.
By: /s/ Stephen W. Shippee
------------------------------------
LRM ACQUISITION CORP.
By: /s/ Richard E. Snyder
------------------------------------
3
<PAGE>
August 20, 1996
Broadway Video, Inc.
1619 Broadway
New York, New York 10019
Re: Sublease Agreement dated as of August 20, 1996
("Agreement"), by and between BROADWAY VIDEO, INC.,
a New York corporation ("BV"), and LRM ACQUISITION
CORP., a Delaware corporation ("LRM").
FOR VALUE RECEIVED, GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.,
the owner of all of the outstanding shares of the capital stock of LRM, hereby
agrees that, if the same is necessary to securing the Owner's consent
contemplated in paragraph 5 of the captioned Agreement, it will guarantee the
performance by LRM of its obligations under the Agreement, provided that (i)
BV has complied with the provisions of paragraph 5 of the Agreement, and (ii)
the form of guarantee required by that Owner is reasonably satisfactory to it.
GOLDEN BOOKS FAMILY
ENTERTAINMENT, INC.
By: /s/ Richard E. Snyder
---------------------------
<PAGE>
WESTERN PUBLISHING GROUP, INC.
1995 STOCK OPTION PLAN
(AMENDED AND RESTATED AS OF JANUARY 31, 1996)
Section 1. Purpose
The Plan authorizes the Committee to provide to Employees and
Consultants of the Corporation and its Subsidiaries, who are in a position to
contribute materially to the long-term success of the Corporation, with options
to acquire Common Stock, par value $.01 per share, of the Corporation. The
Corporation believes that this incentive program will cause those persons to
increase their interest in the Corporation's welfare, and aid in attracting and
retaining Employees and Consultants of outstanding ability.
Section 2. Definitions
Unless the context clearly indicates otherwise, the following terms,
when used in this Plan, shall have the meanings set forth in this Section:
(a) "Board" shall mean the Board of Directors of the Corporation.
(b) "Cause" shall mean failure to comply with any agreements with, or
policies of, the Corporation concerning disclosure of confidential or
proprietary information or competition with, or employment by, a competitor of
the Corporation; fraud or misappropriation with respect to the business of the
Corporation or intentional material damage to the property or business of the
Corporation; willful failure to perform reasonable duties and responsibilities
consistent with the Grantee's position; breach of fiduciary duty or willful
material misrepresentation to the Corporation; willful failure to act in
accordance with any specific, reasonable and lawful instructions consistent
with Grantee's position; conviction of a felony or crime involving moral
turpitude; habitual abuse of alcohol, drugs or controlled substances; or other
proper cause as determined in the sole discretion of the Committee; provided,
however, that the Committee may in its sole discretion provide for a different
definition of Cause with respect to any particular Option grant and set forth
such definition in the related Stock Option Agreement.
(c) "Closing" shall mean the consummation of the acquisition by
Golden Press Holding, L.L.C., pursuant to a Securities Purchase Agreement
signed on January 31, 1996, of an equity interest in the Corporation.
(d) "Code" shall mean the Internal Revenue Code of 1986 as it may be
amended from time to time.
<PAGE>
(e) "Committee" shall mean the Board, or any Committee of two or more
Directors that may be designated by the Board to administer the Plan.
(f) "Consultant" shall mean any person who is engaged to perform
services for the Corporation or its Subsidiaries, other than as an Employee or
Director.
(g) "Control Person" shall mean any person who, as of the date of
grant of an Option, owns (within the meaning of Section 422(b)(6) of the Code)
stock possessing more than ten percent (10%) of the total combined voting power
or value of all classes of stock of the Corporation or of any parent or
Subsidiary.
(h) "Corporation" shall mean Western Publishing Group, Inc., a
Delaware corporation.
(i) "Director" shall mean any member of the Board.
(j) "Employee" shall mean any full-time employee of the Corporation
or its Subsidiaries (including Directors who are otherwise employed on a
full-time basis by the Corporation or its Subsidiaries).
(k) "Exchange Act" shall mean the Securities Exchange Act of 1934 as
it may be amended from time to time.
(l) "Fair Market Value" of stock on a given date shall be based upon:
(i) if the Stock is listed on a national securities exchange or quoted in an
interdealer quotation system, the last sales price or, if unavailable, the
average of the closing bid and asked prices per share of the Stock on such date
(or, if there was not trading or quotation in the Stock on such date, on the
next preceding date on which there was trading or quotation) as provided by one
of such organizations; or (ii) if the Stock is not listed on a national
securities exchange or quoted in an interdealer quotation system, as determined
by the Committee in good faith in its sole discretion.
(m) "Grantee" shall mean a person granted an Option under the Plan.
(n) "Non-Employee Director" shall mean a Director who is not an
employee of the Corporation.
(o) "ISO" shall mean an Option granted pursuant to the Plan to
purchase shares of the Stock and intended to qualify as an incentive stock
option under Section 422 of the Code, as now or hereafter constituted.
(p) "NQSO" shall mean an Option granted pursuant to the Plan to
purchase shares of the Stock that is not an ISO.
(q) "Options" shall refer collectively to ISOs and NQSOs issued under
and subject to the Plan.
(r) "Parent" shall mean any parent corporation as defined in Section
424 of the Code.
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<PAGE>
(s) "Plan" shall mean this 1995 Stock Option Plan as set forth herein
and as amended from time to time.
(t) "Stock" shall mean shares of the Common Stock of the Corporation.
(u) "Stock Option Agreement" shall mean a written agreement between
the Corporation and the Grantee, or a certificate accepted by the Grantee,
evidencing the grant of an Option hereunder and containing such terms and
conditions, not inconsistent with the Plan, as the Committee shall approve.
(v) "Subsidiary" shall mean any corporation with respect to which the
Corporation owns, directly or indirectly, 50% or more of the total combined
voting power of all classes of stock of such corporation.
Section 3. Shares of Stock Subject to the Plan
Subject to the provisions of Section 10, the total amount of Stock
with respect to which Options may be granted under the Plan shall not exceed
2,250,000. Stock issuable under the Plan may be authorized but unissued shares
or reacquired shares of Stock. If, prior to exercise, any Options are
forfeited, lapse or terminate for any reason, the Stock covered thereby may
again be available for Option grants under the Plan.
Section 4. Administration of the Plan
The Plan shall be administered by the Committee. Subject to the
express provisions of the Plan, the Committee shall have the authority to
interpret the Plan, to prescribe, amend and rescind rules and regulations
relating to the Plan, to determine the terms and provisions of Stock Option
Agreements thereunder and to make all other determinations necessary or
advisable for the administration of the Plan. Any controversy or claim arising
out of or related to this Plan or the Options granted thereunder shall be
determined unilaterally by, and at the sole discretion of, the Committee. Any
action of the Committee with respect to the Plan shall be final, conclusive,
and binding on all persons, including the Corporation, subsidiaries of the
Corporation, Grantees, any person claiming any rights under the Plan from or
through any Grantee, and stockholders. The express grant of any specific power
to the Committee, and the taking of any action by the Committee, shall not be
construed as limiting any power or authority of the Committee. To the extent
necessary to comply with Rule 16b-3 under the Exchange Act, determinations
concerning Options granted to any person who is subject to Section 16(b) of the
Exchange Act shall be made by the Committee, all of whose members shall be
"disinterested persons" within the meaning of Rule 16b-3 under the Exchange
Act. The Committee may delegate to officers or managers of the Corporation or
any Subsidiary the authority, subject to such terms as the Committee shall
determine, to perform administrative functions and, with respect to persons not
subject to Section 16 of the Exchange Act, to perform such other functions as
the Committee may determine, to the extent permitted under Rule 16b-3, if
applicable, and other applicable law.
Section 5. Types of Options
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<PAGE>
Options granted under the Plan may be of two types: ISOs or NQSOs. The
Committee shall have the authority and discretion to grant to an eligible
Employee either ISOs, NQSOs or both, but shall clearly designate the nature of
each Option at the time of grant in the Stock Option Agreement. In addition,
Non-Employee Directors will receive automatic periodic grants of NQSOs without
any discretionary action on the part of the Committee. Grantees who are not
Employees of the Corporation or a Subsidiary on the date an Option is granted
shall only receive NQSOs.
Section 6. Grant of Options to Employees and Consultants
(a) Employees and Consultants of the Corporation and its Subsidiaries
shall be eligible to receive Options under the Plan.
(b) The exercise price per share of Stock subject to an Option
granted to an Employee or Consultant shall be determined by the Committee and
specified in the Stock Option Agreement, provided, however, that the exercise
price of each share subject to an Option shall be not less than (i) in the case
of an NQSO, 85%, (ii) in the case of an ISO granted to other than a Control
Person, 100%, and (iii) in the case of an ISO granted to a Control Person,
110%, of the Fair Market Value of a share of the Stock on the date such Option
is granted.
(c) The term of each Option granted to an Employee or Consultant
shall be determined by the Committee and specified in a Stock Option Agreement,
provided that no Option shall be exercisable more than ten years from the date
such Option is granted, and provided further that no ISO granted to a Control
Person shall be exercisable more than five years from the date of Option grant.
(d) The Committee shall determine and designate from time to time
Employees or Consultants who are to be granted Options, and shall specify in
the Stock Option Agreement the nature of each Option granted and the number of
shares of Stock subject to each such Option, provided, however, that in any
calendar year, no Employee or Consultant may be granted an Option to purchase
more than 1,500,000 shares of Stock (determined without regard to when such
Option is exercisable), subject to adjustment pursuant to Section 9.
(e) Notwithstanding any other provisions hereof, the aggregate Fair
Market Value (determined at the time the ISO is granted) of the Stock with
respect to which ISOs are exercisable for the first time by any Employee during
any calendar year under all plans of the Corporation and any Parent or
Subsidiary corporation shall not exceed $100,000. To the extent the limitation
set forth in the preceding sentence is exceeded, the Options with respect to
such excess shall be treated as NQSOs.
(f) The Committee shall determine whether any Option granted to an
Employee or Consultant shall become exercisable in one or more installments and
specify the installment dates in the Stock Option Agreement and, with respect
to any outstanding option, the Committee may, at any time or upon the
occurrence of any event, accelerate the exercisability of any such installment.
The Committee may also specify in the Stock Option Agreement such other
provisions, not inconsistent with the terms of this Plan, as it may deem
desirable, including such provisions as it may deem necessary to qualify any
ISO under the provisions of Section 422 of the Code.
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<PAGE>
(g) The Committee may, at any time, grant new or additional options
to any eligible Employee or Consultant who has previously received Options
under this Plan, or options under other plans, whether such prior Options or
other options are still outstanding, have been exercised previously in whole or
in part, or have been canceled. The exercise price of such new or additional
Options may be established by the Committee, subject to Section 6(b) hereof,
without regard to such previously granted Options or other options.
Section 7. Automatic Grants of Options to Non-Employee Directors
(a) Upon the Closing, each Non-Employee Director shall be
automatically granted an Option to purchase 5,000 shares of Stock. Thereafter,
on the date any person first becomes a Non-Employee Director, such person shall
be automatically granted without further action by the Board or the Committee
an Option to purchase 5,000 shares of Stock. Thereafter, for the remainder of
the term of the Plan and provided he or she remains a Non-Employee Director,
each Non-Employee Director shall be automatically granted without further
action by the Board or the Committee an Option to purchase 3,000 shares of
Stock on the date of each of the Corporation's Annual Meeting of Stockholders.
(b) Options granted to Non-Employee Directors shall have an exercise
price per share of Stock equal to the Fair Market Value of a share of Stock on
the date of grant. Such Options shall be fully vested and exercisable as of the
date of grant. The term of each such Option, after which it shall expire, shall
be ten years from the date of grant.
Section 8. Exercise of Options
(a) A Grantee shall exercise an Option by delivery of a written
notice to the Corporation setting forth the number of shares with respect to
which the Option is to be exercised, together with cash, certified check, bank
draft, wire transfer, or postal or express money order payable to the order of
the Corporation for an amount equal to the Option price of such shares and any
income tax required to be withheld. The Committee may, in its sole discretion,
permit a Grantee to pay all or a portion of the exercise price by delivery of
Stock or other property (including notes or other contractual obligations of
Grantees to make payment on a deferred basis, such as through "cashless
exercise" arrangements, to the extent permitted by applicable law), and the
methods by which Stock will be delivered or deemed to be delivered to Grantees.
(b) Except as provided pursuant to Section 9(a), no Option granted to
an Employee or Consultant shall be exercised unless at the time of such
exercise the Grantee is then an Employee or Consultant of the Corporation or a
Subsidiary.
(c) The number of shares of Stock which are issued pursuant to the
exercise of an Option shall be charged against the maximum limitation on shares
set forth in Section 3 hereof.
Section 9. Exercise of Options upon Termination
(a) Unless otherwise determined by the Committee and specified in the
Stock Option Agreement, upon the termination of a Grantee's relationship with
the Corporation and its
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<PAGE>
Subsidiaries, the period during which such Grantee may exercise any outstanding
and then exercisable installments of his Options shall not exceed: (i) if such
termination is due to death, 90 days from the date of such termination, and
(ii) in all other cases, 30 days from the date of such termination, provided,
however, that in no event shall the period extend beyond the expiration of the
Option term. Notwithstanding the foregoing, all Options shall immediately
terminate upon a termination of a Grantee's employment if the Committee
determines, in its sole discretion, that such termination is for Cause.
(b) Unless otherwise determined by the Committee and specified in the
Stock Option Agreement, in no event shall any Option be exercisable for more
than the maximum number of shares that the Grantee was entitled to purchase at
the date of termination of the relationship with the Corporation and its
Subsidiaries.
(c) The sale of any Subsidiary shall be treated as a termination of
employment with respect to any Grantee employed by such Subsidiary.
(d) Subject to the foregoing, in the event of death, Options may be
exercised by a Grantee's legal representative.
Section 10. Adjustment Upon Changes in Capitalization
In the event of any dividend or other distribution (whether in the
form of cash, Stock, or other property), recapitalization, forward or reverse
split, reorganization, merger, consolidation, spin-off, combination,
repurchase, or share exchange, or other similar corporate transaction or event,
affects the Stock such that an adjustment is appropriate in order to prevent
dilution or enlargement of the rights of Optionees under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and kind of shares of Stock deemed to be available thereafter
for grants of Options under Section 3, (ii) the number and kind of shares of
Stock that may be delivered or deliverable in respect of outstanding Options,
(iii) the number of shares with respect to which Options may be granted to a
given Grantee in the specified period as set forth in Section 6(d), and (iv)
the exercise price (or, if deemed appropriate, the Committee may make provision
for a cash payment with respect to any outstanding Option). In addition, the
Committee is authorized to make adjustments in the terms and conditions of, and
the criteria included in, Options (including, without limitation, cash payments
in exchange for an Option or substitution of Options using stock of a successor
or other entity) in recognition of unusual or nonrecurring events (including,
without limitation, events described in the preceding sentence) affecting the
Corporation or any Subsidiary or the financial statements of the Corporation or
any Subsidiary, or in response to changes in applicable laws, regulations, or
accounting principles.
Section 11. Restrictions on Issuing Shares
The Corporation shall not be obligated to deliver Stock upon the
exercise or settlement of any Option or take other actions under the Plan until
the Corporation shall have determined that applicable federal and state laws,
rules, and regulations have been complied with and such approvals of any
regulatory or governmental agency have been obtained and contractual
obligations to which the Option may be subject have been satisfied. The
Corporation, in its discretion, may
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<PAGE>
postpone the issuance or delivery of Stock under any Option until completion of
such stock exchange listing or registration or qualification of such Stock or
other required action under any federal or state law, rule, or regulation as
the Corporation may consider appropriate, and may require any Grantee to make
such representations and furnish such information as it may consider
appropriate in connection with the issuance or delivery of Stock under the
Plan.
Section 12. Tax Withholding
The Corporation shall have the right to require that the Grantee make
such provision, or furnish the Corporation such authorization, necessary or
desirable so that the Corporation may satisfy its obligation, under applicable
laws, to withhold or otherwise pay for income or other taxes of the Grantee
attributable to the grant or exercise of Options granted under the Plan or the
sale of Stock issued with respect to Options. This authority shall include
authority to withhold or receive Stock or other property and to make cash
payments in respect thereof in satisfaction of a Grantee's tax obligations.
Section 13. Transferability
No Option shall be subject to anticipation, sale, assignment, pledge,
encumbrance, charge or transfer except by will or the laws of descent and
distribution, and an Option shall be exercisable during the Grantee's lifetime
only by the Grantee, provided, however, that the Committee may permit a Grantee
to transfer an Option to a family member or a trust created for the benefit of
family members. In the case of such a transfer, the transferee's rights and
obligations with respect to the Option shall be determined by reference to the
Grantee and the Grantee's rights and obligations with respect to the Option had
no transfer been made. Notwithstanding such transfer, the Grantee shall remain
obligated pursuant to Section 11 if required by applicable law.
Section 14. General Provisions
(a) Each Option shall be evidenced by a Stock Option Agreement. The
terms and provisions of such Stock Option Agreements may vary among Grantees
and among different Options granted to the same Grantee.
(b) The grant of an Option in any year shall not give the Grantee any
right to similar grants in future years, any right to continue such Grantee's
employment relationship with the Corporation or its Subsidiaries, or, until
such Option is exercised and share certificates are issued, any rights as a
Stockholder of the Corporation. All Grantees shall remain subject to discharge
to the same extent as if the Plan were not in effect.
(c) No Grantee, and no beneficiary or other persons claiming under or
through the Grantee shall have any right, title or interest by reason of any
Option to any particular assets of the Corporation or its Subsidiaries, or any
shares of Stock allocated or reserved for the purposes of the Plan or subject
to any Option except as set forth herein. The Corporation shall not be required
to establish any fund or make any other segregation of assets to assure the
payment of any Option.
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<PAGE>
(d) The issuance of shares of Stock to Grantees or to their legal
representatives shall be subject to any applicable taxes and other laws or
regulations of the United States or of any state having jurisdiction thereof.
Section 15. Amendment or Termination
The Board may, at any time, alter, amend, suspend, discontinue or
terminate this Plan; provided, however, that no such action shall adversely
affect the rights of Grantees to Options previously granted hereunder and,
provided further, however, that any shareholder approval necessary or desirable
in order to comply with Rule 16b-3 under the Exchange Act or with Section 422
of the Code (or other applicable law or regulation) shall be obtained in the
manner required therein. The Committee may waive any conditions or rights
under, or amend, alter, suspend, discontinue, or terminate, any Option
theretofore granted and any Stock Option Agreement relating thereto; provided,
however, that, without the consent of an affected Grantee, no such action may
materially impair the rights of such Grantee under such Option. Notwithstanding
anything to the contrary herein, the provisions of Section 7 shall not be
amended more than once every six months other than to comport with changes in
the Code, the Employee Retirement Income Security Act, or the rules thereunder.
Section 16. Effective Date of Plan
This Plan is effective upon its adoption by the Board, conditional
upon approval of the Corporation's stockholders. No ISO may be granted more
than ten years after such date.
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AMENDED & RESTATED EMPLOYMENT AGREEMENT
AGREEMENT by and between Golden Books Family Entertainment,
Inc. (formerly known as Western Publishing Group, Inc.), a Delaware
corporation (the "Company"), and Richard E. Snyder (the "Executive"), dated as
of the 8th day of May, 1996 and amended and restated as of the 20th day of
August, 1996.
1. Change of Control. For the purpose of this Agreement, a "Change of
Control" shall mean:
(a) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the Exchange
Act) of 35% or more (on a fully diluted basis) of either (i) the then
outstanding shares of common stock of the Company, taking into account as
outstanding for this purpose such common stock issuable upon the exercise of
options or warrants, the conversion of convertible stock or debt, and the
exercise of any similar right to acquire such common stock (the "Outstanding
Company Common Stock") or (ii) the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting Securities"); provided,
however, that for purposes of this subsection (a), the following acquisitions
shall not constitute a Change of Control: (i) any acquisition by the Company
or any "affiliate" of the Company, within the meaning of 17 C.F.R. ss. 230.405
(an "Affiliate"), (ii) any acquisition by any employee benefit plan (or
related trust) sponsored or maintained by the Company or any Affiliate of the
Company, (iii) any acquisition by any corporation pursuant to a transaction
which complies with clauses (i), (ii) and (iii) of subsection (c) of this
Section 1, (iv) any acquisition by Mario Gabelli or any Affiliate of him, or
any fund of which Mario Gabelli or such an Affiliate is investment manager or
advisor (a "Gabelli Interest"), unless (x) such acquisition otherwise would
constitute a Change of Control under this Section 1(a) if "50%" were
substituted for "35%" above or (y) a Gabelli Interest shall have one or more
designees on the Board of Directors of the Company, (v) any acquisition by
Golden Press Holding LLC ("Golden Press") or any Affiliate thereof or (vi) any
acquisition by any entity in which the Executive has a direct or indirect
equity interest; or
(b) Individuals who, as of the day after the date on which
Golden Press Holdings LLC first acquires securities of the Company (the
"Closing Date"), constitute the Board of Directors (the "Incumbent Board")
cease for any reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the Closing
Date whose election, or nomination for election by the Company's shareholders,
was approved by a vote of at least a majority of the directors then comprising
the Incumbent Board shall be considered as
<PAGE>
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs as a result of an actual or threatened election contest with respect to
the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board, further provided, however, that a Change of Control shall not be deemed
to have occurred under this subsection (b) so long as Golden Press, or any
Affiliate thereof, either (i) (x) has the right through its ownership of the
Company's Series B Convertible Preferred Stock ("B Preferred") to elect at
least one-third of the members of the board or (y) owns at least 15% of the
Outstanding Company Common Stock on a fully diluted basis and (ii) is the
largest holder of Outstanding Company Voting Securities; or
(c) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Company Common Stock and Outstanding Company Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 60% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries) in substantially
the same proportions as their ownership, immediately prior to such Business
Combination of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be, and (ii) no Person (excluding (A) any
employee benefit plan (or related trust) sponsored or maintained by the
Company or any Affiliate of the Company, or such corporation resulting from
such Business Combination or any Affiliate of such corporation, or (B) any
entity in which the Executive has an equity interest, or any Affiliate of such
entity) beneficially owns, directly or indirectly, 35% or more (on a fully
diluted basis) of, respectively, the then outstanding shares of common stock
of the corporation resulting from such Business Combination, taking into
account as outstanding for this purpose such common stock issuable upon the
exercise of options or warrants, the conversion of convertible stock or debt,
and the exercise of any similar right to acquire such common stock, or the
combined voting power of the then outstanding voting securities of such
corporation except to the extent that such ownership existed prior to the
Business Combination and (iii) at least a majority of the members of the board
of directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
2. Employment Period. The Company hereby agrees to employ
the Executive and the Executive hereby agrees to remain in the employ of the
Company subject to the terms and conditions of this Agreement, for the period
commencing on the Closing Date and ending on the fifth anniversary of such
date (the "Employment Period"); provided, however, that upon a Change
<PAGE>
of Control, if the Executive is still employed by the Company, (i) if at such
time there remains less than three years in the Employment Period, the
Employment Period shall be extended until the third anniversary of a Change of
Control and in any case there shall be a specific written consent of the
Company or its successor immediately following the Change of Control to assume
the obligations under this Agreement, and (ii) in the absence of such consent,
the Employment Period shall terminate immediately upon a Change of Control and
the Executive shall be entitled to the benefits provided in Section 5(a)
hereof.
3. Terms of Employment. (a) Position and Duties. (i)
Commencing on the Closing Date and for the remainder of the Employment Period,
the Executive shall be the Chief Executive Officer of the Company and Chairman
of the Company's Board of Directors and shall have such duties,
responsibilities and authority as shall be consistent therewith. The Executive
shall be based in New York City.
(ii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the Executive
agrees to devote full time during normal business hours to the business and
affairs of the Company and to use the Executive's best efforts to perform
faithfully and efficiently such responsibilities. During the Employment Period
it shall not be a violation of this Agreement for the Executive to (A) serve
on corporate, civic or charitable boards or committees, (B) deliver lectures,
fulfill speaking engagements or teach at educational institutions and (C)
manage personal investments, so long as such activities do not interfere with
the performance of the Executive's responsibilities as an employee of the
Company in accordance with this Agreement. It is expressly understood and
agreed that to the extent that any such activities have been conducted by the
Executive prior to a Change of Control, the continued conduct of such
activities (or the conduct of activities similar in nature and scope thereto)
subsequent to a Change of Control shall not thereafter be deemed to interfere
with the performance of the Executive's responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment
Period, the Executive shall receive an annual base salary ("Annual Base
Salary") of $500,000, which amount shall be retroactive to January 31, 1996.
The Annual Base Salary shall be paid in equal monthly installments. During the
Employment Period, the Annual Base Salary shall be reviewed at least every 12
months. Any increase in Annual Base Salary shall not serve to limit or reduce
any other obligation to the Executive under this Agreement. The Annual Base
Salary shall not be reduced after any such increase and the term Annual Base
Salary as utilized in this Agreement shall refer to Annual Base Salary as so
increased.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") pursuant to the Company's annual
incentive plans (the "Annual Plans"), pro rated in the case of a bonus for any
year during which the Executive was employed for less than 12 months. The
Executive shall have a target annual bonus of 100% of his Annual Base Salary
(the "Target Bonus") and an annual bonus opportunity of 200% of his Annual
Base Salary, subject in each case to attainment of the performance goals set
forth in the Annual Plans. Each such Annual Bonus shall be paid no later than
the end of the third month of the fiscal year next following the
<PAGE>
fiscal year for which the Annual Bonus is awarded, unless the Executive shall
elect to defer the receipt of such Annual Bonus. Notwithstanding the above, it
is the intent of the parties hereto that the Annual Plans meet all applicable
requirements for the exemption of the payments thereunder from the limitations
of Section 162(m) of the Internal Revenue Code of 1986, as amended, including
the requirement that the Annual Plans be approved by the shareholders of the
Company prior to the payment of any bonuses thereunder. The Board may award
the Executive bonuses other than pursuant to the Annual Plans in its
discretion.
(iii) Special Bonus. In addition to the Base Salary and the
Annual Bonus, the Executive shall be awarded an additional bonus (the "Special
Bonus") equal to 1,271,089 times the excess, if any, of (A) the lesser of
$12.81 (the "Option Price") and the Current Market Price (as defined below)
over (B) $8.00. For purposes of this clause (iii), "Current Market Price"
shall mean the per share price of the Common Stock on the trading day
preceding the date the Special Bonus is to be paid equal to the average
between the high bid price and low ask price reported for the Common Stock on
the National Market System of the National Association of Securities Dealers
Automated Quotation System.
The Special Bonus shall be paid on the earliest of (I) May
8, 2001, provided that the Executive is actively employed by the Company at
that time, (II) the effective date of the Executive's termination of
employment by the Company other than for "Cause" (as defined in Section 4(b)),
(III) the effective date of the Executive's termination of his own employment
for "Good Reason" (as defined in Section 4(c)), (IV) the "Disability Effective
Date" (as defined in Section 4(a)) or (V) the Executive's death.
(iv) Incentive Stock. In connection with the Executive's
employment by the Company, the Executive has agreed to purchase certain shares
of Common Stock at $8.00 per share, which purchase price shall be paid by
delivery by the Executive of that certain amended and restated non-recourse
promissory note secured by such shares and dated the date hereof.
(v) Incentive, Savings and Retirement Plans. During the
Employment Period, the Executive shall be eligible to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other senior executives of the Company and its
affiliated companies, provided that after a Change of Control in no event
shall such plans, practices, policies and programs provide the Executive with
incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in
each case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during
the 120-day period immediately preceding a Change of Control.
(vi) Supplemental Retirement Plan. In addition to any
retirement benefits payable to the Executive pursuant to a plan or program
described in Section 3(b)(v), the Executive shall be entitled to a
supplemental retirement benefit, paid in the form of a single life annuity, of
$250,000 per annum, with payments commencing on the first day of the month
immediately following the later of (i) May 8, 2001, or (ii) the Executive's
cessation of employment
<PAGE>
with the Company other than by reason of death. Notwithstanding the above, (A)
the amount of the supplemental pension shall be increased to 60% of his Final
Average Pay less the Offset Amount if the average between the high bid price
and low ask price reported for the Common Stock on the National Market System
of the National Association of Securities Dealers Automated Quotation System
on May 8, 2001 (or the first trading day thereafter) is less than the Option
Price, and (B) at the election of the Executive made at any time prior to the
commencement of payment, such supplemental retirement benefit shall be paid in
the form of a joint and 50% survivor annuity, which is the actuarial
equivalent of such single-life annuity (as determined by the Company's
actuaries using reasonable actuarial assumptions). For purposes of this
Agreement, Final Average Pay means the average of the sum of his highest three
years of Annual Base Salary and Annual Bonus during the Employment Period. The
Offset Amount shall be the single life annuity actuarial equivalent (as
determined by the Company's actuaries using reasonable actuarial assumptions)
of the amount of any defined benefit pension benefit accrued by the Executive
and then payable to him (whether or not actually paid) from any plan or
arrangement sponsored by any previous employer and by the Company pursuant to
any other retirement plan.
(vii) Welfare Benefit Plans. During the Employment Period,
the Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under welfare
benefit plans, practices, policies and programs provided by the Company and
its affiliated companies (including, without limitation, medical,
prescription, dental, disability, salary continuance, employee life, group
life, accidental death and travel accident insurance plans and programs) to
the extent applicable generally to other peer executives of the Company and
its affiliated companies, provided that after a Change of Control in no event
shall such plans, practices, policies and programs provide the Executive with
benefits which are less favorable, in the aggregate, than the most favorable
of such plans, practices, policies and programs in effect for the Executive at
any time during the 120-day period immediately preceding a Change of Control.
Executive shall be provided with both active and retiree medical benefits on
an indemnity basis with a $3 million lifetime cap subject to an obligation to
pay 20% of the cost of such benefits up to a maximum of $200,000. The Company
shall provide either (1) term life insurance coverage to the Executive with a
death benefit of at least $3 million, or (2) at the Executive's election, a
monthly cash allowance equal to the cost of insurance determined pursuant to
the "Table 1 rate" for insurance coverage up to $3 million obtained by the
Executive. For this purpose, the "Table 1 rate" is the rate published by the
United States Department of the Treasury as uniform premiums for group term
life insurance protection as currently set forth in Treasury Regulation
section 1.79-3(d). In the event of the Executive's "Disability" (as defined in
Section 4(a)), the Company shall provide the Executive with an annual
Disability benefit of no less than $700,000 per annum until the Executive
reaches age 70.
(viii) Expenses. During the Employment Period, the Company
shall pay or promptly reimburse the Executive for all business expenses upon
presentation of receipts therefor in accordance with the normal practices of
the Company. It is acknowledged that the Executive will incur expenses
consistent with an executive of his stature in the Company's industry.
(ix) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits appropriate to an executive of
Executive's stature in the Company's
<PAGE>
industry, including, without limitation, tax and financial planning services,
payment of club dues, and an automobile of his choice and payment of related
expenses, including the services of a driver (collectively, "Fringe
Benefits").
(x) Vacation. During the Employment Period, the Executive
shall be entitled to five weeks of paid vacation per year.
4. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's
death during the Employment Period. If the Company determines in good faith
that the Disability of the Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to the
Executive written notice in accordance with Section 11(b) of this Agreement of
its intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties.
For purposes of this Agreement, "Disability" shall mean the absence of the
Executive from the Executive's duties with the Company on a full-time basis
for 90 out of 120 consecutive business days as a result of incapacity due to
mental or physical illness which is determined to prevent the Executive from
performing his duties to the Company by a physician selected by the Company or
its insurers and acceptable to the Executive or the Executive's legal
representative.
(b) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean: (i) the conviction of, or pleading guilty to, a
felony or crime involving moral turpitude, or (ii) the willful and continued
failure of the Executive to perform substantially the Executive's duties with
the Company or one of its affiliates (other than any such failure resulting
from incapacity due to physical or mental illness which results in a
Disability), after a written demand for substantial performance is delivered
to the Executive by the Board, which specifically identifies the manner in
which the Board or Chief Executive Officer believes that the Executive has not
substantially performed the Executive's duties.
For purposes of this provision, no act or failure to act, on
the part of the Executive, shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable belief
that the Executive's action or omission was in the best interests of the
Company. Any act, or failure to act, based upon authority given pursuant to a
resolution duly adopted by the Board or based upon the advice of regular
outside counsel for the Company shall be conclusively presumed to be done, or
omitted to be done, by the Executive in good faith and in the best interests
of the Company. The cessation of employment of the Executive shall not be
deemed to be for Cause unless and until there shall have been delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote of a
majority of the entire membership of the Board at a meeting of the Board
called and held for such purpose (after reasonable notice is provided to the
Executive and the Executive is given an opportunity, together with counsel, to
be heard before the Board), finding that, in the good faith opinion of the
Board, the Executive is guilty of the conduct described, and specifying the
particulars thereof in detail.
<PAGE>
(c) Good Reason. The Executive's employment may be
terminated by the Executive for Good Reason. For purposes of this Agreement,
"Good Reason" shall mean in each case, without the Executive's prior written
consent:
(i) the assignment to the Executive of any
duties inconsistent with the Executive's position (including
status, offices, titles and reporting requirements),
authority, duties or responsibilities as contemplated by
Section 3(a) of this Agreement, or any other action by the
Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this
purpose an action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Company to comply
with any of the provisions of Section 3(b) of this
Agreement, other than failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of
notice thereof given by the Executive;
(iii) the Company's requiring the
Executive to be based at any office or location outside New
York City, or, after a Change of Control, the Company's
requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior
to a Change of Control; or
(iv) any failure by the Company to comply
with and satisfy Section 10(c) of this Agreement.
(d) Notice of Termination. Any termination by the Company
for Cause, or by the Executive for Good Reason, shall be communicated by
Notice of Termination to the other party hereto given in accordance with
Section 11(b) of this Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the
termination date (which date shall be not more than thirty days after the
giving of such notice). The failure by the Executive or the Company to set
forth in the Notice of Termination any fact or circumstance which contributes
to a showing of Good Reason or Cause shall not waive any right of the
Executive or the Company, respectively, hereunder or preclude the Executive or
the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be (although such Date of
Termination shall retroactively cease to apply if the circumstances providing
the basis of termination for Cause or Good Reason are cured in accordance with
Section 4(b) or 4(c) of this Agreement, respectively), (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability,
the Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
<PAGE>
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the
case may be.
5. Obligations of the Company Upon Termination. (a) Good
Reason; Other Than for Cause, Death or Disability. If, during the Employment
Period, the Company shall terminate the Executive's employment other than for
Cause (including for this purpose a failure of the Company or its successor to
assume this Agreement following a Change of Control in accordance with clause
(i) of Section 2 above) or Disability or the Executive shall terminate
employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of
the following amounts:
A. the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to the extent not
theretofore paid, (2) the product of (x) the higher of (I)
the Target Bonus and (II) the Annual Bonus paid or payable,
including any bonus or portion thereof which has been earned
but deferred (and annualized for any fiscal year consisting
of less than twelve full months or during which the
Executive was employed for less than twelve full months),
for the most recently completed fiscal year during the
Employment Period, if any (such higher amount being referred
to as the "Highest Annual Bonus") and (y) a fraction, the
numerator of which is the number of days in the current
fiscal year through the Date of Termination, and the
denominator of which is 365 (the "Pro Rata Bonus"), and (3)
any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in
clauses (1), (2), and (3) shall be hereinafter referred to
as the "Accrued Obligations"); and
B. the amount equal to the greater of (I) the
product of (1) three and (2) the sum of the Executive's
Annual Base Salary and the Highest Annual Bonus, and (II)
the product of (1) the number of years (including fractions
thereof) remaining in the Employment Period on the Date of
Termination, and (2) the sum of the Executive's Annual Base
Salary and Highest Annual Bonus; and
C. an amount equal to the difference between (a)
the actuarial equivalent of the benefit (utilizing actuarial
assumptions no less favorable to the Executive than those in
effect under the Company's qualified defined benefit
retirement plan (the "Retirement Plan") immediately prior to
a Change of Control) under the Retirement Plan, and any
excess or supplemental retirement plan in which the
Executive participates (together, the "SERP") which the
Executive would receive if the Executive's employment
continued for the greater of three years after the Date of
Termination or the remainder of the Employment Period
assuming for this purpose that all accrued benefits are
fully vested, and, assuming that the Executive's
compensation in each of the three years is that required by
Section 3(b)(i) and Section 3(b)(ii), and (b) the actuarial
equivalent of the Executive's actual
<PAGE>
benefit (paid or payable), if any, under the Retirement
Plan and the SERP as of the Date of Termination;
(ii) all stock options, restricted stock
and other stock-based compensation shall become immediately
exercisable or vested, as the case may be;
(iii) for the greater of three years after
the Executive's Date of Termination or the remainder of the
Employment Period, or such longer period as may be provided
by the terms of the appropriate plan, program, practice or
policy, the Company shall continue benefits to the Executive
and/or the Executive's family at least equal to those which
would have been provided to them in accordance with the
plans, programs, practices and policies described in Section
3(b)(vii) of this Agreement if the Executive's employment
had not been terminated, provided, however, that if the
Executive becomes reemployed with another employer and is
eligible to receive medical or other welfare benefits under
another employer provided plan, the corresponding medical
and other welfare benefits described herein shall be
terminated. For purposes of determining eligibility (but not
the time of commencement of benefits) of the Executive for
retiree benefits pursuant to such plans, practices, programs
and policies, the Executive shall be considered to have
remained employed until the later of three years after the
Date of Termination or the end of the Employment Period and
to have retired on the last day of such period;
(iv) for the greater of three years after
the Executive's Date of Termination or the remainder of the
Employment Period, the Company shall continue to provide the
Executive with Fringe Benefits; and
(v) to the extent not theretofore paid or
provided, the Company shall timely pay or provide to the
Executive any other amounts or benefits required to be paid
or provided to the Executive or which the Executive is
entitled to receive under any plan, program, policy or
practice or contract or agreement of the Company and its
affiliated companies, to the extent payment of any such
amounts or benefits are not already provided for under this
Agreement (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
With respect to the provision of Other Benefits after a Change of Control, the
term Other Benefits as utilized in this Section 5(b) shall include, without
limitation, and the Executive's estate and/or beneficiaries shall be entitled
to receive, benefits at least equal to the most favorable benefits provided by
the Company and affiliated companies to the estates and beneficiaries of peer
executives of the Company and such affiliated companies under such plans,
programs, practices and policies relating to death benefits, if any, as in
effect with respect to other
<PAGE>
peer executives and their beneficiaries at any time during the 120-day period
immediately preceding a Change of Control.
(c) Disability. If the Executive's employment is terminated
by reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump
sum in cash within 30 days of the Date of Termination. With respect to the
provision of Other Benefits after a Change of Control, the term Other Benefits
as utilized in this Section 5(c) shall include, and the Executive shall be
entitled after the Disability Effective Date to receive, disability and other
benefits at least equal to the most favorable of those generally provided by
the Company and its affiliated companies to disabled executives and/or their
families in accordance with such plans, programs, practices and policies
relating to disability, if any, as in effect generally with respect to other
peer executives and their families at any time during the 120-day period
immediately preceding a Change of Control.
(d) Cause; Other Than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) his Annual Base Salary through
the Date of Termination, (y) the amount of any compensation previously
deferred by the Executive, and (z) Other Benefits, in each case to the extent
theretofore unpaid. If the Executive voluntarily terminates employment during
the Employment Period, excluding a termination for Good Reason, this Agreement
shall terminate without further obligations to the Executive, other than for
Accrued Obligations but not including the Pro Rata Bonus and the timely
payment or provision of Other Benefits. In such case, all Accrued Obligations
shall be paid to the Executive in a lump sum in cash within 30 days of the
Date of Termination. Upon a termination of the Executive's employment for
Cause by the Company or by the Executive without Good Reason, the Executive
shall forfeit all stock options that are not vested on the Date of
Termination. If the Executive's employment is terminated for Cause, nothing in
this Agreement shall prevent the Company from pursuing any other available
remedies against the Executive.
(e) Special Bonus. Upon the earliest of (x) a termination of
employment for any reason, (y) May 8, 2006 and (z) a disposition of the
684,432 shares of incentive stock granted to the Executive (the "Incentive
Stock"), the Executive shall be entitled to one or more special bonuses equal
to $5,475,456 in the aggregate; provided that upon the disposition of less
than all of the Incentive Stock, the amount of the Special Bonus shall be
equal, in each case, to $5,475,456 multiplied by a fraction, the numerator of
which is the number of shares of Incentive Stock disposed of, and the
denominator of which is 684,432.
6. Non-exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future participation in
any plan, program, policy or practice provided by the Company or any of its
affiliated companies and for which the Executive may qualify nor shall
anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy,
<PAGE>
practice or program of or any contract or agreement with the Company or any of
its affiliated companies at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy, practice or program or contract
or agreement except as explicitly modified by this Agreement.
7. Full Settlement; Legal Fees. The Company's obligation to
make the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may have
against the Executive or others. In no event shall the Executive be obligated
to seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and such amounts shall not be reduced whether or not the Executive obtains
other employment. The Company agrees to pay as incurred, all legal and
professional fees and expenses which the Executive may reasonably incur as a
result of the negotiation and preparation of this Agreement, the Executive's
indirect investment in the Company and the transactions contemplated hereby
and thereby, and any contest by the Executive in good faith, by the Company or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a
result of any contest by the Executive about the amount of any payment
pursuant to this Agreement), plus in each case interest on any delayed payment
at the applicable Federal rate provided for in Section 7872(f)(2)(A) of the
Internal Revenue Code of 1986, as amended (the "Code"); provided, that, in
connection with any contest of this Agreement prior to a Change of Control,
the Executive shall only be entitled to reimbursement of legal fees in the
event that he prevails with respect to at least one material issue.
8. Certain Additional Payments by the Company. (a) Anything
in this Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment or distribution by the Company to or for the
benefit of the Executive (whether paid or payable or distributed or
distributable pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under this
Section 8) (a "Payment") would be subject to the excise tax imposed by Section
4999 of the Code or any interest or penalties are incurred by the Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up Payment") in an amount such that after payment by the
Executive of all taxes and any benefits that result from the deductibility by
the Executive of such taxes (including, in each case, any interest or
penalties imposed with respect to such taxes), including, without limitation,
any income taxes (and any interest and penalties imposed with respect thereto)
and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(b) Subject to the provisions of Section 8(c), all
determinations required to be made under this Section 8, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment
and the assumptions to be utilized in arriving at such determination, shall be
made by Ernst & Young or such other "Big Six" (or its equivalent) certified
public accounting firm as may be designated by the Executive and reasonably
acceptable to the
<PAGE>
Company (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15 business days of
the receipt of notice from the Executive that there has been a Payment, or
such earlier time as is requested by the Company. In the event that the
Accounting Firm is serving as accountant or auditor for the individual, entity
or group effecting the Change of Control, the Executive shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
Section 8, shall be paid by the Company to the Executive within 10 business
days of the receipt of the Accounting Firm's determination. Any determination
by the Accounting Firm shall be binding upon the Company and the Executive. As
a result of the uncertainty in the application of Section 4999 of the Code at
the time of the initial determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made ("Underpayment"), consistent with the calculations
required to be made hereunder. In the event that the Company exhausts its
remedies pursuant to Section 8(c) and the Executive thereafter is required to
make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has occurred and any such Underpayment shall
be promptly paid by the Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would require the
payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company
of the nature of such claim and the date on which such claim is requested to
be paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information
reasonably requested by the Company relating to such claim,
(ii) take such action in connection with
contesting such claim as the Company shall reasonably
request in writing from time to time, including, without
limitation, accepting legal representation with respect to
such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good
faith in order effectively to contest such claim, and
(iv) permit the Company to participate in
any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including
<PAGE>
interest and penalties with respect thereto) imposed as a result of the
payment of costs and expenses relating to such representation. Without
limitation on the foregoing provisions of this Section 8(c), the Company shall
control all proceedings taken in connection with such contest and, at its sole
option, may pursue or forgo any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim
and may, at its sole option, either direct the Executive to pay the tax
claimed and sue for a refund or contest the claim in any permissible manner,
and the Executive agrees to prosecute such contest to a determination before
any administrative tribunal, in a court of initial jurisdiction and in one or
more appellate courts, as the Company shall determine; provided, however, that
if the Company directs the Executive to pay such claim and sue for a refund,
the Company shall advance the amount of such payment to the Executive, on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating to payment
of taxes for the taxable year of the Executive with respect to which such
contested amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest shall be limited to
issues with respect to which a Gross-Up Payment would be payable hereunder and
the Executive shall be entitled to settle or contest, as the case may be, any
other issue raised by the Internal Revenue Service or any other taxing
authority at his sole cost and expense.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 8(a) or 8(c), the Executive
becomes entitled to receive any refund with respect to such claim, the
Executive shall (subject to the Company's complying with the requirements of
Section 8(c)) promptly pay to the Company the amount of such refund (together
with any interest paid or credited thereon after taxes applicable thereto).
If, after the receipt by the Executive of an amount advanced by the Company
pursuant to Section 8(c), a determination is made that the Executive shall not
be entitled to any refund with respect to such claim and the Company does not
notify the Executive in writing of its intent to contest such denial of refund
prior to the expiration of 30 days after such determination, then such advance
shall be forgiven and shall not be required to be repaid and the amount of
such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
9. Confidential Information; Nonsolicitation. (a) The
Executive shall hold in a fiduciary capacity for the benefit of the Company
all secret or confidential information, knowledge or data relating to the
Company or any of its affiliated companies, and their respective businesses,
which shall have been obtained by the Executive during the Executive's
employment by the Company or any of its affiliated companies and which shall
not be or become public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this Agreement). After
termination of the Executive's employment with the Company, the Executive
shall not, without the prior written consent of the Company or as may
otherwise be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 9 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
<PAGE>
(b) Until the later of (i) May 8, 2001 or (ii) one year
following the termination of the Executive's employment for any reason, the
Executive shall not, directly or indirectly, (i) employ or seek to employ any
person who is at the Date of Termination, or was at any time within the
six-month period preceding the Date of Termination, an employee of the Company
or any of its subsidiaries or affiliates or otherwise cause or induce any
employee of the Company or any of its subsidiaries or affiliates to terminate
such employee's employment with the Company or such subsidiary or affiliate
for the employment of another company (included for this purpose the
contracting with any person who was an independent contractor of the Company
during such period) or (ii) solicit any customers of the Company to purchase
products or services then sold by the Company from another person or entity
without, in either case, the prior written consent of the Company's Board of
Directors.
10. Successors. (a) This Agreement is personal to the
Executive and without the prior written consent of the Company shall not be
assignable by the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be enforceable
by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) Subject to clause (ii) of Section 2, the Company will
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business and/or
assets of the Company to assume expressly and agree to perform this Agreement
in the same manner and to the same extent that the Company would be required
to perform it if no such succession had taken place. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
successor to its business and/or assets as aforesaid which assumes and agrees
to perform this Agreement by operation of law, or otherwise.
11. Miscellaneous. (a) This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement
are not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
Richard E. Snyder
Linden Farm
34 Boutonville Road
Cross River, New York 10518
If to the Company:
<PAGE>
Golden Books Family Entertainment, Inc.
850 Third Avenue
New York, New York 10022
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 4(c)(i)-(iv) of this
Agreement, shall not be deemed to be a waiver of such provision or right or
any other provision or right of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and the Company has caused these presents to be executed in
its name on its behalf, all as of the day and year first above written.
RICHARD E. SNYDER
/s/ Richard E. Snyder
-----------------------------------
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
By: /s/ Philip E. Rowley
--------------------------------
Name: Philip E. Rowley
Title: Executive Vice President and
Chief Financial Officer
<PAGE>
AMENDED AND RESTATED NON-RECOURSE SECURED PROMISSORY NOTE
$5,475,456.00 August 20, 1996
(Original Note
dated January 31,
1996)
FOR VALUE RECEIVED, the undersigned, Richard E. Snyder (the
"Investor"), hereby promises to pay to Golden Books Family Entertainment,
Inc., a Delaware corporation (the "Company"), or to the legal holder of this
Note at the time of payment, the principal sum of Five Million Four Hundred
Seventy-Five Thousand Four Hundred Fifty-Six and 00/100 Dollars
($5,475,456.00) in lawful money of the United States of America. All principal
of this Note will be due and payable on January 31, 2006.
This Note evidences a loan made by the Company to the
Investor to facilitate the purchase by the Investor of 684,432 shares of
Common Stock, par value $.01 per share, of the Company (the "Shares"). This
Note amends and restates in its entirety the non-recourse secured promissory
note of the Investor to the Company entered into on January 31, 1996, and such
secured promissory note is hereby cancelled and extinguished, with no
obligation whatsoever on the part of the Investor. Payment of the principal,
fees, expenses and other amounts owing in respect of this Note is secured
pursuant to the terms of a certain Amended and Restated Pledge Agreement,
dated as of the date hereof by and between the Investor and the Company (as
such agreement may be amended from time to time, the "Pledge Agreement"),
reference to which is made for a description of the collateral provided
thereby and the rights of the Company and the holder of this Note in respect
of such collateral.
This Note is subject to the following further terms and
conditions:
Section 1. Mandatory Prepayment on Sale of Shares. If at any
time the Investor receives any proceeds from the sale by the Investor of
Shares, the Net Proceeds (as defined below in this Section 1) from such sale
of Shares shall be applied to the prepayment first of unpaid fees and expenses
owing hereunder and second to the unpaid principal hereof.
The term "Net Proceeds" shall mean the total proceeds
received from the sale of Shares by the Investor minus an amount equal to any
brokerage commissions or transaction expenses incurred by reason of the sale
of such Shares.
Concurrently with any prepayment of any portion of the
principal amount of this Note pursuant to this Section 1 or Section 2 hereof,
the Company (or other holder of this Note) shall make a notation of such
payment hereon. If full payment of all unpaid principal, fees, expenses and
other amounts owing in respect of this Note is made, this Note shall be
cancelled.
<PAGE>
Any partial prepayment shall be applied first to unpaid fees and
expenses owing hereunder, second to accrued and unpaid interest hereon and
second to the unpaid principal hereof.
Section 2. Payment and Prepayment. All payments and
prepayments of principal of, and all fees, expenses and other amounts owing in
respect of, this Note shall be made to the Company or its order, or to the
legal holder of this Note or such holder's order, in lawful money of the
United States of America at the principal offices of the Company (or at such
other place as the holder hereof shall notify the Investor in writing). The
Investor may, at its option, prepay this Note in whole or in part at any time
or from time to time without penalty or premium. Upon final payment of
principal of, and all fees, expenses and other amounts owing in respect of,
this Note it shall be surrendered for cancellation.
Section 3. Events of Default. Upon the occurrence of any of
the following events ("Events of Default"):
(a) failure to pay any principal of this Note when due; or
(b) termination of Investor's employment with the Company;
then, and in any such event, the holder of this Note may declare, by notice of
default given to the Investor, the entire principal amount of this Note to be
forthwith due and payable, whereupon the entire principal amount of this Note
outstanding shall become due and payable without presentment, demand, protest,
notice of dishonor and all other demands and notices of any kind, all of which
are hereby expressly waived.
No delay or failure by the holder of this Note in the
exercise of any right or remedy shall constitute a waiver thereof, and no
single or partial exercise by the holder hereof of any right or remedy shall
preclude any other or future exercise thereof or the exercise of any other
right or remedy.
Section 4. No Recourse. Except for recourse against the
Collateral (as such term is defined in the Pledge Agreement) as provided in
the Pledge Agreement, no recourse for the payment of the principal of this
Note or for any claim based hereon (including costs of collection) shall be
had against the Investor, all such liability being, by the acceptance hereof
and as part of the consideration for the issue hereof, expressly waived and
released.
Section 5. Miscellaneous.
(a) The provisions of this Note shall be governed by and
construed in accordance with the laws of the State of Delaware,
without regard to the principles of conflicts of law thereof.
(b) All notices and other communications hereunder shall be
in writing and will be deemed to have been duly given if delivered or
mailed in accordance with the Pledge Agreement.
2
<PAGE>
(c) Investor agrees that, subject to the limitations in
Section 4 above, Investor will pay the Company the amount of any and
all costs and expenses, including all reasonable fees and expenses of
counsel, incurred in connection with the exercise or enforcement of
any of the Company's rights under this Note or the Pledge Agreement
and the failure of Investor to perform or observe any of the
provisions of this Note or the Pledge Agreement. Any such amounts as
provided under this paragraph (c) will be added to the obligations of
Investor under this Note.
(d) In case any provision in or obligation under this Note
or the Pledge Agreement shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality, and enforceability of the
remaining provisions or obligations, or of such provision or
obligation in any other jurisdiction, shall not in any way be
affected or impaired thereby.
(e) The headings contained in this Note are for reference
purposes only and shall not affect in any way the meaning or
interpretation of the provisions hereof.
IN WITNESS WHEREOF, this Note has been duly executed and
delivered by the Investor as of the date first written above.
/s/ Richard E. Snyder
------------------------------------
Richard E. Snyder
Witness:
- ------------------------------------
3
<PAGE>
AMENDED AND RESTATED PLEDGE AGREEMENT
THIS AMENDED AND RESTATED PLEDGE AGREEMENT (the "Pledge
Agreement") dated as of August 20, 1996 is made and entered into by and
between Golden Books Family Entertainment, Inc., a Delaware corporation (the
"Company"), and Richard E. Snyder (the "Pledgor").
W I T N E S S E T H:
WHEREAS, the Pledgor has purchased 684,432 shares of the
Company's common stock, par value $.01 per share, and all of such Shares are
subject to this Pledge Agreement (the "Pledged Shares");
WHEREAS, in consideration of the loan by the Company to the
Pledgor of $5,475,456.00, receipt of which by the Pledgor is hereby
acknowledged, to enable the Pledgor to purchase certain of the Pledged Shares,
the Pledgor is delivering to the Company a duly executed Amended and Restated
Non-Recourse Secured Promissory Note of the Pledgor in the principal amount of
$5,475,456.00 dated as of the date hereof (as such note may be amended from
time to time, the "Non-Recourse Note");
WHEREAS, the Pledgor wishes to grant further security and
assurance to the Company in order to secure the payment of the principal,
fees, expenses and other amounts owing in respect of, the Non-Recourse Note
and to pledge to the Company the Pledged Shares;
NOW, THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
Section 1. Pledge. As collateral security for the full and
timely payment of the principal, fees, expenses and other amounts owing in
respect of, the Non-Recourse Note, the Pledgor hereby delivers, deposits,
pledges, transfers and assigns to the Company, in form transferable for
delivery, and creates in the Company a continuing security interest in (i) the
Pledged Shares and all certificates or other instruments or documents
evidencing any of the above now owned or hereafter acquired by the Pledgor
(together with any securities or property to be delivered to the Pledgor
pursuant to Section 2(b) hereof, the "Pledged Securities") (ii) all dividends,
payments and distributions of every kind due and payable or distributable in
respect of all or any of the Pledged Securities (the "Pledged Distributions")
and (iii) all other property, assets, accounts and moneys received by Pledgor
in respect of the Pledged Securities or the sale, transfer, assignment,
encumbrance or other disposition thereof (together with the Pledged Securities
and Pledged Distributions, the "Collateral").
<PAGE>
The Pledgor hereby delivers to the Company appropriate
undated stock transfer powers duly executed in blank for the Pledged
Securities set forth above and will deliver appropriate undated stock transfer
powers duly executed in blank for the Pledged Securities to be pledged
hereunder from time to time hereafter.
Section 2. Administration of Collateral. The following
provisions shall govern the administration of the Collateral:
(a) (i) So long as no Event of Default has occurred and is
continuing (as used herein, "Event of Default" shall mean the occurrence of
any Event of Default under the Non-Recourse Note), the Pledgor shall be
entitled to act with respect to the Pledged Securities in any manner not
inconsistent with this Pledge Agreement or Non-Recourse Note, including voting
the Pledged Securities and receiving all cash Pledged Distributions and giving
consents, waivers and ratifications in respect thereof.
(ii) Upon and during the period of an Event of Default, all
rights regarding the Pledged Securities described in the preceding sentence
shall be vested in the Company, and the Pledgor shall, if necessary, upon
written request of the Company, from time to time execute and deliver (or
cause to be executed and delivered) to the Company all such proxies, dividend
payment orders and other instruments as the Company may reasonably request. To
the extent permitted by applicable law, all dividends and distributions which
are received by the Pledgor contrary to the provisions of this clause (a)(ii)
of this Section 2 shall be received in trust for the benefit of the Company,
shall be segregated from other funds of the Pledgor and shall be forthwith
paid over to the Company as Collateral in the same form as so received (with
any necessary endorsement).
(b) If, while this Pledge Agreement is in effect, the
Pledgor shall become entitled to receive or shall receive any debt or equity
security certificate (including, without limitation, any certificate
representing a distribution in connection with any reclassification, increase
or reduction of capital, or issued in connection with any reorganization),
option or right, whether as a payment of a dividend on, or other distribution
in respect of, in substitution of, or in exchange for any Pledged Securities,
the Pledgor agrees to accept the same as the Company's agent and to hold the
same in trust on behalf of and for the benefit of the Company and to deliver
the same forthwith to the Company in the exact form received, with the
endorsement of the Pledgor when necessary and/or appropriate undated stock
transfer powers duly executed in blank, to be held by the Company, subject to
the terms of this Pledge Agreement, as additional collateral security for the
Non-Recourse Note.
(c) The Pledgor shall immediately upon request by the
Company and in confirmation of the security interests hereby created, execute
and deliver to the Company such further instruments, deeds, transfers,
assurances and agreements, in such form and substance as the Company shall
request, including any financing statements and amendments thereto, or any
other documents, required under Delaware law and any other applicable law to
protect the security interests created hereunder.
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<PAGE>
(d) Subject to any sale by the Company or other disposition
by the Company of the Pledged Securities or other Collateral pursuant to this
Pledge Agreement, and subject to Section 5 below, the Collateral shall be
returned to the Pledgor upon payment in full of the unpaid principal, fees,
expenses and other amounts owing in respect of the Non-Recourse Note.
Section 3. Remedies in Case of an Event of Default.
(a) In case an Event of Default shall have occurred and be
continuing, the Company shall have in each case all of the remedies of a
secured party under the Delaware Uniform Commercial Code, and, without
limiting the foregoing, shall have the right, in its sole discretion, to sell,
resell, assign and deliver all or, from time to time, any part of the
Collateral, including without limitation, the Pledged Securities, and any
interest in or option or right to purchase any part thereof, at any private
sale or public auction, with or without demand of performance or other demand,
advertisement or notice of the time or place of sale or adjournment thereof or
otherwise (except that the Company shall give ten days' notice to the Pledgor
of the time and place of any sale pursuant to this Section 3), for cash, on
credit or for other property, for immediate or future delivery, and for such
price or prices and on such terms as the Company shall, in its sole
discretion, determine, the Pledgor hereby waiving and releasing any and all
right or equity of redemption whether before or after sale hereunder. At any
such sale the Company may bid for and purchase the whole or any part of the
Collateral so sold free from any such right or equity of redemption. The
Company shall apply the proceeds of any such sale first to the payment of all
costs and expenses, including reasonable attorneys' fees, incurred by the
Company in enforcing its rights under this Pledge Agreement, second to the
payment of all fees, expenses and other amounts owing in respect of the
Non-Recourse Note and third to the unpaid principal of the Non-Recourse Note.
(b) The Pledgor recognizes that the Company may be unable to
effect a public sale of all or a part of the Collateral by reason of certain
prohibitions contained in the Securities Act of 1933 or in the rules and
regulations promulgated thereunder or in applicable state securities, or "blue
sky," laws, but may be compelled to resort to one or more private sales to a
restricted purchaser or group of purchasers who will be obliged to agree,
among other things, to acquire the Collateral for their own account, for
investment and not with a view to the distribution or resale thereof. The
Pledgor agrees that private sales may be so made at prices and on other terms
less favorable to the seller than if the Collateral was sold at public sale,
and that the Company has no obligation to delay the sale of the Collateral for
the period of time necessary to permit the registration of the Pledged
Securities or other Collateral for public sale under the Securities Act of
1933 and under applicable state securities, or "blue sky," laws. If the
Company determines to so register the Pledged Securities or other Collateral,
the Pledgor shall comply with reasonable requests from the Company to assist
it in making effective such registration, including the execution of such
applications and other instruments as may be required to effect such
registration. The Pledgor agrees that a private sale or sales made under the
foregoing circumstances shall be deemed to have been made in a commercially
reasonable manner.
(c) If any consent, approval or authorization of any state,
municipal or other governmental department, agency or authority should be
necessary to effectuate any sale or disposition of the Collateral by the
Company pursuant to this Section 3, the Pledgor will execute all
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<PAGE>
such applications and other instruments as may be required in connection with
securing any such consent, approval or authorization, and will otherwise use
its best efforts to secure the same.
(d) Neither failure nor delay on the part of the Company to
exercise any right, remedy, power or privilege provided for herein or by
statute or at law or in equity shall operate as a waiver thereof, nor shall
any single or partial exercise of any such right, remedy, power or privilege
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege.
Section 4. Pledgor's Obligations Not Affected. The
obligations of the Pledgor under this Pledge Agreement shall remain in full
force and effect without regard to, and shall not be impaired or affected by
(a) any subordination, amendment or modification of or addition or supplement
to the Non-Recourse Note, or any assignment or transfer thereof; (b) any
exercise or non-exercise by the Company of any right, remedy, power or
privilege under or in respect of this Pledge Agreement or the Non-Recourse
Note, or any waiver of any such right, remedy, power or privilege; (c) any
waiver, consent, extension, indulgence or other action or inaction in respect
of this Pledge Agreement or the Non-Recourse Note, or any assignment or
transfer of any thereof; or (d) any bankruptcy, insolvency, reorganization,
arrangement, readjustment, composition, liquidation or the like, of the
Company, whether or not the Pledgor shall have notice or knowledge of any of
the foregoing.
Section 5. Transfer by Pledgor. The Pledgor may sell,
assign, transfer or otherwise dispose of, grant any option with respect to, or
mortgage, pledge or otherwise encumber the Pledged Securities or any interest
therein only, in each case, as provided and permitted herein. In the event of
a sale, assignment, transfer or other disposition of or mortgage, pledge or
other encumbrance of Pledged Securities, the Pledged Securities so sold,
assigned, transferred or otherwise disposed of or mortgaged, pledged or
otherwise encumbered shall remain subject to the provisions of this Pledge
Agreement, except as provided in the next succeeding sentence, and no such
sale, assignment, transfer or other disposition of or mortgage, pledge or
other encumbrance of Pledged Securities may be effected unless and until the
proposed purchaser, assignee, transferee or other acquiror, mortgagee or
pledgee shall agree in writing, in form and substance satisfactory to the
Company in its sole discretion, to be bound by all the terms of this Pledge
Agreement with the same force and effect as if such transferee were a party
hereto. Notwithstanding anything to the contrary contained in this Section 5,
the Pledgor may sell, assign, transfer or otherwise dispose of any portion of
the Pledged Securities and the Company shall release such portion of the
Pledged Securities from the pledge hereunder to the extent that, after such
release, (i) the market value of the Pledged Securities remaining subject to
the liens created by this Pledge Agreement exceeds (ii) 125% of the principal
amount of the Non-Recourse Note then outstanding.
Section 6. Attorney-in-Fact. The Company is hereby appointed
the attorney-in-fact of the Pledgor and the Pledgor's transferees for the
purpose of carrying out the provisions of this Pledge Agreement and taking any
action and executing any instrument that the Company reasonably may deem
necessary or advisable to accomplish the purposes hereof, including without
limitation, the execution of the applications and other instruments described
in Section 3(c) hereof, which appointment as attorney-in-fact is irrevocable
as one coupled with an interest.
- 4 -
<PAGE>
Section 7. Termination. Upon payment in full of the unpaid
principal, fees, expenses and other amounts owing in respect of, the
Non-Recourse Note and upon the due performance of and compliance with all the
provisions of this Pledge Agreement and the Non-Recourse Note, this Pledge
Agreement shall terminate and the Pledgor shall be entitled to the return of
such of the Pledged Securities and other Collateral as have not theretofore
been sold, released pursuant to Section 5 hereof or otherwise applied pursuant
to the provisions of this Pledge Agreement.
Section 8. Notices. All notices or other communications
required or permitted to be given hereunder shall be effective when delivered
to the recipient at the following address:
If to Pledgor: Richard E. Snyder
Linden Farm
34 Boutonville Road
Cross River, New York 10518
If to the Company:
Golden Books Family Entertainment, Inc.
850 Third Avenue
New York, New York 10022
Attn.: General Counsel
Section 9. Binding Effect, Successors and Assigns. This
Pledge Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and assigns and nothing herein is
intended or shall be construed to give any other person any right, remedy or
claim under, to or in respect of this Pledge Agreement. Except as specifically
permitted in Section 5 hereof, no transfer of Pledged Securities of the
Pledgor shall be permitted hereunder, and any such transfer shall be null and
void, unless and until each such transferee agrees in writing, in form and
substance satisfactory to the Company in its sole discretion, to become bound
by this Pledge Agreement with respect to the Pledged Securities so
transferred.
Section 10. Miscellaneous. The Company and its assigns shall
have no obligation in respect of the Pledged Securities, except to hold and
dispose of the same in accordance with the terms of this Pledge Agreement.
This Pledge Agreement amends and restates in its entirety that certain pledge
agreement, dated as of January 31, 1996, by and between the Pledgor and the
Company, and such agreement is hereby terminated, with the Pledged Shares (as
defined therein) being returned unencumbered in all respects, other than
pursuant to this Pledge Agreement, to the Pledgor. Neither this Pledge
Agreement nor any provision hereof may be amended, modified, waived,
discharged or terminated orally, but only by an instrument in writing signed
by the party against which enforcement of the amendment, modification, waiver,
discharge or termination is sought. The provisions of this Pledge Agreement
shall be binding upon the successors and assigns of the Pledgor. The captions
in this Pledge Agreement are for convenience of reference only and shall not
define or limit the provisions hereof. This Pledge Agreement shall be governed
by and construed and enforced in accordance with the laws of the State of
Delaware, without regard to the principles of conflicts of law thereof. This
Pledge Agreement may be executed simultaneously in counterparts, each of which
is an original, but all of which together shall constitute one instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Pledge Agreement to be executed and delivered on the date first written above.
/s/ Richard E. Snyder
------------------------------------
Richard E. Snyder
GOLDEN BOOKS FAMILY
ENTERTAINMENT, INC.
By /s/ Philip E. Rowley
------------------------------------
Name: Philip E. Rowley
Title: Executive Vice President and
Chief Financial Officer
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<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT, dated July 30, 1996, by and between Golden Books Family
Entertainment, Inc. (the "Company") and Eric Ellenbogen (the "Executive").
1. Employment Term. The Company hereby agrees to employ the Executive,
and the Executive hereby agrees to enter the employ of the Company, on the
terms and conditions set forth herein, commencing on the Closing Date, as
defined in the Asset Purchase Agreement, dated July 30, 1996 by and among
Golden Books Family Entertainment, Inc., Golden Books Productions, Inc.,
Broadway Video Entertainment, L.P., Broadway Video Enterprises, Inc., Lone
Ranger Music, Inc., LRM Acquisition Corp. and Palladium Limited Partnership
(which Closing Date hereinafter is referred to as this Employment Agreement's
"Effective Date") and terminating on the fifth anniversary of the Closing Date
(the "Scheduled Termination Date"), unless terminated earlier in accordance
with Section 4 below (the "Employment Term"). This Agreement shall terminate
if the Closing Date fails to occur on or prior to January 15, 1997.
2. Title/Duties/Authority.
-----------------------
(a) During the Employment Term, the Executive shall be employed as
Executive Vice President of the Company and President of the Company's Golden
Books Entertainment Group. In addition, during the Employment Term the
Executive shall serve on the Company's Board of Directors. The Executive's
place of employment shall be in New York City, subject to required travel on
Company business.
(b) During the Employment Term, and excluding any periods of
vacation, holiday and sick leave to which the Executive is entitled, the
Executive agrees to devote full time during normal business hours to the
business and affairs of the Company and to use the Executive's best efforts to
perform faithfully and efficiently such responsibilities. During the
Employment Term, it shall not be a violation of this Agreement for the
Executive to (a) serve on corporate, civic or charitable boards or committees,
(b) deliver lectures, fulfill speaking engagements or teach at educational
institutions and (c) continue in his capacity as Director of Broadway Video,
Inc. and continue to participate in its management, so long as such activities
doe not interfere with the Executive's primary duties and responsibilities as
an employee of the Company in accordance with this Agreement.
(c) During the Employment Term, the Executive shall be the
Company's most senior executive other than the Company's Chairman, shall
report only to the Company's Chairman and shall be in charge of all
entertainment-related businesses of the Company and its direct and indirect
subsidiaries and affiliates from time to time (the "Company Group"),
including, without limitation, library holdings, television, motion pictures,
live stage, music, home video, licensing, merchandising (exclusive of juvenile
print licensing), theme parks and entertainment production ("Entertainment
Businesses"). During the Employment Term, the Executive shall be a member of
the Company's strategic planning group and shall have day-to-day participation
in all Company Group acquisitions, dispositions and other such major
transactions. All employees in the Company Group's Entertainment Businesses
will report to
<PAGE>
and be supervised by the Executive, except that (a) prior to a promotion
contemplated by Section 4(b)(1)(i) hereof, the Company's Chief Operating and
Financial Officer shall not report to the Executive, (b) following such
promotion, the Company's Chief Operating and Financial Officer shall have
dotted-line reporting to the Company's Chairman and (c) the Company's Juvenile
Print Operations shall continue to report to the Company's Chairman. All
personnel-related issues (e.g., hirings, terminations and compensation)
relating to the Company Group's Entertainment Businesses shall be determined
by the Executive, consistent with Company Group budgets, guidelines and
policies, and with concurrence required by the Company's Chairman and, if
necessary, by the Company Board of Directors.
(d) The Executive shall be entitled to receive an "Executive
Producer" or "Produced By" credit ("Credit") on all Company produced or
Company licensed film, television, music and home video productions. Credit
for such productions shall be shared with the Company's Chairman only. Fees,
if any, attributed to or generated by such Credit or Credits shall belong
solely to the Company.
3. Compensation and Benefits.
--------------------------
(a) Base Salary. During the Employment Term, the Executive shall
receive an annual base salary ("Annual Base Salary") equal to $750,000 for the
first year of the term, $800,000 for the second year of the term, $900,000 for
each of the third and fourth years of the term, and $1,000,000 for the fifth
year of the term. The Annual Base Salary shall be paid in equal biweekly
installments.
(b)(1) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Term, an annual bonus (the "Annual Bonus") pursuant to the Company's annual
incentive plans (the "Annual Plans"), pro rated (on the basis of time) in the
case of a bonus for any fiscal year during which the Executive is employed for
less than 12 months. The Executive shall have a target Annual Bonus of 100% of
his Annual Base Salary, subject to attainment of performance goals set forth
in the Annual Plans. Under the Annual Plans, the correlation of performance
achievement to the percentage of the Executive's Annual Base Salary required
to be paid shall be the same as is applicable to the Company's Chairman to the
extent that the performance criteria are the same as, or are included as part
of, the performance goals applicable to the determination of the Company
Chairman's annual bonus. The other terms and conditions applicable to the
Annual Bonus shall be the same as are applicable generally to other senior
executives of the Company Group. Subject to the foregoing provisions of this
paragraph, the Annual Plans may take into account the payments provided for in
Section 3(b)(2) hereof. Each Annual Bonus shall be paid no later than the end
of the third month of the fiscal year next following the fiscal year for which
the Annual Bonus is awarded, unless the Executive shall elect to defer the
receipt of such Annual Bonus. Notwithstanding the above, it is the intent of
the parties hereto that the Annual Plans meet all applicable requirements of
the exemption of the payments thereunder from the limitations of Section
162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
including the requirement that the Annual Plans be approved by the
shareholders of the Company prior to the payment of any bonuses thereunder.
The Company shall use all reasonable efforts to ensure that the Annual Plans
meet such requirements. The
2
<PAGE>
Board may award the Executive bonuses other than pursuant to the Annual Plans
in its discretion.
(2) Certain Special Payments. The Company shall pay the Executive
$250,000 with respect to the first year of the Employment Term (the "First
Payment") and $200,000 with respect to the second year of the Employment Term
(the "Second Payment"), as follows: (i) a pro rata portion of the First
Payment (representing the portion of the first year of the Employment Term
occurring prior to the end of the fiscal year of the Company in which the
Effective Date occurs) shall be paid within two and one-half months after the
end of the fiscal year of the Company in which the Effective Date occurs, (ii)
the remainder of the First Payment shall be paid within three months after the
end of the first year of the Employment Term, (iii) a pro rata portion of the
Second Payment (representing the portion of the second year of the Employment
Term occurring during the first fiscal year of the Company commencing after
the Effective Date) shall be paid within two and one-half months after the end
of the first fiscal year of the Company commencing after the Effective Date
and (iv) the remainder of the Second Payment shall be paid within three months
after the end of the second year of the Employment Term.
(c) Stock Options. The Executive will be granted, as of the
Effective Date hereof, a stock option (the "Option") to purchase 500,000
shares of the Company's common stock ("Stock"). Executive acknowledges that
certain action will need to be taken by the Compensation Committee to
effectuate such Option grant, which Company shall use its best efforts to
cause to occur as soon as practicable after the date hereof. The exercise
price with respect to each share of Stock subject to the Option will be the
average between the high bid price and low ask price of the Stock on the
NASDAQ market on July 23, 1996. The Option will become exercisable as to
one-fifth of the shares of Stock subject thereto on each of the first, second,
third, forth and fifth anniversaries of the date of grant. The Option will
have a term of seven years (the "Option Term"). Upon the termination of
Executive's employment:
(1) by reason of death, the Option shall become fully and
immediately exercisable and the Executive's estate may exercise
the Option until the earlier of one year following the Executive's
death or the end of the Option Term, following which time the
Option shall terminate and be no longer exercisable;
(2) by reason of "Disability" (as such term is defined in
Section 4 below), the Option shall become fully and immediately
exercisable and the Executive (or, following his death, his
estate) may exercise the Option until the earlier of one year
following the Date of Termination (as such term is defined in
Section 4 below) or the end of the Option Term, following which
time the Option shall terminate and be no longer exercisable;
(3) by the Company for "Cause" (as such term is defined in
Section 4 below) other than for Disability, the Option shall
immediately terminate and no longer be exercisable;
3
<PAGE>
(4) by the Executive without "Good Reason" (as such term is
defined in Section 4 below), the Option, to the extent exercisable
on the Date of Termination, shall remain exercisable by the
Executive (or, following his death, his estate) until the earlier
of 90 days following such date or the end of the Option Term,
following which time the Option shall terminate and be no longer
exercisable;
(5) by the Company without Cause or by the Executive with
Good Reason (other than as a result of an event described in
Section 4(b)(1)(vi)), the Option shall become fully and
immediately exercisable and the Executive (or, following his
death, his estate) may exercise the Option until the earlier of
two years following the Date of Termination or the end of the
Option Term, following which time the Option shall terminate and
be no longer exercisable; or
(6) by the Executive for Good Reason as a result of an event
described in Section 4(b)(1)(vi), the Option shall become
immediately exercisable to the extent that it would have been
exercisable, had such termination not occurred, at the end of the
calendar year in which such event occurs and the Executive (or,
following his death, his estate) may exercise the Option, to the
extent so exercisable, until the earlier of two years following
the Date of Termination or the end of the Option Term, following
which time the Option shall terminate and be no longer exercisable
In addition, during the Employment Term, the Executive shall be granted
such additional options to purchase Stock (and other equity-based incentive
compensation awards) in amounts no less than 25% of the future stock
entitlements (and other equity-based incentive compensation entitlements), if
any, granted to the Chairman of the Company under any plan or program in which
senior executives of the Company Group are eligible to participate generally
as may be determined by the Compensation Committee.
The Executive will be entitled to pay the exercise price of the Option
with shares of Stock previously acquired by the Executive and may elect to
have any withholding taxes required to be withheld as a result of the exercise
of the Option taken out of Stock issuable to the Executive as a result of such
exercise. To the extent reasonably practicable, the Company will maintain in
effect a registration statement on Form S-8 (or such other successor form as
may be applicable) with respect to the offer and sale of shares to the
Executive pursuant to the Option and a resale prospectus covering the resale
by the Executive of the Stock acquired pursuant to the exercise of the Option.
Other than as stated above, the Option will be governed by the terms and
conditions of the Company's Stock Option Plan and the standard Stock Option
Agreement thereunder to be executed by the Executive and the Company.
(d) Incentive, Savings and Retirement Plans. During the Employment
Term, the Executive shall be eligible to participate in all incentive, savings
and retirement
4
<PAGE>
plans, practices, policies and programs, if any, that are applicable generally
to other senior executives of the Company and its affiliated companies. It is
acknowledged that the Executive's level of participation in these plans shall
be consistent with an executive of his stature in the entertainment/media
industry.
(e) Welfare Benefit Plans. During the Employment Term, the
Executive and his family shall be eligible for participation in and shall
receive all benefits under welfare benefit plans, practices, policies and
programs provided by the Company Group (including, without limitation,
medical, prescription, dental, disability, salary continuance, employee life,
group life, accidental death and travel accident insurance plans and programs,
if any) that are applicable generally to other senior executives of the
Company and its affiliated companies. It is acknowledged that the Executive's
level of participation in these plans shall be consistent with an executive of
his stature in the entertainment/media industry.
(f) Expenses. During the Employment Term, the Company shall pay or
promptly reimburse the Executive for all business expenses upon presentation
of receipts therefor in accordance with the normal practices of the Company.
It is acknowledged that the Executive will incur expenses consistent with an
executive of his stature in the entertainment/media industry.
(g) Fringe Benefits. During the Employment Term, the Executive
shall be entitled to fringe benefits appropriate to an executive of
Executive's stature in the entertainment/media industry, including, without
limitation, tax and financial planning services (up to $7,500.00 per year),
payment of the Executive's reasonable legal fees for preparation and review of
this Employment Agreement and an automobile allowance to cover the cost of
obtaining, insuring and maintaining two automobiles of Executive's choice (the
"Fringe Benefits").
(h) Vacation and Holidays. During the Employment Term, the
Executive shall be entitled to four weeks of paid vacation per year and all
other paid holidays given to employees of the Company. At the conclusion of
each calendar year, the Executive shall be paid for any accrued, unused
vacation days, if any.
4. Termination of Employment.
-------------------------
(a) Cause. The Company may terminate the Executive's employment
during the Employment Term for Cause. For purposes of this Agreement, "Cause"
shall mean: (i) the conviction of, or pleading guilty to, a felony or crime
involving moral turpitude; or (ii) the willful and continued failure of the
Executive to perform substantially the Executive's duties with the Company or
one of its affiliates after a written demand for substantial performance is
delivered to the Executive by the Board, which specifically identifies the
manner in which the Board or Company Chairman believes that the Executive has
not substantially performed the Executive's duties; or (iii) a disability that
prohibits the Executive from substantially meeting his responsibilities as a
senior executive of the Company on a full-time basis for 90 out of 120
consecutive business days ("Disability").
5
<PAGE>
For purposes of this provision, no act or failure to act, on the
part of the Executive shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable belief
that the Executive's action or omission was in the best interests of the
Company. Any act, or failure to act, by the Executive based upon authority
given to the Executive pursuant to a resolution duly adopted by the Board or
based upon the advice of regular outside counsel for the Company shall be
conclusively presumed to be done, or omitted to be done, by the Executive in
good faith and in the best interests of the Company. Termination of the
Executive's employment for Cause shall be effective upon receipt of notice
pursuant to Section 4(e). For purposes of this provision, termination of the
Executive's employment on account of the Disability of the Executive shall be
by written notice to the Executive, effective 30 days after receipt thereof by
the Executive, provided that, within 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties.
(b)(1) Good Reason. The Executive's employment may be terminated
by the Executive at any time during the Employment Term for Good Reason. For
purposes of this Agreement, "Good Reason" shall mean in each case, without the
Executive's prior written consent:
(i) the Company's failure to promote the Executive to
significantly increased corporate responsibilities within 36
months after the Effective Date hereof;
(ii) the assignment to the Executive of any duties
inconsistent with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 2 of this Agreement,
or any other action by the Company which, directly or indirectly,
results in a diminution in such position, authority, duties or
responsibilities;
(iii) any failure by the Company to comply with any of the
compensation and benefits provisions of Section 3 of this
Agreement;
(iv) the Company's requiring the Executive to be based at
any office or location outside New York City;
(v) any failure by the Company to comply with and satisfy
any covenant or agreement contained in this Agreement; or
(vi) Richard Snyder's termination of employment with the
Company for reasons other than total disability or death.
The Executive must notify the Company within 180 days of the
occurrence of an event constituting Good Reason that he desires to terminate
his employment with the Company for Good Reason as a result of such event. In
the case of an event described in clauses (ii), (iii) or (v) above, the
effective date of the Executive's termination of employment shall be at least
20 but no more than 30 days after the receipt by the Company of the
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<PAGE>
Executive's notice and, if such event did not result from a bad faith
action or omission by the Company, the Company shall have an opportunity to
cure prior to the effective date of the Executive's termination. In the case
of an event described in clauses (i) or (vi) above, the effective date of the
Executive's termination of employment shall be 60 days after the receipt by
the Company of the Executive's notice. In the case of an event described in
clause (iv) or Section 4(b)(2), the effective date of the Executive's
termination of employment shall be the date set forth in the Executive's
notice.
(b)(2) Good Reason; Change of Control. The Executive's employment
further may be terminated by the Executive for Good Reason upon a Change of
Control. For purposes of this Agreement, a Change of Control shall be deemed
to have occurred if (i) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than the Company, an employee benefit plan of the Company, or
any of the Company's direct or indirect affiliates (hereinafter, a "Third
Party"), is or becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of
the Company representing fifty percent (50%) or more of the combined voting
power of the Company's then outstanding securities entitled to vote in the
election of directors of the Company or (ii) all or substantially all of the
assets of the Company are acquired by a Third Party. All references in this
Agreement to "Good Reason" shall be deemed to include a reference to
termination upon a Change of Control.
(c) Death. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Term.
(d) Without Cause; Voluntary Resignation. At any time during the
Employment Term, the Company may terminate the Executive's employment without
Cause and the Executive may terminate his employment without Good Reason, by
written notice to the other party, effective on the date specified in such
notice, which shall not be more than 30 days after the receipt of notice.
(e) Notice of Termination. Any termination of the employment of
the Executive (other than by reason of death) shall be communicated by Notice
of Termination to the other party hereto given in accordance with Section
12(b) of this Agreement. For purposes of this Agreement, a "Notice of
Termination" means a written notice which (i) indicates the specific
termination provision in this Agreement relied upon, (ii) to the extent
applicable, sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated and (iii) if the Date of Termination (as defined
below) is other than the date of receipt of such notice, specifies the
termination date. The failure by the Executive or the Company to set forth in
the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of the Executive or
the Company, respectively, hereunder or preclude the Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(f) Date of Termination. "Date of Termination" means the effective
date of the termination of the Executive's employment.
7
<PAGE>
5. Obligations of the Company Upon Termination. (a) Certain Good Reason;
Other Than for Cause. If during the Employment Term, the Company shall
terminate the Executive's employment without Cause and other than as a result
of Disability or the Executive shall terminate his employment for Good Reason
as a result of an event described in clauses 4(b)(1)(ii) - (v) hereof:
(i) the Company shall pay to the Executive the aggregate of
following amounts:
A. the sum of (1) the Executive's Annual Base Salary through
the Date of Termination, (2) any compensation previously deferred
by the Executive (together with any accrued interest or earnings
thereon), (3) any accrued vacation pay, in each case to the extent
not theretofore paid, (4) any payments described in Section
3(b)(2) hereof and (5) any Annual Bonus for the fiscal year of the
Company terminating prior to the Date of Termination, in each case
to the extent not theretofore paid (the "Accrued Obligations").
All Accrued Obligations shall be paid in a lump sum in cash within
30 days of the Date of Termination; and
B. the Annual Base Salary in the amounts provided in Section
3(a) through the later of the Scheduled Termination Date and the
two-year anniversary of the Date of Termination, to be paid either
(1) in a lump sum, if approved by the Board of Directors of the
Company, within 30 days after the Date of Termination or (2) as
salary continuation for the period through the Scheduled
Termination Date or two-year anniversary of the Date of
Termination, respectively. For purposes of this paragraph B,
Annual Base Salary for the period following the Scheduled
Termination Date shall be presumed to be at the rate required to
be in effect on the Scheduled Termination Date.
(ii) through the later of the Scheduled Termination Date or the
two-year anniversary of the Date of Termination, the Company shall
continue benefits to the Executive and his family at least equal to
those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 3(e) of
this Agreement if the Executive's employment had not been terminated,
provided, however, that if the Executive becomes re-employed with
another employer and is eligible to receive medical or other welfare
benefits under another employer provided plan, the corresponding medical
and other welfare benefits described herein shall be terminated. For
purposes of determining eligibility (but not the time of commencement of
benefits) of the Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be considered to
have remained employed until the later of the Scheduled Termination Date
or
8
<PAGE>
the two-year anniversary of the Date of Termination and to have
retired on the last day of such period;
(iii) through the later of the Scheduled Termination Date or the
two-year anniversary of the Date of Termination, the Company shall
continue to provide the Executive with the Fringe Benefits; and
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided to the Executive or which the
Executive is entitled to receive under any plan, program, policy or
practice or contract or agreement of the Company and its affiliated
companies, to the extent payment of any such amounts or benefits are not
already provided for under this Agreement (such other amounts and
benefits shall be hereinafter referred to as the "Other Benefits").
The Executive shall have no duty or obligation to mitigate the amounts or
benefits required to be provided pursuant to this Subsection 5(a), and, except
as specifically provided in clause (ii) hereof, such amounts and benefits
shall not be reduced or offset by any other amounts to which Executive may
become entitled.
(b) Certain Good Reason; Expiration of Employment Term. If during
the Employment Term the Executive's employment is terminated by the Executive
for Good Reason as a result of an event described in Section 4(b)(1)(i) or
4(b)(2) hereof, or the Employment Term expires in the manner described in
Section 9 hereof:
(i) the Company shall pay to the Executive the aggregate of the
following amounts:
A. the Accrued Obligations in a lump sum in cash within 30
days of the Date of Termination; and
B. the Annual Base Salary in the amounts provided in Section
3(a) through the two-year anniversary of the Date of Termination,
to be paid either (1) in a lump sum, if approved by the Board of
Directors of the Company, within 30 days after the Date of
Termination or (2) as salary continuation for a period of two
years following the Date of Termination. For purposes of this
paragraph B, Annual Base Salary for the period following the
Scheduled Termination Date shall be presumed to be at the rate
required to be in effect on the Scheduled Termination Date;
(ii) through the two-year anniversary of the Date of Termination,
the Company shall continue benefits to the Executive and his family at
least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies described in
Section 3(e) of this Agreement if the Executive's employment had not
been terminated, provided,
9
<PAGE>
however, that if the Executive becomes re-employed with another employer
and is eligible to receive medical or other welfare benefits under
another employer provided plan, the corresponding medical and other
welfare benefits described herein shall be terminated. For purposes of
determining eligibility (but not the time of commencement of benefits)
of the Executive for retiree benefits pursuant to such plans, practices,
programs and policies, the Executive shall be considered to have
remained employed until the two-year anniversary of the Date of
Termination and to have retired on the last day of such period; and
(iii) the Other Benefits.
The Executive shall have no duty or obligation to mitigate the amounts or
benefits required to be provided pursuant to this Subsection 5(b), nor shall
any such amounts or benefits be reduced or offset by any other amounts to
which Executive may become entitled; provided, that (x) if the Executive
becomes employed by a new employer during the two-year period following the
Date of Termination, the Executive shall be required to return to the Company
a pro-rata portion of the amounts provided for in clause (i)(B), if paid in a
lump sum, or such amounts, if paid as salary continuation, shall cease as of
the date of re-employment and (y) the benefits provided for in clause (ii)
shall be offset to the extent specifically provided therein.
(c) Death; Disability; Good Reason. If the Executive's employment
is terminated by reason of the Executive's death or Disability or by the
Executive for Good Reason as a result of an event described in Section
4(b)(1)(vi) hereof during the Employment Term, this Agreement shall terminate
without further obligations to the Executive or his legal representatives
under this Agreement, other than for payment of Accrued Obligations, the right
to exercise the Executive's Option under Section 3(c) herein, and the timely
payment or provision of Other Benefits. Accrued Obligations shall be paid to
the Executive, his estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the Date of Termination.
(d) Cause; Other Than for Good Reason. If, during the Employment
Term, the Executive's employment shall be terminated by the Company for Cause
(other than for Disability) or by the Executive without Good Reason, this
Agreement shall terminate without further obligations to the Executive other
than the payment of Accrued Obligations, the right to exercise the Executive's
Option under Section 3(c) herein and the timely payment or provision of Other
Benefits. All Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination. If the Executive's
employment is terminated for Cause, nothing in this Agreement shall prevent
the Company from pursuing any available remedies against the Executive.
(e) Certain Reductions. (i) Anything in this Agreement to the
contrary notwithstanding, in the event it shall be determined that any payment
or distribution by the Company to or for the benefit of the Executive (whether
paid or payable or distributed or distributable pursuant to the terms of this
Agreement or otherwise, a "Payment") would be subject to the excise tax
imposed by Section 4999 of the Code (the "Excise Tax"), then the payments
pursuant to this Agreement shall be reduced to the extent that such reduction
would result in after-tax payments and benefits to the Executive that exceed
the after-tax payments and benefits to which the Executive would be entitled
without such reduction. In the event of
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<PAGE>
any such reduction, the Executive shall be entitled to designate the specific
payments or benefits reduced.
(ii) All determinations required to be made under this Subsection
5(e) shall be made by such certified public accounting firm as may be
designated by the Executive (the "Accounting Firm"). Either party hereto may
call for an Accounting Firm to be designated by the Executive to make a
determination hereunder. The Accounting Firm shall provide detailed supporting
calculations to either party hereto upon request therefore. All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any
determination by the Accounting Firm shall be binding upon the Company and the
Executive and the Company and the Executive agree not to take any position (in
any tax return or otherwise) inconsistent with such determination.
(iii) As a result of potential uncertainty in the application of
Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that a payment will be made to the
Executive which should not have been made. In the event of determination by
the IRS or a court that the Excise Tax applies to any Payment which is not
appealable or which the Executive chooses not to appeal, the Executive shall
return to the Company all or any portion of the payments or benefits provided
pursuant to this Agreement (without interest) that the Executive determines
would result in the Excise Tax ceasing to apply to any Payment.
6. Non-Exclusivity of Rights. Nothing in this Agreement shall
prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
affiliated companies and for which the Executive may qualify nor shall
anything herein limit or otherwise affect such rights as the Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or program of
or any contract or agreement with the Company or any of its affiliated
companies at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program or contract or
agreement except as explicitly modified by this Agreement.
7. Full Settlement; Legal Fees. The Company's obligation to make
the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may have
against the Executive or others. The Company agrees to pay as incurred, all
legal and professional fees and expenses which the Executive may reasonably
incur as a result of the negotiation and preparation of this Agreement, the
Executive's indirect investment in the Company and the transactions
contemplated hereby and thereby, and any contest by the Executive in good
faith, by the Company or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by the Executive
about the amount of any payment pursuant to this Agreement), plus in each case
interest on any delayed payment at the applicable Federal rate provided for in
Section 7872(f)(2)(A) of the Code provided that in connection with any contest
of this Agreement, the Executive shall only
11
<PAGE>
be entitled to reimbursement of legal fees in the event that he substantially
prevails with respect to at least one material issue.
8. Confidential Information; Non-Solicitation. (a) The Executive
shall hold in a fiduciary capacity for the benefit of the Company all secret
or confidential information, knowledge or data relating to the Company or any
of its affiliated companies, and their respective businesses, which shall have
been obtained by the Executive during the Executive's employment by the
Company or any of its affiliated companies and which shall not be or become
public knowledge (other than by acts by the Executive or representatives of
the Executive in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or data
to anyone other than the Company and those designated by it. In no event shall
an asserted violation of the provisions of this Section 8 constitute a basis
for deferring or withholding any amounts otherwise payable to the Executive
under this Agreement.
(b) For a period of one year following the termination of the
Executive's employment for any reason, the Executive shall not, directly or
indirectly, (i) employ or seek to employ any person who is at the Date of
Termination, or was at any time within the six-month period preceding the Date
of Termination, an employee of the Company or any of its subsidiaries or
affiliates or otherwise cause or induce any employee of the Company or any of
its subsidiaries or affiliates to terminate such employee's employment with
the Company or such subsidiary or affiliate for the employment of another
company (included for this purpose the contracting with any person who was an
independent contractor of the Company during such period) or (ii) solicit any
customers of the Company to purchase products or services then sold by the
Company from another person or entity without, in either case, the prior
written consent of the Company's Board of Directors[; provided, that this
Section 8 is not intended to prevent the Executive from engaging in production
and distribution activities which in the normal course of business would
result in supplying product to customers of the Company].
9. Employment Renewal. One year prior to expiration of the
Employment Term, the Company and the Executive shall enter into good-faith
negotiations for a new employment agreement. If the Company fails to offer the
Executive a new agreement with terms no less favorable than those in effect at
the Scheduled Termination Date, or if such offer is subsequently revoked, the
Executive shall be entitled to the benefits described in Section 5(b) hereof.
10. Successors.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns, but shall not be
assignable by the Company (other
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<PAGE>
than to an entity which at the time of assignment is a wholly-owned direct or
indirect subsidiary of the Company) without the prior written consent of the
Executive; provided that no such consent shall be required in the event of an
assignment to a Third Party in a Change of Control. In the event of an
assignment pursuant to the parenthetical provision of the preceding sentence,
the term "Change in Control" shall include, for purposes of this Agreement, a
change in the effective control of the assignee.
(c) The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no succession
had taken place. As used in this Agreement, "Company" shall mean the Company
as hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
11. Insurance and Indemnification. (a) The Executive shall be
covered by directors' and officers' liability insurance to the same extent as
the Company Chairman. The Company shall indemnify and hold harmless the
Executive to the fullest extent permitted by law with respect to any act or
omission committed by the Executive in the performance of his duties
hereunder. Amounts payable pursuant to such indemnity shall be paid as the
related expense or liability arises. The Company hereby represents that, as of
the Effective Date, its by-laws and articles of incorporation provide the
Executive with the maximum limitation of the Executive's liability permitted
by applicable law. The obligations of this Section 11 shall survive the
termination of the Employment Term and shall apply notwithstanding any
provision to the contrary in Section 5 herein.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement
are not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives. This Agreement constitutes the entire understanding of the
parties hereto with respect to the employment of the Executive by the Company,
and supersedes any and all prior understandings, agreements or commitments
related thereto.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
-------------------
Mr. Eric Ellenbogen
1 W. 72nd Street
New York, New York
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<PAGE>
With a copy to:
---------------
Arthur H. Kohn
Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
If to the Company:
-----------------
Golden Books Family Entertainment,
850 Third Avenue
New York, New York 10022
Attention: General Counsel
With a copy to:
--------------
Rita A. Hernandez
Schulte Roth & Zabel
900 Third Avenue
New York, NY 10022
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement
or the failure to assert any right the Executive or the Company may have
hereunder shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
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<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the
Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
ERIC ELLENBOGEN
/s/ Eric Ellenbogen
---------------------------
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
By: /s/ Richard E. Snyder
-----------------------------------
Name: Richard E. Snyder
Title: Chairman of the Board of Directors
and Chief Executive Officer
<PAGE>
EMPLOYMENT AGREEMENT
AGREEMENT by and between Golden Books Family Entertainment, Inc. (the
"Company"), and Philip Rowley (the "Executive"), effective as of July 1, 1996
(the "Effective Date").
1. Employment Term. The Company hereby agrees to employ the Executive,
and the Executive hereby agrees to enter the employ of the Company, commencing
on the Effective Date and continuing for a three-year term from such Effective
Date, unless terminated earlier in accordance with Section 4 below.
2. Title and Duties.
(a) Commencing on the Effective Date and for the remainder of the
Employment Term, the Executive shall be an Executive Vice President of
the Company, and shall serve as its Chief Operating Officer and Chief
Financial Officer with such duties, responsibilities and authority as
shall be consistent therewith. The Executive shall be based in New York
City.
(b) During the Employment Term, and excluding any periods of
vacation, holiday and sick leave to which the Executive is entitled, the
Executive agrees to devote full time during normal business hours to the
business and affairs of the Company and to use the Executive's best
efforts to perform faithfully and efficiently such responsibilities.
3. Compensation and Benefits.
(a) Base Salary. During the Employment Term, the Executive shall
receive an annual base salary ("Annual Base Salary") of $500,000 for the
first year of the term, $625,000 for the second year of the term, and
$750,000 for the third year of the term. The Annual Base Salary shall be
paid in equal biweekly installments.
(b) Annual Bonus. In addition to Annual Base Salary, the Executive
shall be awarded, for each fiscal year during the Employment Term, an
annual bonus (the "Annual Bonus") pursuant to the Company's annual
incentive plans (the "Annual Plans"), pro rated in the case of a bonus
for any year during which the Executive was employed for less than 12
months. The Executive shall have a target annual bonus of 100% of his
Annual Base Salary (the "Target Bonus"), subject in each case to
attainment of the performance goals set forth in the Annual Plans.
Executive, however, is guaranteed a minimum Annual Bonus of $250,000 for
the first year of the Employment Term and $125,000 for the second year
of the Employment Term. Each such Annual Bonus shall be paid no later
than the end of the third month of the fiscal year next following the
fiscal year for which the Annual Bonus is awarded, unless the Executive
shall elect to defer the receipt of
<PAGE>
such Annual Bonus. Notwithstanding the above, it is the intent of
the parties hereto that the Annual Plans meet all applicable
requirements for the exemption of the payments thereunder from the
limitations of Section 162(m) of the Internal Revenue Code of 1986, as
amended, including the requirement that the Annual Plans be approved by
the shareholders of the Company prior to the payment of any bonuses
thereunder. The Board may award the Executive bonuses other than
pursuant to the Annual Plans in its discretion.
(c) Stock Options. The Executive will be granted, as of the
Effective date hereof, a stock option (the "Option") to purchase 300,000
shares of the Company's common stock ("Stock"). Executive acknowledges
that certain action will need to be taken by the Compensation Committee
to effectuate such Option grant. The exercise price with respect to each
share of Stock subject to the Option will be the average between the
high bid price and low ask price of the Stock on the NASDAQ market on
the Effective Date. The Option will become exercisable as to one-third
of the shares of Stock subject thereto on the first anniversary of the
date of grant, as to an additional one-third of such shares on the
second anniversary of the date of grant and as to an additional
one-third of such shares on the third anniversary of the date of grant.
The Option will have a term of seven years (the "Option Term"). Upon the
termination of Executive's employment:
(1) by reason of death, the Executive's estate may exercise
the Option (to the extent exercisable at the time of death) until
the earliest of one year following the Executive's death or the
end of the Option Term, following which time the Option shall
terminate and be no longer exercisable;
(2) by the Company for "cause" or by the Executive
voluntarily without "good reason" (as each term is defined in
Section 4 below), the Option shall terminate and no longer be
exercisable on the date the Executive is advised by the Board that
he is being terminated for cause, or the effective date of the
Executive's voluntary termination without good reason, as
applicable; or
(3) by the Company without Cause or by the Executive with
Good Reason, including a Change of Control (as such terms are
defined in Section 4(b) below), the Executive may exercise the
Option until the earliest of two years following the Executive's
termination or the end of the Option Term, following which time
the Option shall terminate and be no longer exercisable.
2
<PAGE>
In addition, during the Employment Term the Executive shall
be granted such additional options to purchase Stock in amounts no
less than 25% of the future stock option entitlements, if any, of
the Chairman of the Company as may be determined by the
Compensation Committee.
Other than as stated above, the Option will be governed by
the terms and conditions of the Company's Stock Option Plan and
the standard Stock Option Agreement thereunder to be executed by
the Executive and the Company.
(d) Incentive, Savings and Retirement Plans. During the Employment
Term, the Executive shall be eligible to participate in all incentive,
savings and retirement plans, practices, policies and programs, if any,
that are applicable generally to other senior executives of the Company
and its affiliated companies.
(e) Welfare Benefit Plans. During the Employment Term, the
Executive and/or the Executive's family, as the case may be, shall be
eligible for participation in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by the
Company and its affiliated companies (including, without limitation,
medical, prescription, dental, disability, salary continuance, employee
life, group life, accidental death and travel accident insurance plans
and programs, if any) that are applicable generally to other senior
executives of the Company and its affiliated companies. It is
acknowledged that the Executive's level of participation in these plans
shall be consistent with an executive of his stature in the Company's
industry.
(f) Expenses. During the Employment Term, the Company shall pay or
promptly reimburse the Executive for all business expenses upon
presentation of receipts therefor in accordance with the normal
practices of the Company. It is acknowledged that the Executive will
incur expenses consistent with an executive of his stature in the
Company's industry.
(g) Fringe Benefits. During the Employment Term, the Executive
shall be entitled to fringe benefits appropriate to an executive of
Executive's stature in the Company's industry, including an automobile
allowance of $2,000.00 per calendar month to cover the cost of
obtaining, insuring and maintaining an automobile of Executive's choice.
The Company also shall pay the Executive's reasonable legal fees for
preparation and review of this Employment Agreement and shall reimburse
the Executive, up to $7500.00 per year, for personal legal and tax
counsel in connection with Company stock option plans, etc.
3
<PAGE>
(h) Vacation and Holidays. During the Employment Term, the
Executive shall be entitled to four weeks of paid vacation per year and
all other paid holidays given to employees of the Company.
4. Termination of Employment.
(a) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause. For purposes of this Agreement,
"Cause" shall mean: (i) the conviction of, or pleading guilty to, a felony or
crime involving moral turpitude, or (ii) the willful and continued failure of
the Executive to perform substantially the Executive's duties with the Company
or one of its affiliates after a written demand for substantial performance is
delivered to the Executive by the Board, which specifically identifies the
manner in which the Board or Chief Executive Officer believes that the
Executive has not substantially performed the Executive's duties; or (iii) a
disability that prohibits the Executive from substantially meeting his
responsibilities as a senior executive of the Company on a full-time basis for
90 out of 120 consecutive business days.
(b) (1) Good Reason. The Executive's employment may be terminated
by the Executive for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean in each case, without the Executive's prior written
consent:
(i) the assignment to the Executive of any duties
inconsistent with the Executive's position (including status,
offices, titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 2 of this Agreement,
or any other action by the Company which results in a diminution
in such position, authority, duties or responsibilities, excluding
for this purpose any action not taken in bad faith and which is
remedied by the Company promptly after receipt of notice thereof
given by the Executive;
(ii) any failure by the Company to comply with any of the
compensation and benefits provisions of Section 3 of this
Agreement, other than failure not occurring in bad faith and which
is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at
any office or location outside New York City;
(iv) any failure by the Company to comply with and satisfy
any covenant or agreement contained in this Agreement, excluding
for this purpose any failure or omission not occurring in bad
faith or any action not taken in bad faith and which is remedied
by the Company promptly after receipt of notice thereof given by
the Executive; or
(v) Richard Snyder's departure from the Company.
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(b) (2) Good Reason: Change of Control. The Executive's employment
further may be terminated by the Executive for Good Reason upon a Change of
Control. For purposes of this Agreement, a Change of Control shall be deemed
to have occurred if (i) any "person" (as such term is used in Sections 13(d)
and 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), other than the Company, an employee benefit plan of the Company, or
any of the Company's direct or indirect affiliates (hereinafter, a "Third
Party"), is or becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated under the Exchange Act), directly or indirectly, of securities of
the Company representing fifty percent (50%) or more of the combined voting
power of the Company's then outstanding securities entitled to vote in the
election of directors of the Company or (ii) all or substantially all of the
assets of the Company are acquired by a Third Party.
(c) Death. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 11(b)
of this Agreement. For purposes of this Agreement, a "Notice of Termination"
means a written notice which (i) indicates the specific termination provision
in this Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination of the Executive's employment under the provision so indicated and
(iii) if the Date of Termination (as defined below) is other than the date of
receipt of such notice, specifies the termination date (which date shall be
not more than thirty days after the giving of such notice). The failure by the
Executive or the Company to set forth in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason or Cause shall not
waive any right of the Executive or the Company, respectively, hereunder or
preclude the Executive or the Company, respectively, from asserting such fact
or circumstance in enforcing the Executive's or the Company's rights
hereunder.
(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be (although such Date of
Termination shall retroactively cease to apply if the circumstances providing
the basis of termination for Cause or Good Reason are cured in accordance with
Section 4(a) or 4(b) of this Agreement, respectively), (ii) if the Executive's
employment is terminated by the Company other than for Cause, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (iii) if the Executive's employment is terminated by
reason of death, the Date of Termination shall be the date of death of the
Executive.
5. Obligations of the Company Upon Termination. (a) Good Reason; Other
Than for Cause. If, during the Employment Term, the Company shall terminate
the Executive's employment other than for Cause or the Executive shall
terminate employment for Good Reason:
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(i) the Company shall pay to the Executive the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid, and
(2) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not theretofore
paid (the sum of the amounts described in clauses (1) and (2)
shall be hereinafter referred to as the "Accrued Obligations").
All Accrued Obligations shall be paid in a lump sum in cash within
30 days of the Date of Termination; and
B. two times the Executive's Annual Base Salary as set forth
in Section 3(a) for the year in which the Date of Termination
falls, to be paid either (1) in a lump sum, if approved by the
Board, 30 days after the Date of Termination, or (2) as salary
continuation for a period of two years following the Date of
Termination. The Executive shall have no duty or obligation to
mitigate, and such salary continuation payments will continue even
in the event the Executive becomes reemployed by another employer.
(ii) all stock options, restricted stock and other stock-based
compensation shall become exercisable or vested pursuant to Section
3(c)(3) herein;
(iii) for two years after the Executive's Date of Termination, the
Company shall continue benefits to the Executive and/or the Executive's
family at least equal to those which would have been provided to them in
accordance with the plans, programs, practices and policies described in
Section 3(e) of this Agreement if the Executive's employment had not
been terminated, provided, however, that if the Executive becomes
reemployed with another employer and is eligible to receive medical or
other welfare benefits under another employer provided plan, the
corresponding medical and other welfare benefits described herein shall
be terminated. For purposes of determining eligibility (but not the time
of commencement of benefits) of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the Executive
shall be considered to have remained employed until the later of two
years after the Date of Termination or the end of the Employment Term
and to have retired on the last day of such period;
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided to the Executive or which the
Executive is
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entitled to receive under any plan, program, policy or practice or
contract or agreement of the Company and its affiliated companies, to
the extent payment of any such amounts or benefits are not already
provided for under this Agreement (such other amounts and benefits shall
be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason
of the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations, the right
to exercise the Executive's Stock Option under Section 3(c)(1) herein, and the
timely payment or provision of Other Benefits. Accrued Obligations shall be
paid to the Executive's estate or beneficiary, as applicable, in a lump sum in
cash within 30 days of the Date of Termination.
(c) Cause; Other Than for Good Reason. If, during the Employment
Term, the Executive's employment shall be terminated by the Company for Cause
or by the Executive without Good Reason, this Agreement shall terminate
without further obligations to the Executive other than the payment of Accrued
Obligations, and the payment or provision of Other Benefits. All Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30
days of the Date of Termination. Upon a termination of the Executive's
employment for Cause by the Company or by the Executive without Good Reason,
the Executive shall forfeit all stock options that are not vested on the Date
of Termination. If the Executive's employment is terminated for Cause, nothing
in this Agreement shall prevent the Company from pursuing any other available
remedies against the Executive.
6. Non-Exclusivity of Rights. Nothing in this Agreement shall prevent or
limit the Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which the Executive may qualify nor shall anything herein limit or
otherwise affect such rights as the Executive may have under any contract or
agreement with the Company or any of its affiliated companies. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan, policy, practice or program of or any contract or agreement
with the Company or any of its affiliated companies at or subsequent to the
Date of Termination shall be payable in accordance with such plan, policy,
practice or program or contract or agreement except as explicitly modified by
this Agreement.
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7. Full Settlement; Legal Fees. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may have
against the Executive or others. The Company agrees to pay as incurred, all
legal and professional fees and expenses which the Executive may reasonably
incur as a result of the negotiation and preparation of this Agreement, the
Executive's indirect investment in the Company and the transactions
contemplated hereby and thereby, and any contest by the Executive in good
faith, by the Company or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of
performance thereof (including as a result of any contest by the Executive
about the amount of any payment pursuant to this Agreement), plus in each case
interest on any delayed payment at the applicable Federal rate provided for in
Section 7872(f)(2)(A) of the Internal Revenue Code of 1986, as amended (the
"Code") provided that in connection with any contest of this Agreement, the
Executive shall only be entitled to reimbursement of legal fees in the event
that he prevails with respect to at least one material issue.
8. Confidential Information; Non-Solicitation. (a) The Executive shall
hold in a fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the Company or any of
its affiliated companies, and their respective businesses, which shall have
been obtained by the Executive during the Executive's employment by the
Company or any of its affiliated companies and which shall not be or become
public knowledge (other than by acts by the Executive or representatives of
the Executive in violation of this Agreement). After termination of the
Executive's employment with the Company, the Executive shall not, without the
prior written consent of the Company or as may otherwise be required by law or
legal process, communicate or divulge any such information, knowledge or data
to anyone other than the Company and those designated by it. In no event shall
an asserted violation of the provisions of this Section 8 constitute a basis
for deferring or withholding any amounts otherwise payable to the Executive
under this Agreement.
(b) For a period of one year following the termination of the
Executive's employment for any reason, the Executive shall not, directly or
indirectly, (i) employ or seek to employ any person who is at the Date of
Termination, or was at any time within the six-month period preceding the Date
of Termination, an employee of the Company or any of its subsidiaries or
affiliates or otherwise cause or induce any employee of the Company or any of
its subsidiaries or affiliates to terminate such employee's employment with
the Company or such subsidiary or affiliate for the employment of another
company (included for this purpose the contracting with any person who was an
independent contractor of the Company during such period) or (ii) solicit any
customers of the Company to purchase products or services then sold by the
Company from another person or entity without, in either case, the prior
written consent of the Company's Board of Directors.
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9. Employment Renewal. Six months prior to expiration of the
Employment Term, the Company and the Executive shall enter into good-faith
negotiations for a new employment agreement. If the Company fails to offer the
Executive a new agreement with terms no less favorable than as set forth
herein, or if such offer is subsequently revoked, the Executive shall receive
(A) two times the Executive's then current Annual Base Salary as set forth in
Section 3(a) herein to be paid either (1) in a lump sum, if approved by the
Board, 30 days after the date of expiration of the Employment Term or (2) as
salary continuation for a period of two years following the date of the
expiration of the Employment Term, and (B) continuation, for a two year
period, of medical and other welfare benefits as described in Section 3(e)
herein, provided, however, that if the Executive becomes reemployed with
another employer, such salary continuation payments and benefits continuation
shall terminate.
10. Successors.
(a) This Agreement is personal to the Executive and without the
prior written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) Subject to Section 4(b)(2), the Company will require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company to assume expressly and agree to perform this Agreement in the same
manner and to the same extent that the Company would be required to perform it
if no such succession had taken place. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
11. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement
are not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
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If to the Executive:
Mr. Philip Rowley
55 Hudson Street
Apartment 10B
New York, New York 10013
If to the Company:
Golden Books Family Entertainment, Inc.
850 Third Avenue
New York, New York 10022
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement
or the failure to assert any right the Executive or the Company may have
hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 4 (b)(1) and (b)(2)
of this Agreement, shall not be deemed to be a waiver of such provision or
right or any other provision or right of this Agreement.
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IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the
Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
PHILIP ROWLEY
/s/ Philip Rowley
-----------------------------------------
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
By: /s/ Richard E. Synder
--------------------------------------
Name: Richard E. Snyder
Title: Chairman of the Board of Directors
and Chief Executive Officer
11
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
May 28, 1996
Willa Perlman
68 Mercer Avenue
Hartsdale, New York 10530
Dear Ms. Perlman:
This letter agreement ("Agreement") sets forth our mutual
understanding of the terms of your employment with Golden Books Family
Entertainment, Inc. (the "Company") effective as of May 28, 1996 (the
"Effective Date").
1. Title; Scope of Duties. President and Publisher of the
Juvenile Book Division of the Company based in New York, New York, with
executive responsibility for all juvenile publishing operations. You shall
report directly to Richard E. Snyder and, if he is no longer employed with the
Company, to the person then employed as Chief Executive Officer of the
Company, or the person performing similar functions. The Sales and Marketing
components of the Juvenile Book Division shall report to you, provided, that
nothing shall limit other divisions of the Company from utilizing personnel
who otherwise would report to you or your direct subordinates in connection
with the marketing of books in connection with the sales of other products of
the Company to the same customer.
2. Term. This Agreement will be effective on the Effective
Date and shall run for a three-year term from such Effective Date, unless
terminated earlier in accordance with Section 6 below.
3. Compensation. You shall receive an annual base salary
("Salary") of $300,000 for the first year of the term. The Salary will be
reviewed as of the end of each year of the term by the Compensation Committee
(the "Compensation Committee") of the Board of Directors of the Company (the
"Board"), and may be increased (but not decreased) in the discretion of the
Compensation Committee. The Salary will be payable in accordance with the
Company's customary payroll policies. In addition to the Salary, you will be
entitled to participate in the Company's Executive Officer Bonus Plan and all
other compensation, incentive or bonus plans established for senior executives
of the Company, and you shall be eligible for any and all bonuses in
accordance with the provisions of such plan or plans; provided, that you may
not participate in stock option plans (other than as provided under "Stock
Options" below) or other equity-based plans which are not generally available
to other executives at your level who also have stock options, unless the
Compensation Committee otherwise determines. It is acknowledged and agreed
that your target bonus under the Company's Executive Officer Bonus Plan will
be 100% of your Salary, and the maximum bonus will be 200% of your Salary, at
the
<PAGE>
Company's discretion, if you and the Company exceed such criteria
established by the Compensation Committee, provided that in respect of the
fiscal years ending January 31, 1996, 1997 and 1998, your bonus shall be not
less than $287,700.00, $300,000.00 and $112,300.00, respectively (each, a
"Guaranteed Bonus"). Such bonuses shall be payable when bonuses for the
relevant fiscal year are generally paid to the relevant employees, or 120 days
after the end of such fiscal year, whichever is earlier.
Stock Options. You will be granted as of the Effective Date
a stock option (the "Option") to purchase 75,000 shares of the Company's
common stock ("Stock"). The exercise price with respect to each share of Stock
subject to the Option will be the average between the high bid price and low
ask price of the Stock on the NASDAQ market on May 28, 1996. The Option will
become exercisable as to one-third of the shares of Stock subject thereto on
the first anniversary of the date of grant, as to an additional one-third of
such shares on the second anniversary of the date of grant and as to an
additional one-third of such shares on the third anniversary of the date of
grant; provided that the Option will become exercisable as to all of the
shares of Stock subject thereto upon a "Change of Control" of the Company, as
defined in the Employment Agreement between the Company and Richard E. Snyder
dated as of May 8, 1996. The Option will have a term of seven years (the
"Option Term"). Upon the termination of your employment:
(i) by reason of death, of your estate may exercise the
Option (to the extent exercisable at the time of death) until the
earliest of one year following your death or the end of the Option
Term, following which time the Option shall terminate and be no
longer exercisable;
(ii) by the Company for "cause" or by you voluntarily
without "good reason" (as each term is defined in Section 6 below),
the Option shall terminate and no longer be exercisable on the date
you are advised by the Board that you are being terminated for cause,
or the effective date of your voluntary termination without good
reason, as applicable; or
(iii) by the Company without cause or by you with good
reason, you may exercise the Option with respect to all of the shares
of Stock subject thereto (whether or not otherwise then exercisable)
until the earliest of 90 days following your termination or the end
of the Option Term, following which time the Option shall terminate
and be no longer exercisable.
Other than as stated above, the Option will be governed by
the terms and conditions of the Company's Stock Option Plan and the standard
Stock Option Agreement thereunder to be executed by you and the Company.
You will be entitled to participate in other equity plans
offered to senior executives of the Company on a level commensurate with your
position.
4. Benefits. You will be entitled to participate in all of
the current and future benefit plans made available to senior executives of
the Company in accordance with Company
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policies. The Company shall pay you an annual car and parking allowance of
$20,000.00 per year, such amount to be paid with your Salary. Furthermore, the
Company will provide you with first-class commercial air transportation in
connection with travel on the Company's behalf.
5. Termination of Employment. Your employment may be
terminated by the Company upon at least 30 days' advance notice to you. In the
event the Company terminates your employment for any reason other than
"cause," or you terminate your employment for "good reason" (as each such term
is defined in Section 6 below), you will (A) continue to receive your then
current Salary for the balance of the three-year term of this Agreement (the
"Continuation Period") and (B) receive a payment, no later than 30 days
following termination, equal to any Guaranteed Bonuses not paid as of the date
of termination. Further, during the Continuation Period the Company shall
continue to provide you with medical and life insurance benefits at the level
such benefits were at on the date of your termination, subject to your making
any required contributions to the cost thereof at a rate no less favorable
than that applicable to active employees of the Company. If within the
Continuation Period you obtain other employment, (i) the Company's obligation
to pay your Salary will be reduced by 100% of the new compensation earned over
the balance of that period, and (ii) the Company's obligation to provide you
with medical and life insurance benefits shall be suspended during the period
that you are eligible to obtain such benefits from your new employer. However,
you shall not be required to mitigate the Company's damages. You agree to
promptly report to the Company any such other employment and the compensation
earned by you thereunder during the Continuation Period. In the event of your
death, the Company shall continue to pay your estate your Salary at the time
of death, through the anniversary of the Effective Date next following the
date of your death. In the event (i) of your death, (ii) the Company
terminates your employment for cause or (iii) you terminate your employment
without good reason, the term of this Agreement shall end on the date of your
death, or the effective date of your other termination of employment and,
other than as described in Section 3 above (as to stock options), Section 4
above or in the immediately preceding sentence (in the case of your death),
the Company shall not have any further obligation to you under this Agreement.
6. Definitions. "Cause" means (i) your willful failure to
substantially perform your duties, (ii) insubordination, or willful failure to
execute Company plans and/or strategies, (iii) acts of dishonesty resulting or
intending to result in personal gain or enrichment at the expense of the
Company, (iv) conviction of, or pleading guilty or no contest to, a felony,
(v) the representation in Section 9(e) being untrue, or (vi) a disability that
prohibits you from substantially meeting your responsibilities as an executive
officer of the Company for 150 out of 180 consecutive days, or longer, all as
determined by the Board in its reasonable judgment; provided that, in the case
of clause (i) and (ii) hereof, you shall be entitled to written notice from
the Company and 30 days to cure such deficiency.
"Good reason" means, without your consent, (i) a change in
your location of employment beyond a 50 mile radius from New York, New York,
(ii) a material and adverse change in the nature and scope of authority and
duties from those exercised or performed by you in accordance with the terms
of this Agreement, or (iii) a reduction in your Salary and/or benefits unless
such reduction is applicable to all executive officers of the Company (other
than
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reductions in your Salary, Guaranteed Bonus or car and parking allowance
pursuant to Section 4 hereof) or (iv) a material change in the reporting
structure set forth in Section 1 above; provided that you will be deemed to
have consented to any such action if you do not notify the Company in writing
to the contrary within the first 75 days following any such event, and
provided further that the Company shall have 30 days after receipt of such
notice to cure such deficiency.
7. Confidential Information; Nonsolicitation. (a) You shall
hold in a fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the Company or any of
its affiliated companies, and their respective businesses, which shall have
been obtained by you during your employment by the Company or any of its
affiliated companies and which shall not be or become public knowledge (other
than by acts by you or your representatives in violation of this Agreement).
After termination of your employment with the Company you shall not, without
the prior written consent of the Company or as may otherwise be required by
law or legal process, communicate or divulge any such information, knowledge
or data to anyone other than the Company and those designated by it. In no
event shall an asserted violation of the provisions of this Section 8
constitute a basis for deferring or withholding any amounts otherwise payable
to you under this Agreement.
(b) Until the later of (i) the third anniversary of the
Effective Date or (ii) one year following the termination of your employment
for any reason, you shall not, directly or indirectly, (A) employ, contract
with or enter into a business relationship with, or seek to employ, contract
with or enter into a business relationship with any person who is, at the date
of your termination, or was at any time within the six-month period preceding
the date of your termination, an employee of the Company or any of its
subsidiaries or affiliates, or a person or entity generally known as "talent"
in the Company's industry (including, without limitation, authors, editors and
illustrators) under contract to any such entity or having a business
relationship therewith, or an agent representing any such employee or Talent
(but only with respect to such employee or Talent), or otherwise cause or
induce any such employee, Talent or agent (but only with respect to any such
employee or Talent) to terminate his, her or its employment, contractual
relationship or business relationship with the Company or such subsidiary or
affiliate for the employment of, or the creation of a contractual or business
relationship with, another person or company without, in either case, the
prior written consent of the Board. Notwithstanding the foregoing, in the
event that you are terminated without cause or resign for good reason during
the term of this Agreement, as to Talent with whom you had a business
relationship prior to your employment by the Company, this Section 8(b) shall
be deemed to prohibit only intentional interference with the Company's
contractual relationships and shall not be deemed to prohibit you from
resuming or continuing your relationship with such authors and illustrators.
Moreover, until the later of (i) the third anniversary of your Effective Date
or (ii) one year following the termination of your employment, you shall not
interfere, by any means whatsoever, with the relationships between the Company
and its customers. This shall not be deemed to preclude your solicitation of
such customers in the normal course of any subsequent employment, so long as
such solicitation does not directly interfere in the Company's customer
relationships. If this Section 8(b) shall for any reason be held to be
excessively broad
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<PAGE>
as to duration, scope, activity or subject, it shall be construed by limiting
and reducing it, so as to be enforceable to the maximum extent compatible with
applicable law.
8. Successors. (a) This Agreement is personal to you and
without the prior written consent of the Company shall not be assignable by
you otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by your legal
representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
9. Miscellaneous. (a) This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws and with no presumption or
construction against the party causing this Agreement to be drafted. Any claim
or controversy arising out of or relating to this letter, or your employment
agreement with the Company, or the breach of either, shall be settled by
arbitration in New York City in accordance with the rules of the American
Arbitration Association, and judgment upon the award may be entered in any
court having jurisdiction thereof. The captions of this Agreement are not part
of the provisions hereof and shall have no force or effect. This Agreement may
not be amended or modified otherwise than by a written agreement executed by
the parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid, or by
overnight express mail, addressed as follows:
If to the Executive:
Willa Perlman
68 Mercer Avenue
Hartsdale, New York 10530
After June 7. 1996:
Willa Perlman
4 Rainbow Ridge Drive
Livingston, New Jersey 07039
with a copy to:
The Law Offices of Barbara J. Shulman
432 Park Avenue South, Suite 203
New York, NY 10016
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If to the Company:
Golden Books Family Entertainment, Inc.
850 Third Avenue
New York, New York 10022
Attention: General Counsel
with a copy to:
Willkie Farr & Gallagher
153 East 53rd Street
New York, NY 10022
Attn: Laurence D. Weltman, Esq.
or to such other address as either party shall have
furnished to the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be
required to be withheld pursuant to any applicable law or regulation.
(e) You hereby represent to the Company that, except with
respect to Section 6(b) of the agreement dated as of April 30, 1993 between
you and Paramount Publishing, you have no agreement with Simon & Schuster or
any affiliate thereof which would prevent you from reasonably performing
services to the Company, or subject the Company to liability for hiring you.
(f) Your or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement
or the failure to assert any right you or the Company may have hereunder,
including, without limitation, your right to terminate employment for good
reason pursuant to this Agreement, shall not be deemed to be a waiver of such
provision or right or any other provision or right of this Agreement.
6
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If you agree that this Agreement establishes the provisions
of your employment by the Company, please signify your acceptance by signing
below and returning a copy to me.
Sincerely,
GOLDEN BOOKS FAMILY
ENTERTAINMENT, INC.
By: /s/ Richard E. Snyder
------------------------------------------
Name: Richard E. Snyder
Title: Chairman of the Board of Directors
and Chief Executive Officer
Agreed to and Accepted
as of the date first
written above
/s/ Willa Perlman
- -------------------------------
Willa Perlman
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Golden Books
Family Entertainment, Inc. and Subsidiaries Consolidated Financial Statements as
of and for the quarterly period ended August 3, 1996 and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-01-1996
<PERIOD-START> MAY-05-1996
<PERIOD-END> AUG-03-1996
<CASH> 73,894
<SECURITIES> 0
<RECEIVABLES> 43,595
<ALLOWANCES> 12,043
<INVENTORY> 45,264
<CURRENT-ASSETS> 195,820
<PP&E> 105,392
<DEPRECIATION> 51,204
<TOTAL-ASSETS> 256,919
<CURRENT-LIABILITIES> 42,533
<BONDS> 149,854
65,000
0
<COMMON> 221
<OTHER-SE> (42,825)
<TOTAL-LIABILITY-AND-EQUITY> 256,919
<SALES> 73,976
<TOTAL-REVENUES> 66,517
<CGS> 80,032
<TOTAL-COSTS> 173,453
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,722
<INTEREST-EXPENSE> 1,880
<INCOME-PRETAX> (108,816)
<INCOME-TAX> 574
<INCOME-CONTINUING> (109,390)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (109,390)
<EPS-PRIMARY> (5.50)
<EPS-DILUTED> 0
</TABLE>
