<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. 1)
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/x/ Preliminary Proxy Statement
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
/ / Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2)
WESTERN PUBLISHING GROUP, INC.
(Name of Registrant As Specified In Its Charter)
WESTERN PUBLISHING GROUP, INC.
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(j)(2), or Item
22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act
Rule 14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price of other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11:
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/x/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
1) Amount previously paid:
2) Form, Schedule or Registration Statement No.:
3) Filing party:
4) Date filed:
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REVISED PRELIMINARY COPY
[WPGI LOGO AND LETTERHEAD]
April __, 1996
Dear Western Publishing
Group, Inc. Stockholder:
You are cordially invited to attend a Special Meeting of
Stockholders of Western Publishing Group, Inc. (the "Company") to be held at
10:00 A.M., local time, on ________, May __, 1996, at Chemical Bank, 270 Park
Avenue, __th Floor, Room ____, New York, New York.
At this important meeting, you will be asked to vote on a set
of proposals relating to the acquisition by Golden Press Holding, L.L.C. of a
significant equity interest in the Company. Golden Press Holding is a company
recently formed by Richard E. Snyder, the former Chairman and Chief Executive
Officer of Simon & Schuster, Inc., Arrow Holdings, LLC, an entity controlled by
Barry Diller, the Chairman and Chief Executive Officer of Silver King
Communications, Inc. and Chairman of Home Shopping Network, Inc., and Warburg,
Pincus Ventures, L.P. Golden Press Holding will invest $65 million in the
Company in exchange for shares of a new series of convertible preferred stock,
convertible at a price of $10 per share into approximately 23% of the
outstanding common stock of the Company, and a warrant to purchase an additional
3,250,000 shares of common stock at an exercise price of $10 per share.
Approximately $10 million of the investment proceeds will be used to redeem the
Company's outstanding Series A Preferred Stock due March 31, 1996, and the
balance will be available for general working capital purposes, including new
product development and future acquisitions.
Consistent with my prior public statements and my letter to
stockholders appearing in our 1995 annual report, and unlike the proposed
transactions announced in September and October of last year, this transaction
has been structured so that, like all other common stockholders, I will not be
selling my shares and the proceeds from the Golden Press Holding equity
investment will be invested directly in the Company. We have negotiated every
aspect of this transaction with the best interests of the Company's stockholders
as the paramount consideration.
Furthermore, in order to secure the participation of Mr.
Snyder and Warburg Pincus, I have given up my right to vote the approximately
four million shares of common stock that I beneficially own, for so long as I
own them, by granting an
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irrevocable proxy to Golden Press Holding to vote these shares in its sole
discretion. Golden Press Holding has agreed to vote these shares, which
represent approximately 20% of the outstanding shares, in favor of the proposals
to be considered at the Special Meeting. In addition, to provide further comfort
to Golden Press Holding, I have agreed to certain transfer restrictions which
will significantly limit my freedom to sell my shares in the future.
The newly-issued preferred stock would entitle Golden Press
Holding, for so long as it owns a significant portion of the preferred stock, to
elect three directors of the Company who, together with the six nominees
standing for election at the Special Meeting, would constitute the nine-member
board of directors following the closing of the equity investment. The preferred
stock also would vote, on an as-if-converted basis, with the Company's common
stock on all matters submitted to a vote of the Company's stockholders,
including the election of directors, and have certain class voting rights with
respect to certain material corporate transactions.
In order to help ensure a smooth transition of the Company's
management, Mr. Snyder has been elected and has begun to serve as President of
the Company. This has allowed Mr. Snyder an opportunity to gain a familiarity
and insight into the Company's operations so as to enable Mr. Snyder and me to
set the stage to rapidly implement his direction and strategy for the Company's
future once the equity investment transaction is complete. Upon the closing of
the Golden Press investment, I will resign my positions with the Company and Mr.
Snyder will become Chairman and Chief Executive Officer.
After careful consideration of a number of factors, including
the terms relating to Golden Press Holding's investment and the benefits that
will be derived from the involvement of Mr. Snyder and Warburg Pincus in the
management of the Company and its businesses, as well as the cash infusion to be
made by Golden Press Holding, the Board of Directors has unanimously determined
that the Securities Purchase Agreement, as amended, and the transactions
contemplated thereby, considered as a whole, are fair to and in the best
interests of the Company and its stockholders and therefore unanimously
recommends that you vote FOR each of the proposals to be considered at the
Special Meeting. Your Board of Directors firmly believes that it is in the
long-term best interests of the Company and its stockholders, employees and
customers that this important transaction be approved and completed.
Details concerning the proposals that you will be asked to
consider at the Special Meeting are set forth in the accompanying Proxy
Statement. In addition to voting on the Golden Press Holding investment, you
will be asked to approve
2
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the election of Shahara Ahmad-Llewellyn, Barry Diller, Linda L. Janklow,
Marshall Rose, Richard E. Snyder and H. Brian Thompson as directors of the
Company, amendments to the Company's stock option plan, adoption of a new bonus
plan for executive officers and three proposed amendments to the Company's
certificate of incorporation. Please note that unless all of these proposals are
approved by stockholders (other than the proposed amendments to the Company's
certificate of incorporation), none will be effected by the Company. We urge you
to read the entire Proxy Statement carefully. It is important that your shares
be represented at the Special Meeting no matter how many shares you own. Even if
you plan to attend the Special Meeting, please sign, date and mail promptly the
enclosed Proxy in the postage-paid envelope. This action will not limit your
right to vote in person if you wish to attend the Special Meeting.
On behalf of the Board of Directors, thank you for your
cooperation and your continued support.
Sincerely,
Richard A. Bernstein
Chairman of the Board and
Chief Executive Officer
3
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WESTERN PUBLISHING GROUP, INC.
444 Madison Avenue
New York, New York 10022
---------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be Held May __, 1996
---------------
To the Stockholders of WESTERN PUBLISHING GROUP, INC.:
A special meeting of stockholders (the "Special Meeting") of
Western Publishing Group, Inc. (the "Company") will be held at Chemical Bank,
270 Park Avenue, __th Floor, Room ____, New York, New York, on _________, May
__, 1996 at 10:00 A.M., local time, to consider and act on seven proposals (the
"Proposals") relating to the Securities Purchase Agreement dated as of January
31, 1996 between the Company and Golden Press Holding, L.L.C. ("GPH"), as
amended by Amendment No. 1 thereto dated as of April 15, 1996 and as it may be
further amended from time to time (the "Securities Purchase Agreement"). The
seven Proposals are summarized as follows:
(1) To approve the Securities Purchase Agreement and the
performance by the Company of all transactions and acts on the part of
the Company contemplated thereby, including, without limitation, the
issuance by the Company and sale to GPH, for a cash purchase price of
$65 million, of (i) 13,000 shares of the Company's Series B Convertible
Preferred Stock, without par value (the "Series B Convertible Preferred
Stock"), together with the shares of Common Stock, par value $.01 per
share, of the Company (the "Common Stock") issuable upon conversion of
the Series B Convertible Preferred Stock and as dividends on the Series
B Convertible Preferred Stock, and (ii) a warrant (the "Warrant") to
purchase 3,250,000 shares of Common Stock, together with the shares of
Common Stock issuable upon the exercise of the Warrant. (Proposal No.
1)
(2) To elect Shahara Ahmad-Llewellyn, Barry Diller,
Linda L. Janklow, Marshall Rose, Richard E. Snyder and
H. Brian Thompson as directors of the Company, who will
qualify as directors only upon the closing of the
transactions under the Securities Purchase Agreement, to
serve until the next annual meeting of stockholders of the
Company and until their successors have been duly elected
and qualified. (Proposal No. 2)
(3) To approve the adoption of several amendments to
the Company's 1995 Stock Option Plan. (Proposal No. 3)
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(4) To approve the adoption of the Executive Officer
Bonus Plan. (Proposal No. 4)
(5) To adopt an amendment to Article First of the Company's
Amended and Restated Certificate of Incorporation (the "Restated
Certificate") to change the name of the Company to "Golden Books Family
Entertainment, Inc.".
(Proposal No. 5)
(6) To adopt an amendment to Article Fourth of the
Restated Certificate to increase the authorized number of
shares of Common Stock from 40,000,000 shares to 60,000,000
shares. (Proposal No. 6)
(7) To adopt an amendment to Article Fourth of the
Restated Certificate to increase the authorized number of
shares of the Company's preferred stock from 100,000 shares
to 200,000 shares. (Proposal No. 7)
At the Special Meeting, the stockholders also will consider
and vote on such other matters as may properly be presented incident to the
conduct of the Special Meeting or any and all adjournments or postponements
thereof.
Among the other actions contemplated by the Securities
Purchase Agreement are (a) the redemption by the Company of the Company's
outstanding shares of Series A Preferred Stock due March 31, 1996, using a
portion of the proceeds from the GPH investment; (b) the grant of certain
registration rights to GPH in respect of the Series B Convertible Preferred
Stock and the Warrant and the underlying Common Stock; (c) the grant of certain
registration rights to Richard A. Bernstein and certain of his affiliated
entities in respect of shares of Common Stock owned by them; and (d) the
Company's execution of an employment agreement and certain related arrangements
with Richard E. Snyder following the closing of the transactions contemplated by
the Securities Purchase Agreement, pursuant to which Mr. Snyder would become the
Chairman and Chief Executive Officer of the Company.
Unless all the Proposals are approved and adopted by the
stockholders at the Special Meeting, none will be effected by the Company,
except that the other Proposals will be effected regardless of whether any of
the proposals to amend the Restated Certificate (Proposal Nos. 5, 6 or 7) is
adopted. Accordingly, if the Proposals (including Proposal No. 1) are not
approved, no individual elected as a director at the Special Meeting will be
qualified as a director or will take office, and the current directors will
remain in office until their successors are duly elected and qualified. For
further information with respect to the election of directors at the Special
Meeting, see "ELECTION OF DIRECTORS" in the accompanying Proxy Statement.
Only holders of record of the Common Stock at the close of
business on April 9, 1996 are entitled to notice of, and to vote at, the
Special Meeting or any adjournment or postponement
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thereof. A complete list of stockholders entitled to vote at the Special
Meeting will be kept at the Company's offices at 444 Madison Avenue, New York,
New York 10022, for a period of ten days prior to the Special Meeting and will
be available for examination by any stockholder for any purpose germane to the
Special Meeting during ordinary business hours.
By Order of the Board of Directors,
James A. Cohen
Secretary
PLEASE SIGN AND DATE THE ACCOMPANYING PROXY AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE, WHICH REQUIRES NO POSTAGE IF
MAILED IN THE UNITED STATES.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
INTRODUCTION.................................................................................................... 1
Proxy Solicitation..................................................................................... 1
Voting at the Special Meeting.......................................................................... 1
Revocability of Proxies................................................................................ 4
SUMMARY ....................................................................................................... 4
The Proposals.......................................................................................... 4
The Parties to the Transactions........................................................................ 6
The Special Meeting.................................................................................... 7
Background of and Reasons for the Transactions......................................................... 8
Recommendation of the Board of Directors............................................................... 9
Opinions of Financial Advisors......................................................................... 9
Use of Proceeds........................................................................................ 9
Certain Considerations................................................................................. 10
Certain Negotiated Features of the Transactions........................................................ 11
Interests of Certain Persons in the Transactions....................................................... 13
Certain Terms of the Securities Purchase Agreement..................................................... 14
Certain Terms of the Series B Convertible Preferred
Stock................................................................................................ 15
Certain Terms of the Warrant........................................................................... 16
Certain Terms of the GPH Registration Rights Agreement................................................. 16
Regulatory Matters..................................................................................... 17
Section 203 of the DGCL................................................................................ 17
Litigation............................................................................................. 17
Election of Directors.................................................................................. 17
Amendments to 1995 Stock Option Plan................................................................... 18
Executive Officer Bonus Plan........................................................................... 18
Charter Amendments..................................................................................... 18
Pro Forma Capitalization............................................................................... 19
Price Range of Common Stock; Dividend Policy........................................................... 22
BENEFICIAL STOCK OWNERSHIP...................................................................................... 24
Principal Stockholders................................................................................. 24
Directors and Executive Officers....................................................................... 25
THE PROPOSALS................................................................................................... 28
Recommendation of the Board of Directors...................................................... 32
Opinions of Financial Advisors......................................................................... 34
Use of Proceeds........................................................................................ 48
Certain Considerations................................................................................. 49
Diminished Ability to Sell the Company;
Antitakeover Effect......................................................................... 49
Board Representation; Control of Management................................................... 50
Dilution ..................................................................................... 50
Certain Negotiated Features of the Transactions........................................................ 51
Status of Bernstein Shares.................................................................... 52
Irrevocable Proxies........................................................................... 52
i
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Termination of the Securities Purchase Agreement.............................................. 53
Election of Directors......................................................................... 54
Series B Convertible Preferred Stock Antidilution
Adjustments................................................................................. 54
Management Services........................................................................... 54
Interests of Certain Persons in the Transactions....................................................... 55
Bernstein Registration Rights Agreement....................................................... 55
Redemption of Series A Preferred Stock
due March 31, 1996.......................................................................... 56
Directors' and Officers' Liability Insurance
Coverage ................................................................................... 56
Snyder Employment Arrangements................................................................ 57
Severance and Management Arrangements......................................................... 61
Regulatory Matters..................................................................................... 61
Section 203 of the DGCL................................................................................ 61
Litigation............................................................................................. 62
SECURITIES PURCHASE AGREEMENT (Proposal No. 1).................................................................. 64
Issuance and Sale of Series B Convertible Preferred
Stock and Warrant.................................................................................... 64
Terms of the Series B Convertible Preferred Stock...................................................... 65
Terms of the Warrant................................................................................... 69
Terms of the GPH Registration Rights Agreement......................................................... 70
Representations and Warranties......................................................................... 71
Pre-Closing Covenants.................................................................................. 71
Non-Solicitation of Business Combination Proposals..................................................... 73
Conditions to Closing.................................................................................. 75
Termination and Termination Fee ...................................................................... 75
Expenses .............................................................................................. 76
ELECTION OF DIRECTORS (Proposal No. 2).......................................................................... 77
General .............................................................................................. 77
Business Experience of Nominees........................................................................ 78
Business Experience of Series B Directors.............................................................. 80
Business Experience of Current Directors............................................................... 81
Business Experience of Executive Officers.............................................................. 82
Board Meetings and Committees of the Board............................................................. 85
Compensation Committee Interlocks and Insider
Participation........................................................................................ 86
Executive Compensation................................................................................. 87
Certain Transactions................................................................................... 92
Compliance with Section 16(a) of the Exchange Act...................................................... 93
AMENDMENTS TO 1995 STOCK OPTION PLAN (Proposal No. 3)........................................................... 93
EXECUTIVE OFFICER BONUS PLAN (Proposal No. 4)................................................................... 97
CHARTER AMENDMENTS.............................................................................................. 99
AMENDMENT TO CHANGE THE NAME OF THE COMPANY
(Proposal No. 5)..............................................................................................100
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AMENDMENTS TO INCREASE THE AUTHORIZED COMMON AND PREFERRED
STOCK (Proposal Nos. 6 and 7).................................................................................100
STOCKHOLDER PROPOSALS FOR THE 1996 ANNUAL MEETING...............................................................103
INDEPENDENT AUDITORS............................................................................................103
AVAILABLE INFORMATION...........................................................................................103
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...........................106
INDEX TO FINANCIAL STATEMENTS...................................................................................F-1
APPENDICES
Appendix I -- Amended Securities Purchase Agreement......................................... I-1
Appendix II -- Bernstein Registration Rights
Agreement.................................................................... II-1
Appendix III -- Bernstein Irrevocable Proxy................................................... III-1
Appendix IV -- Certificate of Designations of
Series B Convertible Preferred Stock........................................ IV-1
Appendix V -- Form of Warrant................................................................ V-1
Appendix VI -- GPH Registration Rights Agreement.............................................. VI-1
Appendix VII -- Executive Officer Bonus Plan................................................... VII-1
Appendix VIII -- Charter Amendments................................................... VIII-1
Appendix IX -- Fairness Opinion of Bear, Stearns
& Co. Inc..................................................................... IX-1
Appendix X -- Fairness Opinion of Jefferies &
Company, Inc................................................................. X-1
</TABLE>
iii
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WESTERN PUBLISHING GROUP, INC.
---------------
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
To be held May __, 1996
---------------
INTRODUCTION
Proxy Solicitation
This Proxy Statement is being furnished in connection with the
solicitation of proxies by the board of directors of Western Publishing Group,
Inc., a Delaware corporation (the "Company"), for use at the special meeting of
stockholders of the Company to be held on ________, May __, 1996, at 10:00 A.M.,
local time, at Chemical Bank, 270 Park Avenue, __th Floor, Room ____, New York,
New York, or at any adjournment or postponement thereof (the "Special Meeting"),
for the purposes set forth in the foregoing Notice of Special Meeting of
Stockholders. This Proxy Statement and a form of proxy are first being mailed on
or about April 15, 1996 to holders of record of the Common Stock, par value $.01
per share, of the Company (the "Common Stock") at the close of business on
April 9, 1996, the record date for the Special Meeting.
The cost of soliciting proxies will be borne by the Company
and will consist of expenses of printing, postage and handling, including the
expenses of brokerage houses, custodians, nominees and fiduciaries in forwarding
documents to beneficial owners. Solicitation may also be made by the Company's
officers, directors or regular employees personally or by telephone.
The principal executive offices of the Company are located at
444 Madison Avenue, New York, New York 10022.
Voting at the Special Meeting
Vote Required. The seven proposals set forth in the foregoing
Notice of Special Meeting of Stockholders (the "Proposals") are being submitted
to the stockholders pursuant to a requirement of the Securities Purchase
Agreement dated as of January 31, 1996, as amended by Amendment No. 1 thereto
dated as of April 15, 1996 and as the same may be further amended from time to
time (the "Securities Purchase Agreement"), between the Company and Golden Press
Holding, L.L.C. ("GPH"), and the rules of the National Association of Securities
Dealers, Inc. (the "NASD") governing corporations, such as the Company, with
securities quoted on the Nasdaq National Market. In addition, under the Delaware
General Corporation Law, the adoption of each of the Proposals relating to the
proposed amendments to the Amended and Restated Certificate of Incorporation of
the Company
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set forth in the foregoing Notice of Special Meeting of Stockholders (the
"Charter Amendments") must be submitted to a vote of the holders of the
outstanding shares of Common Stock.
The presence, in person or by properly executed proxy, of the
holders of shares entitled to cast a majority of the votes entitled to be cast
by the holders of record of all outstanding shares of Common Stock is necessary
to constitute a quorum at the Special Meeting. Shares of Common Stock
represented by a properly signed, dated and returned proxy will be treated as
present at the Special Meeting for purposes of determining a quorum, without
regard to whether the proxy is marked as casting a vote or abstaining. Proxies
relating to "street name" shares that are voted by brokers will be counted as
shares present for purposes of determining the presence of a quorum, but will
not be treated as shares present at the Special Meeting as to any proposal as to
which authority to vote is withheld from the broker.
Pursuant to the rules of the NASD and the Company's By-laws,
the affirmative vote of the holders of a majority of the total votes cast at the
Special Meeting is required to approve the Proposals relating to the Securities
Purchase Agreement and the transactions contemplated thereby (the
"Transactions"). Pursuant to the Company's By-laws, the amendments to the
Company's 1995 Stock Option Plan and the Company's Executive Officer Bonus Plan
require the affirmative vote of the holders of a majority of the total votes
cast at the Special Meeting. Accordingly, abstentions will have the same effect
as votes against these Proposals, but broker non-votes will have no effect on
the approval of these Proposals. The six nominees receiving a plurality of the
votes cast at the Special Meeting for the election of directors will be elected
as directors (but will qualify as such only upon the completion of the
Transactions; see "ELECTION OF DIRECTORS"). Accordingly, abstentions and broker
non-votes will have no effect on the election of directors. The affirmative vote
of the holders of a majority of the outstanding shares of Common Stock is
required to approve each of the Proposals relating to the Charter Amendments.
Accordingly, abstentions and broker non-votes will have the same effect as votes
against the Charter Amendments.
Unless all the Proposals are approved and adopted by the
stockholders at the Special Meeting, none will be effected by the Company,
except that the other Proposals will be effected regardless of whether any of
Proposal Nos. 5, 6 or 7 relating to the Charter Amendments is adopted.
Accordingly, if the Proposals (including Proposal No. 1) are not effected, the
persons elected as directors at the Special Meeting will not qualify as
directors and will not take office, and the current directors will remain in
office until their successors are duly elected and qualified.
See "ELECTION OF DIRECTORS."
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Record Date; Voting Rights. Holders of record of the Common
Stock at the close of business on April 9, 1996 are entitled to notice of and
to vote at the Special Meeting. As of the close of business on the Record Date,
there were 21,666,739 shares of Common Stock outstanding and entitled to vote
at the Special Meeting. The holders of Common Stock will vote as a single class
with regard to all matters to be acted upon at the Special Meeting. Each
stockholder of record may cast one vote for each share of Common Stock entitled
to be voted on each of the Proposals. The Common Stock is the Company's only
class of voting securities outstanding. As described below under "THE PROPOSALS
- -- Certain Negotiated Features of the Transactions -Irrevocable Proxies,"
Richard A. Bernstein, the current Chairman and Chief Executive Officer of the
Company, and certain of his affiliated entities have granted GPH irrevocable
proxies pursuant to agreements dated January 31, 1996 in respect of 3,996,771
shares of Common Stock owned by them (representing approximately 20% of the
shares of Common Stock currently outstanding) for so long as such shares are
owned by Mr. Bernstein or his affiliates, and GPH has agreed to vote those
shares in favor of the Proposals at the Special Meeting. The Company's
President, Richard E. Snyder, who owns 599,465 shares of Common Stock
(representing approximately 3% of the outstanding Common Stock) and will become
Chairman and Chief Executive Officer of the Company upon the consummation of the
Transactions (see "THE PROPOSALS -- Interests of Certain Persons in the
Transactions -- Snyder Employment Arrangements"), has indicated that he intends
to vote in favor of the Proposals. The Company's other directors and executive
officers (who collectively own shares of Common Stock representing approximately
3% of the outstanding Common Stock) have indicated that they intend to vote in
favor of the Proposals.
Shares of Common Stock represented by properly executed
proxies received prior to or at the Special Meeting, unless such proxies have
been revoked, will be voted in accordance with the instructions indicated on the
proxies. If no instructions are indicated on a properly executed proxy, the
shares will be voted FOR each of the Proposals and, in any case, in the judgment
of the proxy holder as to any other matters that may properly come before the
Special Meeting.
If a stockholder has invested in the Common Stock through the
Company 401(k) plan, the proxy will also serve as voting instructions for the
Trustee for the 401(k) plan. The Trustee will vote unallocated shares of Common
Stock in the 401(k) plan and allocated shares for which it has not received
timely direction in its discretion pursuant to its obligations as a fiduciary.
3
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Revocability of Proxies
Any proxy given pursuant to this solicitation or otherwise may
be revoked by the person giving it, at any time before it is voted, by
delivering to the Secretary of the Company, at 444 Madison Avenue, New York, New
York 10022, on or before the business day prior to the Special Meeting or at the
Special Meeting itself, a subsequent written notice of revocation or
subsequently-dated proxy relating to the same shares or by attending the Special
Meeting and voting in person. However, attendance at the Special Meeting will
not in itself constitute the revocation of a proxy unless such proxy is revoked
by one of the means described in the preceding sentence.
SUMMARY
The following is a brief summary (the "Summary") of the
information in this Proxy Statement. The Summary is not intended to be complete
and is qualified in its entirety by the more detailed information contained
elsewhere in this Proxy Statement and in the Appendices to this Proxy Statement.
Cross references in the Summary are to the captions of sections of this Proxy
Statement unless otherwise indicated. Stockholders are urged to read this Proxy
Statement and the Appendices in their entirety.
The Proposals
The seven proposals described in this Proxy Statement (the
"Proposals") relate to the transactions and acts (the "Transactions")
contemplated on the part of Western Publishing Group, Inc., a Delaware
corporation (the "Company"), by the Securities Purchase Agreement dated as of
January 31, 1996 between the Company and Golden Press Holding, L.L.C. ("GPH"),
as amended by Amendment No. 1 thereto dated as of April 15, 1996 and as it may
be further amended from time to time (the "Securities Purchase Agreement"), and
consist of:
(1) the approval of the Securities Purchase Agreement
and the performance by the Company of all
transactions and acts on the part of the Company
contemplated under the Securities Purchase
Agreement, including, without limitation, the
issuance and sale to GPH, for a cash purchase
price of $65 million, of (i) 13,000 shares of the
Company's Series B Convertible Preferred Stock,
without par value (the "Series B Convertible
Preferred Stock"), together with the shares of
Common Stock, par value $.01 per share, of the
Company (the "Common Stock") issuable upon
conversion of the Series B Convertible Preferred
Stock and as dividends on the Series B Convertible
Preferred Stock, and (ii) a warrant (the
<PAGE>
4
"Warrant") to purchase an additional 3,250,000 shares
of Common Stock, together with the shares of Common
Stock issuable upon the exercise of the Warrant
("Proposal No. 1 -- Securities Purchase Proposal");
(2) the election of six directors of the Company, who
will qualify as directors only upon the closing of
the Transactions (the "Closing"), to serve until
the next annual meeting of stockholders of the
Company and until their successors have been duly
elected and qualified ("Proposal No. 2-- Election
Proposal");
(3) the approval of the adoption of certain amendments
to the Company's 1995 Stock Option Plan (the
"Stock Option Plan") ("Proposal No. 3 -- Stock
Option Plan Amendment Proposal");
(4) the approval of the adoption of the Company's
Executive Officer Bonus Plan (the "Bonus Plan")
("Proposal No. 4 -- Bonus Plan Proposal"); and
(5) the adoption of three amendments (the "Charter
Amendments") to the Company's Amended and Restated
Certificate of Incorporation (the "Restated
Certificate") to (a) amend Article First to change
the name of the Company to "Golden Books Family
Entertainment, Inc." (Proposal No. 5), (b) amend
Article Fourth to increase the number of
authorized shares of Common Stock from 40,000,000
shares to 60,000,000 shares (Proposal No. 6) and
(c) amend Article Fourth to increase the number of
authorized shares of preferred stock, without par
value, of the Company (the "Preferred Stock") from
100,000 shares to 200,000 shares (Proposal No. 7)
(collectively, the "Charter Amendment Proposals").
Except as described in this Proxy Statement, the
Company has no current plans for any issuances of
Common or Preferred Stock. See "THE PROPOSALS."
Approval of each of the Proposals by the requisite vote of the stockholders of
the Company (other than the Charter Amendments) is a condition to the
consummation of the Transactions under the Securities Purchase Agreement. See
"SECURITIES PURCHASE AGREEMENT -- Conditions to Closing."
Among the other Transactions contemplated by the Securities
Purchase Agreement are (a) the redemption by the Company of the outstanding
shares of Series A Preferred Stock due March 31, 1996, without par value, of
the Company (the "Series A Preferred Stock") at a redemption price equal to the
liquidation
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value thereof plus accrued and unpaid dividends to the date of redemption, using
a portion of the proceeds from the GPH investment (see "THE PROPOSALS --
Interests of Certain Persons in the Transactions -- Redemption of Series A
Preferred Stock due March 31, 1996"); (b) the grant of certain registration
rights to GPH in respect of the Series B Convertible Preferred Stock and the
Warrant and the Common Stock underlying each of the Series B Convertible
Preferred Stock and the Warrant pursuant to a registration rights agreement
between the Company and GPH (the "GPH Registration Rights Agreement") (see
"SECURITIES PURCHASE AGREEMENT -- Terms of the GPH Registration Rights
Agreement"); (c) the grant of certain registration rights to Richard A.
Bernstein, the current Chairman and Chief Executive Officer of the Company, and
certain of his affiliated entities in respect of shares of Common Stock owned by
them pursuant to a registration rights agreement between the Company, Mr.
Bernstein and such affiliated entities (the "Bernstein Registration Rights
Agreement") (see "THE PROPOSALS -- Interests of Certain Persons in the
Transactions -- Bernstein Registration Rights Agreement"); and (d) the
Company's execution of an employment agreement (the "Snyder Employment
Agreement") and related arrangements (the "Snyder Employment Arrangements")
with Richard E. Snyder upon the Closing pursuant to which Mr. Snyder would
become the Chairman and Chief Executive Officer of the Company (see "THE
PROPOSALS -- Interests of Certain Persons in the Transactions -- Snyder
Employment Arrangements").
The Parties to the Transactions
The Company. The Company, through its Western Publishing
Company subsidiary, creates, publishes, manufactures, prints and markets story
and picture books, coloring and activity books, interactive electronic books and
games, and computer and multi-media "edutainment" products for children. These
products are sold principally under the GOLDEN BOOKS(R) brand. The Company also
produces and markets Frame-Tray(R) puzzles, children's prerecorded videos and
special interest books for the entire family. Western Publishing Company also
offers a wide range of printing, graphic, creative and distribution services to
customers in industry and government.
Through the Beach Products Division of its Penn Corporation
subsidiary, the Company is engaged in the manufacture and sale of decorated
paper tableware, party goods, stationery and gift products.
The Bernstein Entities. Richard A. Bernstein is the Chairman
and Chief Executive Officer of the Company, Chairman of the Company's Western
Publishing Company, Inc. subsidiary and Chairman, President and Chief Executive
Officer of the Company's Penn Corporation subsidiary. References in this Proxy
Statement to (i) the "Bernstein Entities" mean, collectively,
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Mr. Bernstein, the Trust for the benefit of Mr. Bernstein dated March 16, 1978,
The Richard A. Bernstein Trust of 1986 and The Richard A. and Amelia Bernstein
Foundation, Inc. and (ii) the "Bernstein Shares" shall mean, collectively, the
shares of Common Stock owned by the Bernstein Entities.
Richard E. Snyder. From 1975 to 1994, Mr. Snyder served as
Chairman and Chief Executive Officer of Simon & Schuster, Inc. In order to help
ensure a smooth transition of the Company's management prior to the Closing, Mr.
Snyder was elected as the President of the Company on January 31, 1996 upon the
signing of the Securities Purchase Agreement. He will succeed Mr. Bernstein as
Chairman and Chief Executive Officer of the Company following the Closing. See
"THE PROPOSALS -- Interests of Certain Persons in the Transactions -- Snyder
Employment Arrangements."
Warburg, Pincus Ventures, L.P. Warburg, Pincus Ventures, L.P.
("Warburg Pincus"), a Delaware limited partnership, is engaged in making venture
capital and similar investments. The sole general partner of Warburg Pincus is
Warburg, Pincus & Co., a New York general partnership, and its manager is E.M.
Warburg, Pincus & Co., a New York general partnership.
Golden Press Holding, L.L.C. GPH is a newly-organized Delaware
limited liability company recently formed by Mr. Snyder, Arrow Holdings, LLC, an
entity controlled by Barry Diller, the Chairman and Chief Executive Officer of
Silver King Communications, Inc. and Chairman of Home Shopping Network, Inc.,
and Warburg Pincus solely for purposes of consummating the Transactions and
holding securities of the Company.
The Special Meeting
Proxy Solicitation. This Proxy Statement is being furnished in
connection with the solicitation of proxies for the adoption of the Proposals by
the board of directors of the Company (the "Board of Directors") for use at a
special meeting of stockholders of the Company to be held on _________, May __,
1996, at 10:00 A.M., local time, at Chemical Bank, 270 Park Avenue, __th Floor,
Room ____, New York, New York, or at any adjournment or postponement thereof
(the "Special Meeting").
Vote Required. Approval of the Securities Purchase Proposal
by the Company's stockholders is required by the rules of the National
Association of Securities Dealers, Inc. (the "NASD"), governing corporations,
such as the Company, with securities quoted on the Nasdaq National Market. The
affirmative vote of the holders of a majority of the votes cast at the Special
Meeting is required to approve the Securities Purchase Proposal, the Stock
Option Plan Amendment Proposal and the Bonus
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Plan Proposal (Proposal Nos. 1, 3 and 4). The six nominees receiving a plurality
of the votes cast at the Special Meeting for the election of directors (Proposal
No. 2) will be elected as directors (but will qualify as such only upon the
closing of the Transactions; see "ELECTION OF DIRECTORS"). The affirmative vote
of the holders of a majority of the outstanding shares of Common Stock is
required to approve each of the Charter Amendment Proposals (Proposal Nos. 5, 6
and 7). Unless all the Proposals are approved and adopted by the stockholders at
the Special Meeting, none will be effected by the Company, except that the other
Proposals will be effected regardless of whether any of the Charter Amendment
Proposals is adopted. Accordingly, if the Proposals (including Proposal No. 1)
are not effected, the nominees elected at the Special Meeting will not qualify
as directors and will not take office, and the current directors will remain in
office until their successors are duly elected and qualified. See "ELECTION OF
DIRECTORS". Pursuant to the Securities Purchase Agreement, 3,996,771 shares of
Common Stock owned by certain of the Bernstein Entities, representing
approximately 20% of the Common Stock entitled to vote at the Special Meeting,
will be voted in favor of the Proposals. See "THE PROPOSALS -- Certain
Negotiated Features of the Transactions -- Irrevocable Proxies."
Shares of Common Stock represented by properly executed
proxies received prior to or at the Special Meeting, unless such proxies have
been revoked, will be voted in accordance with the instructions indicated on the
proxies. If no instructions are indicated on a properly executed proxy, the
shares will be voted FOR each of the Proposals.
No Appraisal Rights. Stockholders are not entitled to
appraisal rights under the Delaware General Corporation Law (the
"DGCL") or otherwise in respect of any of the Proposals.
Record Date. The record date for the Special Meeting
is April 9, 1996 (the "Record Date").
Background of and Reasons for the Transactions
Formal negotiations between the Company and Mr. Snyder and
Warburg Pincus concerning the purchase of a significant equity interest in the
Company commenced in August 1995. Mr. Snyder and Mr. Bernstein began
preliminary discussions in April 1995, and the participation of Warburg Pincus
commenced in May 1995. Although agreements in principle were announced in
September and October 1995, the Company publicly announced termination of the
negotiations on October 17, 1995. Discussions began again in December
concerning revised terms for a significant investment by Mr. Snyder and Warburg
Pincus, culminating with the public announcement of the signing of the
Securities Purchase Agreement and the election of Mr. Snyder as
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President of the Company on January 31, 1996. See "THE PROPOSALS -- Background
of and Reasons for the Transactions."
Recommendation of the Board of Directors
THE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE
SECURITIES PURCHASE AGREEMENT AND THE TRANSACTIONS, CONSIDERED AS A WHOLE, ARE
FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND
THEREFORE UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE FOR
APPROVAL OF EACH OF THE PROPOSALS AT THE SPECIAL MEETING.
For a discussion of the factors considered by the Board of
Directors in reaching its decision, see "THE PROPOSALS -Recommendation of the
Board of Directors," "Opinions of Financial Advisors," "-- Certain
Considerations" and "-- Interests of Certain Persons in the Transactions."
Opinions of Financial Advisors
The Company has retained each of Bear, Stearns & Co. Inc.
("Bear Stearns") and Jefferies & Company, Inc. ("Jefferies") on behalf of the
Board of Directors to render a fairness opinion with respect to the
consideration to be received by the Company pursuant to the equity investment
contemplated by the Securities Purchase Agreement. On January 31, 1996, each of
Bear Stearns and Jefferies delivered its written opinion to the effect that, as
of such date and based upon and subject to certain matters as stated in such
opinions, the consideration to be received by the Company from the equity
investment contemplated by the Securities Purchase Agreement is fair to the
Company from a financial point of view. In rendering their opinions, neither
Bear Stearns nor Jefferies considered or opined as to any other transactions or
contractual arrangements to be entered into, or payments to be made by or to the
Company or to any other person, concurrently with GPH's equity investment. See
"THE PROPOSALS -- Opinions of Financial Advisors." A copy of the written opinion
of each of Bear Stearns and Jefferies, which sets forth the assumptions made,
matters considered and limits on the review undertaken, is attached to this
Proxy Statement as Appendix IX and Appendix X, respectively, and should be read
carefully by stockholders in their entirety.
Use of Proceeds
The estimated net cash proceeds to the Company from the sale
of the Series B Convertible Preferred Stock and the Warrant to GPH will be
$56,500,000, after giving effect to the payment of estimated transaction
expenses (see "SECURITIES PURCHASE AGREEMENT -- Expenses") and the payments
under the severance and management arrangements described under "THE PROPOSALS
- --Interests of Certain Persons in the Transactions --
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Severance and Management Arrangements." Approximately $10 million of such
proceeds will be used by the Company to redeem the outstanding shares of Series
A Preferred Stock (which is mandatorily redeemable by the Company on March 31,
1996) as contemplated by the Securities Purchase Agreement (see "THE PROPOSALS
- -- Interests of Certain Persons in the Transactions -- Redemption of Series A
Preferred Stock due March 31, 1996"), and the remainder will be available to the
Company for general working capital purposes, including new product development
and future acquisitions. The Company does not currently have any commitments or
understandings regarding the use of such proceeds. Mr. Snyder has advised the
Company that he intends to use the net proceeds from the investment to pursue a
multi-pronged strategy to build upon the GOLDEN BOOKS(R) franchise. This
strategy will include strengthening relationships with the Company's existing
mass market retailers, increasing distribution through non-mass channels,
including bookstores, extending the existing product line to include books for
parents and families and, where appropriate, expanding the GOLDEN BOOKS(R) name
into non-book areas, such as home video, television and multi-media. Although
Mr. Snyder has advised the Company that he has not yet finalized any plans
regarding the future operations of the Company, Mr. Snyder has indicated that
his plans, when fully developed, may involve a restructuring of operations which
could result in substantial charges to operations or changes in the
classification of the Company's assets and liabilities. See "THE PROPOSALS --
Use of Proceeds."
Certain Considerations
While the Board of Directors is of the opinion that the
Proposals are in the best interests of the Company and its stockholders, in
evaluating the Proposals stockholders should consider, among other things, the
following possible consequences of completion of the Transactions:
(i) the significant ownership interest of GPH in the Company
(which will represent approximately 23% of the aggregate voting power
of the outstanding shares of capital stock of the Company after giving
effect to the issuance of the Series B Convertible Preferred Stock, and
approximately 31% after giving effect to the exercise of the Warrant),
coupled with the irrevocable proxies granted by Mr. Bernstein and
certain of the other Bernstein Entities to GPH with respect to
3,996,771 shares of Common Stock (the "Irrevocable Proxies"), and the
fact that the Securities Purchase Agreement does not restrict GPH from
acquiring additional shares in the open market or otherwise, may render
it more difficult for a third party to effect a change of control of
the Company without the consent of GPH and thereby discourage third
parties from any attempt to acquire control of the Company;
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<PAGE>
(ii) (a) GPH's ability to influence the management and
policies of the Company through Mr. Snyder's status as Chairman and
Chief Executive Officer of the Company, (b) the class voting rights
afforded to the holders of the Series B Convertible Preferred Stock
to elect one-third of the members of the Board of Directors and
approve certain material corporate transactions, (c) the fact that
the Series B Convertible Preferred Stock will vote on an as-if-
converted basis with the Common Stock as a single class on all
matters submitted to a vote of the stockholders of the Company,
including the election of all directors not elected by the holders
of the Series B Convertible Preferred Stock, (d) the fact that,
immediately following the Closing, the members of the Board of
Directors will all be nominees of GPH, and (e) the right of the
holders of the Series B Convertible Preferred Stock to vote as a
class with the holders of the Common Stock in the election of the
remainder of the members of the Board of Directors;
(iii) the potential dilution of the voting and economic rights
of the existing holders of the Common Stock resulting from the issuance
of the Series B Convertible Preferred Stock and the payment of Common
Stock dividends on the Series B Convertible Preferred Stock for the
first four years from issuance thereof, the exercise of the Warrant
after two years from the issuance thereof (or earlier upon the
occurrence of certain events) and the Snyder Employment Arrangements;
and
(iv) the fact that the success of the Company will be
dependent in part on the efforts and abilities of Mr. Snyder and that,
if the Company were to lose the services of Mr. Snyder before a
qualified replacement could be obtained, the Company's business could
be materially and adversely affected.
See "SUMMARY -- Pro Forma Capitalization" and "THE PROPOSALS --
Certain Considerations."
Certain Negotiated Features of the Transactions
Stockholders should be aware of the following additional
aspects and provisions of the Securities Purchase Agreement and the Transactions
that were negotiated on behalf of the Company and the stockholders and were
required by the parties as a condition to the signing of the Securities Purchase
Agreement:
(i) unlike the proposed transactions between the Company,
Mr. Snyder and Warburg Pincus announced in September and October 1995,
none of the shares of Common Stock beneficially owned by Mr.
Bernstein will be purchased
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as part of the Transactions and GPH's entire investment will be made
directly in the Company (see "SECURITIES PURCHASE AGREEMENT -- Issuance
and Sale of Series B Convertible Preferred Stock and Warrant");
(ii) Mr. Bernstein and certain of the other Bernstein Entities
currently owning in the aggregate 3,996,771 shares of Common Stock
(representing approximately 20% of the shares currently outstanding)
(a) have relinquished their voting rights with respect to such shares
by granting GPH irrevocable proxies to vote such shares in its sole
discretion, subject to certain conditions, for so long as Mr. Bernstein
and such other entities own such shares, and (b) have agreed to certain
transfer restrictions which will significantly limit their freedom to
sell such shares in a block or blocks in the future (see "THE PROPOSALS
-- Certain Negotiated Features of the Transactions -- Irrevocable
Proxies");
(iii) the Securities Purchase Agreement permits the Company,
upon the payment of a $2 million break-up fee, to terminate the
Securities Purchase Agreement and accept an unsolicited proposal from a
third party which the Board of Directors reasonably believes is likely
to result in a business combination that is likely to be more favorable
to the stockholders of the Company than the Transactions (see
"SECURITIES PURCHASE AGREEMENT -- Termination and Termination Fee");
(iv) GPH does not have a contractual right to name any
directors of the Company (other than the directors who are to be
elected by the holders of the Series B Convertible Preferred Stock)
following the election of directors at the Special Meeting (see
"ELECTION OF DIRECTORS");
(v) the holders of the Series B Convertible Preferred Stock
are not entitled to antidilution adjustment of the conversion price in
respect of (a) an issuance of Common Stock to GPH and certain of its
affiliates unless such issuance has been approved by a majority of the
directors of the Company who are neither the designees of the holders
of the Series B Convertible Preferred Stock nor individuals associated
with Warburg Pincus or certain of its affiliates or (b) an issuance of
Common Stock in a transaction that has not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), unless an
investment bank of national standing and reputation, engaged for a fee
by the Company pursuant to a written engagement letter, has been
consulted by the Company with respect to the structure, and has
participated in the negotiation, of such issuance (see "SECURITIES
PURCHASE AGREEMENT -- Terms of the Series B Convertible Preferred
Stock"); and
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<PAGE>
(vi) Mr. Bernstein has agreed to cause a corporation owned by
him to employ certain Company employees who will be terminated at the
Closing to provide certain management services (including finance and
accounting, cash management, real estate matters, labor negotiations
and corporate administration) to the Company as requested from time to
time by Mr. Snyder for the 180-day transition period following the
Closing, and the Company will pay such corporation $1.2 million upon
the Closing for the cost (including the cost of employing such former
employees) of providing such services (see "THE PROPOSALS -- Certain
Negotiated Features of the Transactions -- Management Services").
Interests of Certain Persons in the Transactions
In considering the recommendation of the Board of Directors
with respect to the Proposals, stockholders should be aware that certain members
of the Board of Directors and management have certain interests with respect to
the Proposals that may conflict with and are in addition to the interests of the
other stockholders of the Company, including:
(i) at the Closing, in view of the fact that the Bernstein
Entities would otherwise be restricted under the federal securities
laws and the rules and regulations promulgated thereunder as to the
manner in which they can sell their shares of Common Stock because of
the size of the block and Mr. Bernstein's affiliation with the Company,
the Bernstein Registration Rights Agreement, pursuant to which the
Bernstein Entities will have the right to require the Company, at the
Bernstein Entities' cost, to register the sale of Bernstein Shares with
the Securities and Exchange Commission (the "SEC") under the Securities
Act, and to participate in other registrations initiated by the
Company, will become effective (see "THE PROPOSALS -- Interests of
Certain Persons in the Transactions -- Bernstein Registration Rights
Agreement");
(ii) at the Closing, the Company will use a portion of the
proceeds from the GPH investment to redeem the outstanding Series A
Preferred Stock due March 31, 1996, 46.07% of which is owned by Mr.
Bernstein (see "THE PROPOSALS -- Interests of Certain Persons in the
Transactions -- Redemption of Series A Preferred Stock due March 31,
1996");
(iii) the Company has agreed in the Securities Purchase
Agreement to provide the usual extended coverage under the Company's
executive liability insurance for a three-year period following the
Closing for current and former directors and officers and certain
persons serving in
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fiduciary capacities (see "THE PROPOSALS -- Interests of Certain
Persons in the Transactions -- Directors' and Officers' Liability
Insurance Coverage");
(iv) the Company will enter into the Snyder Employment
Agreement immediately following the Closing pursuant to which, among
other things, Mr. Snyder will replace Mr. Bernstein as Chairman and
Chief Executive Officer of the Company and will be granted options to
purchase 1,113,293 shares of Common Stock (see "THE PROPOSALS --
Interests of Certain Persons in the Transactions -- Snyder Employment
Arrangements"); and
(v) certain officers and employees of the Company (other than
Mr. Bernstein) whose employment will be terminated at the Closing will
receive severance payments totaling $1.8 million at the time of the
Closing, and as described above a corporation owned by Mr. Bernstein
will receive a payment of $1.2 million upon the Closing for the cost
(including the cost of employing former employees of the Company) of
providing certain management services to the Company as requested from
time to time by Mr. Snyder for the 180-day transition period following
the Closing (see "THE PROPOSALS -- Interests of Certain Persons in the
Transactions -- Severance and Management Arrangements.")
Certain Terms of the Securities Purchase Agreement
The Company makes customary representations and warranties in
the Securities Purchase Agreement to GPH concerning its business, operations,
properties and financial condition and its ability to consummate the
Transactions. None of these representations and warranties will survive the
Closing.
Under the Securities Purchase Agreement, the Company has
generally agreed that prior to the Closing it will, among other things, (i)
carry on its businesses in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, and (ii) afford GPH and
its representatives full access during normal business hours to its properties,
books and records and personnel. While the Company has the right to participate
in discussions or negotiations with or furnish information to a third party
which makes an unsolicited proposal of a transaction which the Board of
Directors reasonably believes is likely to result in a business combination
that is likely to be more favorable to the stockholders of the Company than the
Transactions, the Company has otherwise agreed prior to the Closing to refrain
from soliciting, entering into any agreements or participating in any
discussions or negotiations concerning, or furnishing any information to any
person in connection with or otherwise facilitating, any proposal for certain
tender or exchange offers, mergers or other business combination
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<PAGE>
transactions (the "Non-Solicitation Covenant"). See "SECURITIES PURCHASE
AGREEMENT -- Pre-Closing Covenants" and "-- Non-Solicitation of Business
Combination Proposals."
The obligations of the Company and GPH to effect the Closing
are subject to the satisfaction of various customary closing conditions,
including the approval of the Proposals (other than the Charter Amendment
Proposals) by the Company's stockholders. There can be no assurance that each of
the conditions to the Closing will be satisfied prior to May 22, 1996, at which
time each of the Company and GPH will, subject to the terms of the Securities
Purchase Agreement, have the right to terminate the Securities Purchase
Agreement. See "SECURITIES PURCHASE AGREEMENT -- Conditions to Closing."
The Securities Purchase Agreement may be terminated at any
time prior to the Closing, whether before or after approval of the Proposals by
the Company's stockholders, subject to certain conditions, (i) by either party
if the Closing has not occurred on or before May 22, 1996, (ii) by either party
if the Company's stockholders fail to approve the Proposals (other than the
Charter Amendment Proposals), or (iii) by the Company or GPH if the Board of
Directors reasonably determines that a proposal for a business combination by a
third party is likely to result in a business combination which is financially
superior to the Transactions and is likely to be consummated. See "SECURITIES
PURCHASE AGREEMENT -- Termination and Termination Fee."
In the event that (i) the Transactions are not consummated as
a result of a material breach by the Company of the Non-Solicitation Covenant,
(ii) the Securities Purchase Agreement is terminated as described above because
the Board of Directors has determined that a third party business combination
proposal is financially superior to the Transactions, or (iii) certain third
party business combinations occur prior to certain terminations of the
Securities Purchase Agreement or within nine months following a termination by
GPH as a result of a material breach by the Company of any representation,
warranty, covenant or agreement set forth in the Securities Purchase Agreement,
the Company is required to pay to GPH a termination fee in the amount of $2
million. See "SECURITIES PURCHASE AGREEMENT -- Termination and Termination Fee."
Certain Terms of the Series B Convertible Preferred Stock
The Series B Convertible Preferred Stock will (i) be entitled
to a 12% annual cumulative dividend payable (x) during the first four years
following issuance, by delivery of 195,000 shares of Common Stock per quarter
(subject to certain adjustments), and (y) thereafter, at the quarterly rate of
$150 per share, compounded quarterly, payable in cash; (ii) have a
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liquidation preference of $5,000 per share; (iii) be subject to redemption at
the option of the Company from time to time after the fourth anniversary of the
date of issuance at a price of $5,000 per share; (iv) be convertible into shares
of Common Stock at the initial rate of $10 per share, subject to customary
antidilution adjustments; (v) for so long as GPH owns a significant portion of
the Series B Convertible Preferred Stock, be entitled to elect one-third of the
members of the Board of Directors (the "Series B Directors") as a class and have
class voting rights with respect to certain material transactions; and (vi) have
the right to vote on an as-if-converted basis with the Common Stock as a single
class on all matters submitted to a vote of the stockholders of the Company,
including the election of all directors other than the Series B Directors. See
"SECURITIES PURCHASE AGREEMENT -- Terms of the Series B Convertible Preferred
Stock."
Certain Terms of the Warrant
The Warrant will entitle GPH to purchase 3,250,000 shares of
Common Stock at a price of $10 per share, subject to customary antidilution
adjustments. The Warrant will be exercisable beginning on the second anniversary
of the date of issuance (subject to acceleration in the event of a public
announcement of certain bona fide Business Combination Proposals (as defined in
"SECURITIES PURCHASE AGREEMENT -- Pre-Closing Covenants") or the initiation of a
proxy solicitation for control of the Board of Directors by any person or entity
(other than GPH or certain of its affiliated entities)) until the seventh
anniversary of the date of issuance. GPH has agreed in the Securities Purchase
Agreement not to sell, transfer or assign the Warrant for a two-year period
following the Closing, subject to acceleration in certain circumstances. See
"SECURITIES PURCHASE AGREEMENT -- Terms of the Warrant."
Certain Terms of the GPH Registration Rights Agreement
It is a condition to GPH's obligation to complete its equity
investment that the Company execute and deliver the GPH Registration Rights
Agreement at the Closing. Pursuant to the GPH Registration Rights Agreement, GPH
and certain of its transferees will have the right to require the Company to
register the sale of shares of Series B Convertible Preferred Stock, the Warrant
or the underlying shares of Common Stock with the SEC under the Securities Act,
and to participate in other registrations initiated by the Company. The Company
will pay the expenses of GPH or such transferees in connection with any such
registration, other than underwriting discounts and commissions and the fees and
expenses of legal counsel to the selling stockholders. The GPH Registration
Rights Agreement will also contain customary indemnification and contribution
provisions.
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<PAGE>
See "SECURITIES PURCHASE AGREEMENT -- Terms of the GPH Registration Rights
Agreement."
Regulatory Matters
On March 8, 1996 and March 11, 1996, notification and report
forms were filed under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act"), with respect to the Transactions by GPH and the
Company, respectively. Early termination of the waiting period under the HSR Act
was granted on March 25, 1996. The Company is not aware of any other regulatory
approvals or filings, or any other consents or approvals, required for the
consummation of the Transactions. See "THE PROPOSALS -- Regulatory Matters."
Section 203 of the DGCL
As required by the Securities Purchase Agreement, the Board of
Directors has taken appropriate action so that the provisions of Section 203 of
the DGCL restricting "business combinations" with "interested stockholders"
(each as defined in Section 203 of the DGCL) will not be applicable to the
execution and delivery of the Securities Purchase Agreement and the consummation
of the Transactions, including the grant by certain of the Bernstein Entities of
irrevocable proxies with respect to their Bernstein Shares to GPH. See "THE
PROPOSALS -- Section 203 of the DGCL."
Litigation
Class action lawsuits were filed in the Delaware Chancery
Court following public announcement of the initial and revised proposals for a
transaction between the Company and Mr. Snyder and Warburg Pincus challenging
the then proposed transactions on several grounds primarily relating to the
allegation that Mr. Bernstein would receive consideration for his shares
different from that to be received by the other stockholders of the Company. The
Company, each of the directors, Warburg Pincus and Mr. Snyder are each named as
defendants. In view of the terms of the Securities Purchase Agreement, the
Company believes, based on the advice of counsel, that the claims in the class
action lawsuits are no longer relevant and wholly without merit. For a more
complete discussion of the allegations and relief sought in the class actions,
see "THE PROPOSALS -- Litigation."
Election of Directors
As contemplated by the Securities Purchase Agreement, the
stockholders are being asked at the Special Meeting to elect six nominees
nominated by GPH -- Shahara Ahmad-Llewellyn, Barry Diller, Linda L. Janklow,
Marshall Rose, Richard E.
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Snyder and H. Brian Thompson -- as directors of the Company, who will qualify as
directors only upon the Closing and will serve until the next annual meeting of
stockholders of the Company and until their successors have been duly elected
and qualified. Upon the Closing, (i) the size of the Board of Directors will be
increased to nine, (ii) GPH (in its capacity as the holder of the Series B
Convertible Preferred Stock) will elect James A. Eskridge, David A. Tanner and
John L. Vogelstein as Series B Directors and (iii) the incumbent directors will
resign as directors of the Company. Accordingly, immediately following the
Closing, all members of the Board of Directors will have been nominated by GPH.
Amendments to 1995 Stock Option Plan
In connection with its approval of the Securities Purchase
Agreement, the Board of Directors adopted certain amendments to the Stock Option
Plan, subject to stockholder approval, that will facilitate the granting of
options to Mr. Snyder as contemplated by the Snyder Employment Agreement, as
well as the granting of options to other employees following the Closing. See
"THE PROPOSALS -- Interests of Certain Persons in the Transactions -- Snyder
Employment Arrangements." Adoption of the amendments to the Stock Option Plan is
a condition to the consummation of the Transactions contemplated by the
Securities Purchase Agreement. If the Closing does not occur under the
Securities Purchase Agreement for any reason, the amendments to the Stock Option
Plan will be abandoned, regardless of their approval by stockholders. See
"AMENDMENTS TO 1995 STOCK OPTION PLAN."
Executive Officer Bonus Plan
In connection with the Board of Directors' approval of the
Securities Purchase Agreement, the Compensation Committee of the Board of
Directors adopted the Bonus Plan, subject to stockholder approval. It is
anticipated that certain performance-based bonuses potentially payable to Mr.
Snyder in accordance with the Snyder Employment Agreement would be granted under
the Bonus Plan. See "THE PROPOSALS -- Interests of Certain Persons in the
Transactions -- Snyder Employment Arrangements." The Bonus Plan is designed to
preserve the deductibility by the Company of such bonus payments under Section
162(m) of the Internal Revenue Code of 1986, as amended. Adoption of the Bonus
Plan is a condition to the consummation of the Transactions contemplated by the
Securities Purchase Agreement. If the Closing does not occur for any reason, the
Bonus Plan will be abandoned, regardless of its approval by stockholders. See
"EXECUTIVE OFFICER BONUS PLAN."
18
<PAGE>
Charter Amendments
At the Special Meeting, the stockholders will consider the
adoption of the Charter Amendments. The Charter Amendments will (i) change the
name of the Company to "Golden Books Family Entertainment, Inc."; (ii) increase
the authorized number of shares of Common Stock from 40,000,000 shares to
60,000,000 shares; and (iii) increase the authorized number of shares of
Preferred Stock from 100,000 shares to 200,000 shares. Adoption of any of the
Charter Amendments by the stockholders is not a condition to the consummation
of the Transactions contemplated by the Securities Purchase Agreement. If the
Closing does not occur under the Securities Purchase Agreement for any reason,
the Charter Amendments will not be effected regardless of their approval by
stockholders. Except as described elsewhere in this Proxy Statement, the
Company has no current plans for any issuances of Common or Preferred Stock.
See "CHARTER AMENDMENTS," "AMENDMENT TO CHANGE THE NAME OF THE COMPANY" and
"AMENDMENT TO INCREASE THE AUTHORIZED COMMON AND PREFERRED STOCK."
Pro Forma Capitalization
The following table summarizes the consolidated capitalization
of the Company at February 3, 1996, and as adjusted to give effect to the
Transactions, including the issuance of the Series B Convertible Preferred Stock
and the Warrant to GPH and the receipt by the Company of the net proceeds of
$56,500,000 therefrom (after payment of estimated transaction expenses and the
payments under the severance and management arrangements described under "THE
PROPOSALS -- Interests of Certain Persons in the Transactions -- Severance and
Management Arrangements"), the application of a portion of the proceeds to the
redemption of the Series A Preferred Stock due March 31, 1996 and the impact of
certain aspects of the Snyder Employment Arrangements:
19
<PAGE>
February 3, 1996
<TABLE>
<CAPTION>
As
Actual Adjustments Adjusted
(Unaudited)
(In thousands of dollars)
<S> <C> <C> <C>
Cash................................................... $ 45,223 $ 59,500 (1) $ 89,288
(10,835)(2)
(4,600)(4)
-------- ---------
Total Cash....................................... $ 45,223 $ 44,065 $ 89,288
======== ========= ========
Current Liabilities ................................... $ 57,014 $ (850)(2) $ 56,164
Long-Term Debt......................................... 149,845 - 149,845
Other Noncurrent Liabilities .......................... 30,053 3,060 (4) 33,113
Convertible Preferred Stock -
Series A, without par value.......................... 9,985 (9,985)(2) -
Stockholders' Equity:
Series B Convertible Preferred
Stock, without par value .......................... - 59,500 (1) 59,500
Common Stock, $.01 par value ........................ 219 - 219
Additional paid-in capital .......................... 87,044 - 87,044
Note Receivable from sale of
Common Stock ...................................... (4,796) 4,796 (3) -
Retained earnings (deficit).......................... (3,608) (4,796)(3) (16,064)
(7,660)(4)
Cumulative translation
adjustments........................................ (1,669) - (1,669)
--------- --------- ---------
77,190 51,840 129,030
Less -- cost of Common Stock
in treasury........................................ 2,822 - 2,822
-------- --------- --------
Total Stockholders'
Equity......................................... 74,368 51,840 126,208
-------- --------- --------
Total Capitalization....................... $321,265 $ 44,065 $365,330
======== ========= ========
</TABLE>
Note 1 - Series B Convertible Preferred Stock
The Adjustment amounts reflect the investment by GPH of $65
million (net of estimated transaction expenses of $5.5 million) in the Company
in exchange for 13,000 shares of Series B Convertible Preferred Stock and a
Warrant to purchase an additional 3,250,000 shares of Common Stock. See
"SECURITIES PURCHASE AGREEMENT -- Issuance and Sale of Series B Convertible
Preferred Stock and Warrant."
20
<PAGE>
Note 2 - Series A Convertible Preferred Stock
The Adjustment amounts reflect the redemption of the Series A
Preferred Stock at its carrying value ($9.985 million) and accumulated unpaid
dividends ($.4 million). See "THE PROPOSALS -- Interests of Certain Persons in
the Transactions -- Redemption of Series A Preferred Stock due March 31, 1996."
Note 3 - Incentive Stock of Richard E. Snyder
Pursuant to Mr. Snyder's interim employment agreement, the
Company issued 599,465 shares of Common Stock to him on January 31, 1996, at a
price of $8.00 per share in exchange for a non-recourse note executed by him in
the amount of the purchase price, secured by a pledge of the shares. The
Adjustment amounts reflect the recognition of compensation expense relating to
the vesting of the shares upon consummation of the Transactions. In the event
that the Securities Purchase Agreement is terminated or Mr. Snyder is not
employed by the Company on May 22, 1996, the stock issuance and note will be
rescinded. See "THE PROPOSALS -- Interests of Certain Persons in the
Transactions -- Snyder Employment Arrangements."
Note 4 - Impact of the Transactions
The Adjustment amounts give effect to the Transactions as
follows:
(a) The effect of certain aspects of the Snyder Employment Arrangements
($4.66 million) which will result in an immediate charge to operations
when they are entered into following the completion of the GPH equity
investment, principally the special bonus payable ($3.06 million)
associated with the stock options to be granted to purchase 1,113,293
shares of Common Stock and the supplemental retirement benefit ($1.6
million) to be provided to Mr. Snyder. For the purposes of determining
the special bonus payable to Mr. Snyder, the market price of the Common
Stock as of the Closing was assumed to be approximately $10.75. See
"THE PROPOSALS-- Interests of Certain Persons in the Transactions--
Snyder Employment Arrangements."
(b) The $1.8 million of severance payments to be received by certain
officers and employees (other than Mr. Bernstein) of the Company, who
will resign their positions with the Company. See "THE PROPOSALS --
Interests of Certain Persons in the Transactions -- Severance and
Management Arrangements."
(c) The $1.2 million payment to a corporation owned by Mr. Bernstein for
the cost (including the cost of employing
21
<PAGE>
certain former employees of the Company) of providing certain
management services (including finance and accounting, cash management,
real estate matters, labor negotiations and corporate administration)
to the Company as requested from time to time by Mr. Snyder for the
180-day transition period following the Closing. See "THE PROPOSALS --
Interests of Certain Persons in the Transactions -- Severance and
Management Arrangements."
(d) The statement of operations effects relating to the Impact of the
Transactions and the Incentive Stock of Richard E. Snyder represent
nonrecurring charges to operations.
Price Range of Common Stock; Dividend Policy
The Common Stock is quoted on the Nasdaq National
Market under the symbol "WPGI." After the Special Meeting, the
Company intends to change its listing symbol to GBFE, in
accordance with the change in the Company's name contemplated by
this Proxy Statement. The following table sets forth, for the
periods indicated, the range of high and low prices per share of
the Common Stock as reported on the Nasdaq National Market. Such
prices reflect inter-dealer prices, without retail mark-up, mark-
down or commission, and may not necessarily represent actual
transactions. Stockholders are urged to obtain current market
quotations for the Common Stock.
<TABLE>
<C> <S> <S>
Period High Low
- ------ ---- ---
Fiscal Year Ended January 28, 1995:
First Quarter............................... $20.250 $11.000
Second Quarter.............................. 12.875 9.625
Third Quarter............................... 14.125 10.000
Fourth Quarter ............................. 12.625 9.250
Fiscal Year Ended February 3, 1996:
First Quarter ............................. $ 9.9375 $ 8.000
Second Quarter ............................ 11.750 9.0625
Third Quarter ............................. 14.50 7.875
Fourth Quarter............................. 10.875 7.750
Fiscal Year Ending February 1, 1997:
First Quarter through
April , 1996........................... $ $
</TABLE>
22
<PAGE>
Closing Price on:
September 5, 1995(1)....................... $11.750
October 2, 1995(2)......................... 13.5625
October 18, 1995(3)........................ 8.875
January 31, 1996(4)........................ 9.375
February 1, 1996(5)........................ 10.750
- ----------------
(1) The last trading day before the Company publicly announced
the terms of the initial proposal for a transaction with
Mr. Snyder and Warburg Pincus.
(2) The last trading day before the Company publicly announced the revised
terms of the initial proposal for a transaction with Mr. Snyder and
Warburg Pincus.
(3) The first trading day after the Company publicly announced
that it had not reached agreement on the terms of a
transaction with Mr. Snyder and Warburg Pincus.
(4) The last trading day before the Company publicly announced
the signing of the Securities Purchase Agreement.
(5) The first trading day after the Company publicly announced
the signing of the Securities Purchase Agreement.
Holders of Common Stock are entitled to receive such dividends
as may be lawfully declared by the Board of Directors. Since its organization in
1984, the Company has not paid a cash dividend on the Common Stock, and
management does not currently anticipate the payment of cash dividends on the
Common Stock in the foreseeable future.
23
<PAGE>
BENEFICIAL STOCK OWNERSHIP
Principal Stockholders
The following table sets forth certain information regarding
the beneficial ownership as of April 9, 1996 (except as set forth in notes 3
and 4 below) of the Common Stock (the Company's only outstanding class of voting
securities) by each person or group known by the Company to be the beneficial
owner of more than 5% of the Common Stock:
<TABLE>
<CAPTION>
Beneficial Ownership (1)
--------------------------------------
Name and Address Number of Shares
of Beneficial Owner of Common Stock Percentage
- ------------------- ---------------- ----------
<S> <C> <C>
Richard A. Bernstein 4,280,937(2) %
444 Madison Avenue
New York, New York 10022
Mario J. Gabelli 5,520,650(3) %
Gabelli Funds, Inc.
655 Third Avenue
New York, New York 10017
The Capital Group Companies, Inc. 2,451,000(4) %
333 South Hope Street
Los Angeles, California 90071
</TABLE>
- ---------------
(1) Except where otherwise indicated, all parties listed above have sole
voting and dispositive power over the shares beneficially owned by
them.
(2) Includes 400,000 shares of Common Stock owned by a trust for
the benefit of Mr. Bernstein dated March 16, 1978 (the "1978
Trust"), 95,771 shares of Common Stock owned by The Richard
A. Bernstein Trust of 1986 ("1986 Trust") and 191,666 shares
of Common Stock issuable upon conversion of the 9,200 shares
of Series A Preferred Stock due March 31, 1996, without par
value, of the Company (the "Series A Preferred Stock") owned
by Mr. Bernstein. Each share of Series A Preferred Stock
currently is convertible at any time into 20.833 shares of
Common Stock. Mr. Bernstein has no voting or investment
power over the shares in the 1986 Trust. Also includes
60,000 shares of Common Stock owned by The Richard A. and
Amelia Bernstein Foundation, Inc. as to which Mr. Bernstein
has shared voting and dispositive power, but Mr. Bernstein
disclaims any other beneficial interest in such shares, and
32,500 shares of Common Stock which may be acquired by
Mr. Bernstein within 60 days upon exercise of options
granted under the Company's Amended and Restated 1986
Employee Stock Option Plan.
24
<PAGE>
As described under "THE PROPOSALS -- Certain Negotiated Features of the
Transactions -- Irrevocable Proxies," on January 31, 1996, Mr.
Bernstein, the 1978 Trust and the 1986 Trust granted irrevocable
proxies to GPH with respect to 3,996,771 shares of Common Stock, giving
GPH the power to vote such shares, for as long as they are owned by Mr.
Bernstein or his affiliates, in such manner as GPH deems proper
(subject to certain limitations), for the term of such irrevocable
proxies. Mr. Bernstein, the 1978 Trust and the 1986 Trust have retained
sole dispositive power with respect to these shares. According to the
Schedule 13D filed on February 12, 1996 by GPH, Warburg, Pincus
Ventures, L.P., Warburg, Pincus & Co. and E.M. Warburg, Pincus &
Company, each such entity has shared voting power, and no dispositive
power, as to such shares.
(3) The Gabelli Funds, Inc. has reported to the Company that GAMCO
Investors, Inc. beneficially owned, as of December 11, 1995,
4,545,650 shares of Common Stock, including sole voting power with
respect to 4,079,150 shares and sole dispositive power with respect
to 4,545,650 shares, and The Gabelli Funds, Inc. beneficially owned,
as of such date, 912,000 shares of Common Stock, with respect to which
it had shared voting and sole dispositive power. Additionally,
Gabelli International Limited beneficially owned, as of such date,
45,000 shares of Common Stock, with respect to which it had sole
voting and dispositive power, and Gabelli International II Limited
beneficially owned, as of such date, 18,000 shares of Common Stock,
with respect to which it had sole voting and dispositive power.
Furthermore, Mr. Gabelli is deemed to have beneficial ownership of
the securities beneficially owned by each of the persons listed
in this footnote and Gabelli Funds, Inc. is deemed to have beneficial
ownership of the securities owned beneficially by each of the persons
listed in this footnote other than Mr. Gabelli. Mr. Gabelli is the
majority stockholder of, and controls and acts as chief investment
officer for, each of the foregoing persons.
(4) The Capital Group Companies, Inc. has reported to the Company that its
operating subsidiaries, Capital Guardian Trust Company and Capital
Research and Management Company, have, as of December 29, 1995, sole
voting and dispositive power with respect to 1,651,000 and 800,000
shares of Common Stock, respectively.
Directors and Executive Officers
The following table sets forth certain information regarding the
beneficial ownership as of April 9, 1996 of Series A Preferred Stock and Common
Stock by (i) each executive officer of the Company named in the Summary
Compensation Table below under "ELECTION OF DIRECTORS -- Executive
Compensation", (ii) each director of the Company, (iii) each nominee for
director at the Special Meeting and (iv) all directors and executive officers as
a group.
25
<PAGE>
<TABLE>
<CAPTION>
Beneficial Ownership of Common Stock(1)
--------------------------------------------------------------------------------------
Number of
Shares of Percentage Percentage
Series A of Series A Number of Shares of
Preferred Preferred of Common
Beneficial Owner Stock Stock Common Stock(2) Stock(2)
- ---------------- ---------- ------------ ---------------- ------------
<S> <C> <C> <C> <C>
Richard A. Bernstein 9,200 46.07% 4,280,937(3) 19.56%
John F. Moore 300,000(4) 1.37%
Steven M. Grossman 20,179(5) *
James A. Cohen 50 * 50,087(6) *
Ira A. Gomberg 36,667(7) *
Ilan K. Reich 21,767(8) *
Bruce A. Bernberg 65,021(9) *
Richard H. Hochman 7,000 *
Jenny Morgenthau 2,000 *
Michael A. Pietrangelo 5,000 *
Shahara Ahmad-Llewellyn 0 *
Barry Diller 0 *
Linda L. Janklow 0 *
Marshall Rose 0 *
Richard E. Snyder 599,465(10) 2.77%
H. Brian Thompson 0 *
- ---------------
All directors and executive 9,250 46.32% 5,616,092(11) 25.10%
officers as a group (20 individuals)
</TABLE>
- ---------------
* Represents less than 1% of the Common Stock outstanding.
(1) Except where otherwise indicated, all parties listed above have sole
voting and dispositive power over the shares beneficially owned by
them. Adjustments are made to avoid double counting of shares as to
which more than one beneficial owner is listed.
(2) Includes shares of Common Stock issuable upon conversion of the
beneficial owner's shares of Series A Preferred Stock. Each share of
Series A Preferred Stock is convertible at any time into 20.833 shares
of Common Stock.
(3) Includes 400,000 shares of Common Stock owned by a trust for the
benefit of Mr. Bernstein dated March 16, 1978 (the "1978 Trust"),
95,771 shares of Common Stock owned by The Richard A. Bernstein Trust
of 1986 (the "1986 Trust") and 191,666 shares of Common Stock issuable
upon conversion of
26
<PAGE>
Mr. Bernstein's shares of Series A Preferred Stock. Mr. Bernstein has
no voting or investment power over the shares in the 1986 Trust. Also
includes 60,000 shares of Common Stock owned by The Richard A. and
Amelia Bernstein Foundation, Inc. as to which Mr. Bernstein has shared
voting and dispositive power, but Mr. Bernstein disclaims any other
beneficial interest in such shares, and 32,500 shares of Common Stock
which may be acquired by Mr. Bernstein within 60 days upon exercise of
options granted under the Company's Amended and Restated 1986 Employee
Stock Option Plan (the "1986 Option Plan").
As described under "THE PROPOSALS -- Certain Negotiated Features of the
Transactions -- Irrevocable Proxies," on January 31, 1996, Mr.
Bernstein, the 1978 Trust and the 1986 Trust granted irrevocable
proxies to GPH with respect to 3,996,771 shares of Common Stock, giving
GPH the power to vote such shares, for so long as they are owned by Mr.
Bernstein or his affiliates, in such manner as GPH deems proper
(subject to certain limitations), for the term of such irrevocable
proxies. Mr. Bernstein, the 1978 Trust and the 1986 Trust have retained
sole dispositive power with respect to their shares. According to the
Schedule 13D filed on February 12, 1996 by GPH, Warburg, Pincus
Ventures, L.P., Warburg, Pincus & Co. and E.M. Warburg, Pincus &
Company, each such entity has shared voting power, and no dispositive
power, as to such shares.
(4) Includes 300,000 shares of Common Stock which may be acquired by Mr.
Moore within 60 days upon exercise of options granted under the 1986
Option Plan.
(5) Includes 20,000 shares of Common Stock which may be acquired by Mr.
Grossman within 60 days upon exercise of options granted under the 1986
Option Plan.
(6) Includes 1,042 shares of Common Stock issuable upon conversion of Mr.
Cohen's shares of Series A Preferred Stock and 36,667 shares of Common
Stock which may be acquired by Mr. Cohen within 60 days upon exercise
of options granted under the 1986 Option Plan.
(7) Includes 36,667 shares of Common Stock which may be acquired by Mr.
Gomberg within 60 days upon exercise of options granted under the 1986
Option Plan.
(8) Includes 21,667 shares of Common Stock which may be acquired by Mr.
Reich within 60 days upon exercise of options granted under the 1986
Option Plan.
(9) Includes 42,500 shares of Common Stock which may be acquired by Mr.
Bernberg within 60 days upon exercise of options granted under the 1986
Option Plan.
(10) Represents shares issued by the Company to Mr. Snyder upon his
election as President of the Company on January 31, 1996
27
<PAGE>
in exchange for a nonrecourse note secured by a pledge of such shares.
In the event that the Securities Purchase Agreement is terminated in
accordance with its terms or Mr. Snyder is not employed by the Company
on May 22, 1996, this stock issuance and the note will be rescinded.
These shares do not include non-qualified stock options to purchase
1,113,293 shares of Common Stock to be granted to Mr. Snyder following
the closing of GPH's equity investment pursuant to the terms of his
employment agreement. See "THE PROPOSALS -- Interests of Certain
Persons in the Transactions -- Snyder Employment Arrangements."
(11) Includes 516,668 shares of Common Stock which may be acquired by
certain executive officers within 60 days upon exercise of options
granted under the 1986 Option Plan.
THE PROPOSALS
UNLESS ALL THE PROPOSALS ARE APPROVED AND ADOPTED BY THE
STOCKHOLDERS AT THE SPECIAL MEETING, EACH OF THE PROPOSALS WILL BE DEEMED TO
HAVE BEEN REJECTED BY THE STOCKHOLDERS AND NONE OF THE PROPOSALS WILL BE
EFFECTED, EXCEPT THAT THE OTHER PROPOSALS WILL BE EFFECTED REGARDLESS OF WHETHER
ANY OF THE PROPOSALS RELATING TO THE CHARTER AMENDMENTS IS ADOPTED.
Background of and Reasons for the Transactions
In 1988, Simon & Schuster, Inc., of which Mr. Snyder was then
Chairman and Chief Executive Officer, held discussions with the Company
regarding a possible business combination with the Company, but no such
transaction was agreed upon.
In November 1993, the Company announced that it had retained
Bear, Stearns & Co. Inc. ("Bear Stearns") and Morgan Stanley & Co. Incorporated
("Morgan Stanley") to examine overtures from other entities regarding proposed
business combination proposals and to explore strategic alternatives to maximize
stockholder value. The subsequent solicitation process did not result in a
business combination transaction involving the Company. However, in 1994 the
Company did sell its games and puzzles operations to Hasbro, Inc., sold the
Advertising Specialty Division of Penn Corporation, closed its facility in
Fayetteville, North Carolina, sold its school book club and direct marketing
businesses and implemented certain reductions in the Company's overhead.
Mr. Snyder and Mr. Bernstein met in April 1995 and
subsequently held preliminary discussions concerning a potential transaction
involving Mr. Snyder and the Company. After several meetings with Mr. Snyder
and his financial advisor, Mr. Snyder introduced Warburg, Pincus Ventures, L.P.
("Warburg Pincus" and, together with Mr. Snyder, the "Snyder/Warburg Pincus
Group") to a possible transaction. Thereafter, Mr. Snyder and Warburg Pincus
jointly pursued a transaction with the Company. In May, Mr. Snyder and Warburg
Pincus signed a confidentiality agreement
28
<PAGE>
with the Company and began to review detailed information concerning the
Company. In August, the parties began to outline the parameters of a potential
transaction in which the Snyder/Warburg Pincus Group would acquire a significant
equity interest in the Company.
Following the publication of an article concerning the
possibility of a transaction between the Company, Mr. Snyder and Warburg Pincus
in The New York Times, the Company issued a press release on September 6, 1995
announcing (the "September Announcement") that it had reached an agreement in
principle for the acquisition of a significant equity interest in the Company by
the Snyder/Warburg Pincus Group, subject to the completion of due diligence, the
execution of definitive legal agreements and the approval of the board of
directors of the Company (the "Board of Directors") and the Company's
stockholders. The September Announcement contemplated a transaction in which the
Snyder/Warburg Pincus Group would purchase the Company's wholly-owned
subsidiary, Penn Corporation, from the Company for $23 million in cash and
contribute $56 million to the capital of Penn Corporation. The Snyder/Warburg
Pincus Group would then purchase Mr. Bernstein's approximate 20% stake in the
Company, paying him in exchange therefor $14 per share in cash and 20% of the
shares of Penn Corporation. The remaining 80% of the stock of Penn Corporation
would then be distributed to the other stockholders of the Company in connection
with a merger transaction in which the Snyder/Warburg Pincus Group would acquire
$120 million of convertible preferred stock, convertible at $14 per share and
representing a 33% stake in the Company, and a $15 million note. The September
Announcement also contemplated that, upon the closing of the transaction, Mr.
Synder would succeed Mr. Bernstein as Chairman and Chief Executive Officer of
the Company.
Because the transaction outlined in the September Announcement
contemplated the purchase of the Bernstein Shares, the Board of Directors formed
an independent committee of outside directors to advise the Board of Directors
with respect to the proposed transaction. The committee in turn retained Bear
Stearns and Jefferies & Company, Inc. ("Jefferies") to consider the fairness of
the proposed transaction from a financial point of view. As described under "THE
PROPOSALS -- Opinions of Financial Advisors -- Bear Stearns," Bear Stearns also
performed and received a fee for certain other financial advisory services for
the Company in connection with the proposed transactions.
Following the September Announcement, representatives of the
Snyder/Warburg Pincus Group, including their advisor SBC Capital Markets, Inc.,
continued to conduct their due diligence investigation with respect to the
Company and its businesses, operations and properties. In addition, the parties
and their legal counsel conducted extensive negotiations concerning the legal
documentation for the proposed transaction. In late September, representatives
of the Snyder/Warburg Pincus Group approached the Company to express their
concern with the Company's recent results of operations and to advise the
Company
29
<PAGE>
that it was not prepared to proceed with the transaction contemplated in the
September Announcement. After further negotiations, the Company issued a press
release on October 3, 1995 announcing (the "October Announcement") that it had
agreed in principle with the Snyder/Warburg Pincus Group on a revised
transaction. The October Announcement contemplated a transaction in which the
Snyder/Warburg Pincus Group would purchase the Bernstein Shares at a cash price
of $15.50 per share. The Snyder/Warburg Pincus Group would then exchange these
shares, together with approximately $50 million in cash, for convertible
preferred stock, convertible at $14 per share and representing a 34% stake in
the Company, and warrants to purchase an additional four million shares at an
exercise price of $15 per share. Mr. Snyder would succeed Mr. Bernstein as
Chairman and Chief Executive Officer of the Company upon completion of the
transaction. Under the revised terms, Penn Corporation would remain a
wholly-owned subsidiary of the Company. The October Announcement also indicated
that the proposed transaction remained subject to the same conditions as set
forth in the September Announcement, that no definitive agreement had been
signed to date and that there could be no assurance that the parties would reach
a definitive agreement.
Following the September Announcement, a class action lawsuit
was filed in the Delaware Court of Chancery entitled Samuel Pill v. Richard A.
Bernstein, et al. (the "Pill Class Action"). An amended complaint was filed
on October 5, 1995 following the October Announcement (the "Amended Pill
Complaint"). On October 6, 1995, two additional and substantially similar
class action lawsuits were filed in the Delaware Court of Chancery entitled
Charles Miller v. Richard Bernstein, et al. (the "Miller Class Action") and
Harry Polikoff v. Richard A. Bernstein, et al. (the "Polikoff Class Action"
and, together with the Pill Class Action and the Miller Class Action, the
"Class Actions"). For a discussion of the allegations contained in the Class
Actions, see "THE PROPOSALS -- Litigation."
The parties continued to negotiate the terms of the revised
transaction following the October Announcement. Representatives of the
Snyder/Warburg Pincus Group also continued their due diligence. However, the
parties could not reach final agreement on the terms of the proposed transaction
and, on October 17, 1995, the Company publicly announced (the "Termination
Announcement") that all negotiations between the parties had been terminated.
Company management received and considered several
preliminary expressions of interest from third parties for a variety of
transactions during the ensuing weeks. However, none of these parties was
prepared to make a formal offer containing financial or other terms for any of
these transactions and, consequently, the Board of Directors was not presented
with a transaction that it could pursue. In November, Mr. Snyder and Warburg
Pincus approached the Company to attempt to negotiate a new transaction, which
negotiations culminated in the signing of the Securities Purchase Agreement on
January 31, 1996. As
30
<PAGE>
negotiated, the revised transaction contemplated that the Snyder/Warburg Pincus
Group would not purchase any of the Bernstein Shares. Instead, the entire
investment would be made directly in the Company in exchange for shares of
convertible preferred stock, convertible at $10 per share, and warrants
exercisable at $10 per share. The revised transaction also provided for the
Company to use a portion of the proceeds from the investment to redeem the
outstanding shares of Series A Preferred Stock due March 31, 1996. In addition,
the Snyder/Warburg Pincus Group required that Mr. Bernstein and certain of his
affiliates grant it irrevocable proxies to vote their shares of Common Stock for
so long as such shares were owned by Mr. Bernstein and such affiliates.
Several weeks of negotiations and additional due diligence
followed. The Board of Directors met on December 19, 1995, January 17, 1996 and
January 25, 1996 to receive reports from management concerning the renewed
negotiations with the Snyder/Warburg Pincus Group and the other expressions of
interest received since the Termination Announcement. In addition, at the
January 25, 1996 meeting representatives of Jefferies made an oral presentation
to the Board of Directors as to the fairness to the Company of the consideration
to be received by the Company in the proposed transaction (which at the time
contemplated a $60 million investment).
On January 26, 1996, John F. Moore resigned as President and
Chief Executive Officer of the Company's principal operating subsidiary, Western
Publishing Company, Inc., although he remained a director of the Company.
The Board of Directors met again on January 31, 1996 to
consider the final terms of the Securities Purchase Agreement and related legal
documentation, which contemplated a $65 million investment by the Snyder/Warburg
Pincus Group. The Board of Directors heard the oral presentation and opinion of
Bear Stearns that the consideration to be received by the Company in the
proposed transaction was fair to the Company from a financial point of view, and
was advised that Jefferies was prepared to deliver its fairness opinion. At that
meeting, the Board of Directors, after considering numerous factors set forth
below under "THE PROPOSALS -- Recommendation of the Board of Directors," by a
unanimous vote, determined that the Securities Purchase Agreement and the
transactions contemplated thereby (the "Transactions"), considered as a whole,
are fair to and in the best interests of the Company and its stockholders. Later
that day, Bear Stearns and Jefferies delivered written fairness opinions, the
Securities Purchase Agreement and related documents were signed by the parties
and the Company issued a press release announcing the Transactions. In addition,
in order to help ensure a smooth transition of the Company's management, Mr.
Snyder was elected as President by the Board of Directors and agreed to serve in
that capacity through the closing of GPH's equity investment. See "THE PROPOSALS
- -- Interests of Certain Persons in the Transactions -- Snyder Employment
Arrangements."
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Recommendation of the Board of Directors
THE BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE
SECURITIES PURCHASE AGREEMENT AND THE TRANSACTIONS, CONSIDERED AS A WHOLE, ARE
FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY AND ITS STOCKHOLDERS AND
THEREFORE UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S STOCKHOLDERS VOTE FOR
APPROVAL OF EACH OF THE PROPOSALS AT THE SPECIAL MEETING.
As described above under "THE PROPOSALS -- Background of and
Reasons for the Transactions," the decision of the Board of Directors to approve
the Securities Purchase Agreement and related documentation and the Transactions
followed extensive negotiations over a period of over six months between the
Company, Mr. Snyder, Warburg Pincus and their respective representatives. During
the period between the September Announcement and the signing of the Securities
Purchase Agreement and related documentation, the Board of Directors met seven
times to consider and review information concerning various aspects of the
proposed transactions.
At its meeting held on January 31, 1996, the Board of
Directors unanimously concluded that the Transactions, considered as a whole,
are fair to and in the best interests of the Company and its stockholders.
During the course of its deliberations, the Board of Directors considered,
without assigning relative weights to, the following factors:
(i) the terms and conditions for the Transactions as set forth
in the Securities Purchase Agreement and the related documentation,
including the infusion of cash to be made to the Company by GPH for its
stake in the Company, which the Board of Directors concluded represents
the most favorable transaction possible with the Snyder/Warburg Pincus
Group and available to the Company, based on the history of the
Company's negotiations with the Snyder/Warburg Pincus Group and the
failure of any formal competing offers to emerge following the November
1993 public announcement that the Company had retained Bear Stearns and
Morgan Stanley to consider strategic alternatives, or following the
September and October Announcements and the Termination Announcement;
(ii) the historical and prospective operations of the Company,
including, among other things, the current financial condition and
future prospects of the Company, the strategic direction of the
Company's businesses, the current conditions in, and future prospects
of, the Company's various lines of business and the competitive
position of the Company in its various lines of business, which when
considered in their entirety by the Board of Directors, demonstrated
the desirability of obtaining a significant equity investment in the
Company of the size proposed by the Snyder/Warburg Pincus Group;
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(iii) historical data relating to market prices and trading volume
of the Common Stock, the favorable reactions by the public market for
the Common Stock to the September and October Announcements, the
generally higher prices at which the Common Stock has traded since the
September Announcement, presumably in anticipation of a transaction
involving the Company, which in the view of the Board of Directors
indicated that the public markets would favor the equity investment by
the Snyder/Warburg Pincus Group;
(iv) the desire of Mr. Bernstein to step down as the Chief
Executive Officer of the Company and the benefits to the Company of
obtaining the services of Mr. Snyder as its Chief Executive Officer
based on his experience and track record in the publishing industry,
together with the financial expertise and resources of Warburg Pincus;
(v) the various matters described under "THE PROPOSALS -- Certain
Considerations" and "THE PROPOSALS -- Interests of Certain Persons in
the Transactions, which the Board of Directors concluded do not
outweigh or materially detract from the benefits of the Transactions
to the Company;"
(vi) the opportunity for the Company's stockholders to retain a
significant equity interest in the Company, which the Board of
Directors concluded would be welcomed by stockholders who do not want
to sell their shares at the then current market prices for the Common
Stock;
(vii) the fact that the Company is permitted under the Securities
Purchase Agreement to terminate the Securities Purchase Agreement and,
subject to paying a $2 million termination fee, to enter into an
agreement for a business combination that the Board of Directors
reasonably determines is likely to be more favorable to the Company's
stockholders than the Transactions, which the Board of Directors
concluded would permit it to consider and enter into a more favorable
transaction should one present itself following public announcement of
the signing of the Securities Purchase Agreement;
(viii) the presentation of Bear Stearns to the Board of Directors at
its meeting on January 31, 1996, together with Bear Stearns' written
opinion delivered on that date that, as of such date, the consideration
to be received by the Company from the equity investment contemplated
by the Securities Purchase Agreement is fair to the Company from a
financial point of view; and
(ix) the presentation of Jefferies to the Board of Directors at its
meeting on January 25, 1996, together with Jefferies' written opinion
delivered on January 31, 1996 that, as of such date, the consideration
to be received by the Company from the equity investment contemplated
by the
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Securities Purchase Agreement is fair to the Company from a financial
point of view.
Opinions of Financial Advisors
Bear Stearns
At the January 31, 1996 meeting of the Board of Directors,
Bear Stearns delivered its oral presentation and opinion, which it confirmed in
writing later that day, to the effect that, based upon the matters presented to
the Board of Directors and subject to various considerations set forth in Bear
Stearns' opinion, as of January 31, 1996, the consideration to be received by
the Company from the equity investment contemplated by the Securities Purchase
Agreement is fair to the Company from a financial point of view. As described
below under "-- Fees and Expenses," Bear Stearns also performed and received a
fee for certain other financial advisory services for the Company in connection
with the GPH equity investment, including analyzing and advising the Company's
management with respect to certain structural and financial aspects of the
transactions proposed by the Snyder/Warburg Pincus Group over the course of the
negotiations, as well as participating in the negotiations between the parties
at various stages of the discussions.
The full text of the opinion of Bear Stearns, dated April __,
1996, is attached as Appendix IX to this Proxy Statement and sets forth the
assumptions made, matters considered and limits on the review undertaken.
Stockholders are urged to read the opinion of Bear Stearns in its entirety. Bear
Stearns' opinion is directed only to the fairness, from a financial point of
view, of the consideration to be received by the Company from the equity
investment contemplated by the Securities Purchase Agreement, pursuant to which,
among other things, GPH will purchase, for a purchase price of $65 million which
will be paid in cash, shares of Series B Convertible Preferred Stock with an
aggregate redemption value of $65 million and a Warrant to purchase 3,250,000
shares of Common Stock (the "Securities Issuance"). Except as set forth below
and in the full text of Bear Stearns' opinion, no limitations were imposed by
the Board of Directors upon Bear Stearns with respect to the investigations made
or procedures followed by it in rendering its opinion. In rendering its opinion,
Bear Stearns did not opine as to any other transactions or contractual
arrangements to be entered into or payments to be made by or to the Company or
any other person concurrently with the Securities Issuance.
The summary of the opinion of Bear Stearns set forth in this
Proxy Statement is qualified in its entirety by reference to the full text of
such opinion set forth as Appendix IX to this Proxy Statement. Bear Stearns'
opinion does not constitute a recommendation to any stockholder of the Company
as to how such stockholder should vote on the Proposals at the Special Meeting.
In arriving at its opinion, Bear Stearns, among other things:
(i) reviewed the Securities Purchase Agreement; the
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Certificate of Designations, Number, Voting Powers, Preferences and Rights
relating to the Series B Convertible Preferred Stock; the form of the Warrant;
the GPH Registration Rights Agreement; and certain related agreements; (ii)
reviewed the Company's Annual Reports to Shareholders for the fiscal years ended
on or about January 31, 1993 through 1995; its Annual Reports on Form 10-K for
the fiscal years ended on or about January 31, 1993 through 1995; and its
Quarterly Reports on Form 10-Q for the periods ended April 29, 1995, July 29,
1995 and October 28, 1995; (iii) reviewed certain operating and financial
information, including budgets and current estimates for Fiscal 1996 (FYE
February 3, 1996) provided to Bear Stearns by the Company's senior management,
relating to the Company's businesses and prospects (Bear Stearns having been
informed by senior management of the Company that no quantitative forecasts of
financial performance were available for any period after the fiscal year ending
February 3, 1996); (iv) met with certain members of the Company's senior
management to discuss the Company's businesses and operations, previous
restructuring initiatives, historical financial performance, estimated financial
performance for Fiscal 1996 (FYE February 3, 1996), current financial condition
and liquidity, expected capital requirements and future prospects; (v) met with
Mr. Snyder and Warburg Pincus to discuss their prospective business strategy for
the Company and their views of the Company's corporate and operating management,
previous business strategies, businesses and operations, previous restructuring
initiatives, historical financial performance, estimated financial performance
for Fiscal 1996 (FYE February 3, 1996), current financial condition and
liquidity, expected capital requirements and future prospects; (vi) reviewed the
historical prices, trading activity and valuation parameters of the shares of
Common Stock and the Company's 7.65% Senior Notes due 2002 (the "Senior Notes");
(vii) reviewed publicly available financial data, stock market performance data
and valuation parameters of certain companies which Bear Stearns deemed
generally comparable to the Company; (viii) reviewed the terms of selected
precedent investment transactions, to the extent publicly available, which Bear
Stearns deemed generally comparable to the Securities Issuance; (ix) reviewed
the terms of selected precedent mergers and acquisitions, to the extent publicly
available, involving companies which Bear Stearns deemed generally comparable to
the Company; (x) reviewed the terms of selected issuances of convertible
preferred stock in the public securities market; and (xi) conducted such other
studies, analyses, inquiries and investigations as Bear Stearns deemed
appropriate.
In connection with the foregoing, Bear Stearns relied upon
and assumed the accuracy and completeness of the financial and other
information provided to it by the Company and representations of the Company's
senior management related thereto. With respect to the Company's budgets and
current estimates for Fiscal 1996 (FYE February 3, 1996) referred to in clause
(iv) of the previous paragraph, Bear Stearns assumed that they had been
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the senior
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management of the Company as to the expected performance of the Company for
Fiscal 1996. Bear Stearns was informed by the senior management of the Company
that no budget or forecast was available for Fiscal 1997 (FYE February 1,
1997). Bear Stearns did not assume any responsibility for the information or
current estimates provided to it and relied upon the assurances of the senior
management of the Company that it was unaware of any facts that would make the
information provided to Bear Stearns incomplete or misleading. In arriving at
its opinion, Bear Stearns did not perform or obtain any independent appraisal of
the assets of the Company. Bear Stearns' opinion was necessarily based on
economic, market and other conditions, and the information made available to it,
as of the date thereof.
In rendering its opinion, Bear Stearns considered (i) the
reaction of the stock market and certain major stockholders to previous proposed
transactions between the Company and the Snyder/Warburg Pincus Group which had
been publicly disclosed during the Fall of 1995 and the potential positive
impact on the prices of the Company's equity and debt securities of new senior
management; (ii) the Company's recent financial performance, current financial
condition and (based on recent trends as well as the discussions with senior
management, Mr. Snyder and Warburg Pincus described above) future prospects;
(iii) the potential negative impact on the prices of the Company's equity and
debt securities of the Company's expected financial performance for Fiscal 1996
(FYE February 3, 1996) in the absence of the proposed transaction with the
Snyder/Warburg Pincus Group or another similar extraordinary transaction; (iv)
the fact that (a) no other potential equity investors or strategic acquirors had
made a formal investment or acquisition proposal to the Company since the
September Announcement and (b) the Company had failed to effect a sale
transaction or similar extraordinary transaction despite various discussions
with potential financial and strategic buyers throughout 1995 and during a
public auction conducted during 1994; (v) the Company's prospects for raising
debt and/or equity in the public and private capital markets; and (vi) various
terms and conditions of the Securities Issuance, including that (x) the
Securities Issuance is subject to a vote of the Company's stockholders, (y) the
"no solicitation" and "termination" provisions of the Securities Purchase
Agreement provide the Board of Directors of the Company with the flexibility to
exercise its fiduciary duty to pursue certain alternative transactions in lieu
of the Securities Issuance and (z) the irrevocable proxies granted by Mr.
Bernstein and certain of his affiliates to GPH as a condition to the Securities
Issuance.
The following is a summary of the principal financial and
valuation analyses performed by Bear Stearns to arrive at its opinion. Based on
these financial and valuation analyses and the other factors discussed herein,
Bear Stearns determined that, as of the date of its opinion, the consideration
to be received by the Company pursuant to the Securities Issuance is fair, from
a financial point of view, to the Company.
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Review and Analysis of the Company's Financial and Operating
Performance. Bear Stearns reviewed and analyzed the historical financial and
operating performance of the Company for Fiscal 1993, 1994 and 1995 and the nine
months ended October 28, 1995 and the estimated financial and operating
performance of the Company for Fiscal 1996. This review and analysis considered
the Company's reported revenues, gross profit, earnings before interest, taxes,
depreciation and amortization ("EBITDA"), earnings before interest and taxes
("EBIT"), net income and free cash flow. Bear Stearns noted that the Company's
results for Fiscal 1993, 1994 and 1995, for the nine months ended October 28,
1995 and as projected by the Company for Fiscal 1996 were (i) total revenues of
$652.2 million, $616.7 million, $402.6 million, $285.4 million and $380.0
million, respectively, (ii) EBITDA of $52.0 million, ($30.1) million, $16.3
million, ($19.4) million and ($34.7) million, respectively, (iii) EBIT of $38.8
million, ($47.1) million, ($17.6) million, ($30.5) million and ($49.2) million,
respectively, and (iv) net income of $17.5 million, ($41.0) million, ($17.6)
million, ($53.8) million and ($76.1) million, respectively. Bear Stearns also
noted that the Company's free cash flow from operations before financing
activities was ($97.0) million for Fiscal 1993, ($49.8) million for Fiscal 1994,
($4.9) million for Fiscal 1995 and ($37.7) million for the nine months ended
October 28, 1995. Bear Stearns noted that the Company's EBITDA, EBIT and net
income are in most cases negative, and the Company's periodic growth in EBITDA,
EBIT and net income was also generally negative.
Valuation of the Company's Common Stock Absent a Transaction.
As part of its review and analysis, Bear Stearns summarized the historical
trading performance of the Common Stock in light of the recent financial and
operating performance of the Company. In particular, Bear Stearns reviewed the
prices of the Common Stock following the Termination Announcement and the
release of the Company's third quarter results on December 7, 1995. From
December 8, 1995 through December 29, 1995, the closing price of the Common
Stock ranged from $7.75 to $8.50, and the price of the Common Stock stood at
$7.88 on December 29, 1995 (the "Unaffected Market Price"). Bear Stearns noted
that the price of the Common Stock had risen significantly during the weeks
leading up to the meeting of the Board of Directors to approve the Securities
Issuance, closing at $9.63 on January 30, 1995 (the "Affected Market Price").
Based on a review of selected publicly traded companies and precedent merger and
acquisition transactions, Bear Stearns estimated the price at which the Common
Stock might trade (i) in light of the financial and operating performance of the
Company and (ii) absent the prospect of any extraordinary transaction such as
the Securities Issuance (the "Hypothetical Intrinsic Value"); as described more
fully herein, Bear Stearns estimated the Hypothetical Intrinsic Value utilizing,
for Bear Stearns' analytical purposes, a range of enterprise value to revenue
multiples of 0.60x to 0.70x.
Valuation of the Securities to be Issued. Bear Stearns
estimated the value of the securities to be issued pursuant to the Securities
Issuance based on three alternative scenarios assuming underlying per share
prices for the Common Stock of
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$6.00, $8.00 and $10.00 (approximating the Hypothetical Intrinsic Value, the
Unaffected Market Price and the Affected Market Price, respectively). As
described below, Bear Stearns noted that in two of these three alternative
scenarios, the value of the securities to be issued pursuant to the Securities
Issuance exceeded the proceeds to the Company resulting from the Securities
Issuance. For each assumed underlying stock price, Bear Stearns calculated a
theoretical value to be ascribed to the Series B Convertible Preferred Stock and
the Warrant and compared such theoretical value to the consideration being
received by the Company in the Securities Issuance. These theoretical values
were determined based on (i) the terms of the Series B Convertible Preferred
Stock and assuming a cross-yield of 15-17% for valuing the fixed income portion
of the Series B Convertible Preferred Stock (reflecting the trading price of the
Senior Notes plus an appropriate spread), a volatility factor of 30% for valuing
the equity component and a 5-10% discount due to certain transfer restrictions
and other unique features of the Series B Convertible Preferred Stock and (ii)
the terms of the Warrant and assuming a volatility factor of 30%. At an assumed
underlying price for the Common Stock of $6.00, Bear Stearns determined that the
theoretical value of the Series B Convertible Preferred Stock was approximately
$57.2 million and the theoretical value of the Warrant was approximately $4.3
million, for a total of $61.5 million, which is $3.5 million below the $65.0
million consideration to be received by the Company (or $0.5 million above such
consideration after accounting for up to $4.0 million of expenses of Warburg
Pincus to be reimbursed from the proceeds of the Securities Issuance). At an
assumed underlying price for the Common Stock of $8.00, Bear Stearns determined
that the theoretical value of the Series B Convertible Preferred Stock was
approximately $69.6 million and the theoretical value of the Warrant was
approximately $8.1 million, for a total of $77.7 million, which is $12.7 million
above the $65.0 million consideration to be received by the Company (or $16.7
million above such consideration after accounting for up to $4.0 million of
expenses of Warburg Pincus to be reimbursed from the proceeds of the Securities
Issuance). At an assumed underlying price for the Common Stock of $10.00, Bear
Stearns determined that the theoretical value of the Series B Convertible
Preferred Stock was approximately $81.9 million and the theoretical value of the
Warrant was approximately $12.9 million, for a total of $94.8 million, which is
$29.8 million above the $65.0 million consideration to be received by the
Company (or $33.8 million above such consideration after accounting for up to
$4.0 million of expenses of Warburg Pincus to be reimbursed from the proceeds of
the Securities Issuance).
Analysis of Selected Publicly Traded Companies. Bear Stearns
compared certain operating and financial information of the Company to certain
publicly available operating, financial, trading and valuation information of
six publicly traded companies which are engaged in the publishing, juvenile
products or greeting card business and which, in Bear Stearns' judgment, were
comparable to the Company for purposes of this analysis. These companies
included Mattel, Inc., Scholastic
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Corporation, Banta Corporation, Hasbro, Inc., American Greetings Corp. and
Houghton Mifflin Co. (collectively, the "Comparable Companies"). Bear Stearns'
analysis of the Comparable Companies included reviewing their enterprise values
as a multiple of revenues, EBITDA and EBIT and their stock prices as a multiple
of earnings per share; in addition, Bear Stearns analyzed various financial and
operating performance measures of the Comparable Companies including revenue
growth, EBITDA growth, EBITDA margins, EBIT growth, EBIT margins, net income
margins, earning per share growth, return on equity and total debt as a
percentage of total capitalization. In reviewing the valuation parameters of the
Company, Bear Stearns noted that the Company could only be analyzed based on a
multiple of revenues as a result of its recent financial and operating
performance and the lack of any estimates or projections for the Company. Bear
Stearns' analysis of the Comparable Companies indicated that the range of
enterprise value to revenues multiples was 1.02x to 2.16x with a harmonic mean
(the reciprocal of the arithmetic mean of reciprocals) of 1.37x. Bear Stearns
estimated the Hypothetical Intrinsic Value of the Common Stock based on a range
of enterprise value to revenue multiples of 0.60x to 0.70x, which reflects a
significant discount to the trading multiples of revenue for the Comparable
Companies due to the Company's financial and operating performance.
Analysis of Selected Precedent Merger and Acquisition
Transactions. Bear Stearns reviewed and analyzed the publicly available
financial terms of ten selected recent merger and acquisition transactions
which involved companies which are engaged in the publishing, juvenile products
or greeting card business and which, in Bear Stearns' judgment, were reasonably
comparable to the Securities Issuance for purposes of this analysis. The ten
transactions were (i) the acquisition of Cleo, Inc. from Gibson Greetings, Inc.
by CSS Industries, Inc.; (ii) the acquisition of D.C. Heath from Raytheon Co.
by Houghton Mifflin Co.; (iii) the acquisition of Thomas C. Wright Inc. by
Tribune Co.; (iv) the acquisition of McDougal Littell & Co. by Houghton Mifflin
Co.; (v) the acquisition of Fisher-Price, Inc. by Mattel, Inc.; (vi) the
acquisition of Affiliated Publications, Inc. by New York Times Co.; (vii) the
acquisition of the Fleer Corp. by Marvel Entertainment Group, Inc.; (viii) the
acquisition of Universal Matchbox Group Limited by Tyco Toys, Inc.; (ix) the
acquisition of Tonka Corp. by Hasbro Bradley, Inc.; and (x) the acquisition of
Harcourt Brace Jovanovich, Inc. by General Cinema Corp. (collectively, the
"Precedent M&A Transactions"). Bear Stearns reviewed the prices paid in the
Precedent M&A Transactions and analyzed various operating and financial
information and imputed valuation multiples and ratios. Bear Stearns noted
that none of the Precedent M&A Transactions was identical to the Securities
Issuance and that, accordingly, any analysis of the Precedent M&A Transactions
necessarily involved complex considerations and judgments concerning
differences in financial and operating characteristics and other factors that
would necessarily affect the value of the Company versus the acquisition values
of the companies to which the Company was being compared. In addition, Bear
Stearns noted that the
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Precedent M&A Transactions could generally be analyzed based on various
valuation parameters such as enterprise value as a multiple of revenues, EBITDA
and EBIT and equity value as a multiple of net income whereas the Company could
only be analyzed based on a multiple of revenues as a result of its recent
financial and operating performance and the lack of any estimates or projections
for the Company. Bear Stearns' analysis of the Precedent M&A Transactions
indicated that the range of enterprise value to revenues multiples was 0.76x to
2.94x with a harmonic mean of 1.30x and an average of 1.68x. Bear Stearns
estimated the Hypothetical Intrinsic Value of the Common Stock based on a range
of enterprise value to revenue multiples of 0.60x to 0.70x, which reflects a
significant discount to the multiples of revenue implied by the Precedent M&A
Transactions due to the Company's financial and operating performance.
Precedent Investment Transactions. Bear Stearns summarized and
analyzed two transactions in which private equity investors had purchased
significant equity stakes directly from publicly traded corporations and been
granted certain rights, including representation on the board of directors of
the corporation. These two transactions were (i) the investment by Haas Wheat &
Harrison Incorporated in Playtex Products, Inc. and (ii) the investment by
Kohlberg Kravis Roberts & Co. in TW Holdings, Inc. (collectively, the "Precedent
Investment Transactions"). Bear Stearns noted that neither of the Precedent
Investment Transactions was identical to the Securities Issuance and that,
accordingly, any analysis of the Precedent Investment Transactions necessarily
involved complex considerations and judgments concerning differences in
transaction structures, financial and operating characteristics of the issuing
corporation and other factors that would necessarily affect the terms of the
Securities Issuance versus the terms of the Precedent Investment Transactions.
Notwithstanding the numerous and significant differences between the Securities
Issuance and the Precedent Investment Transactions, this analysis provided a
useful benchmark as to certain structural, corporate governance and financial
aspects of such investment transactions.
Based on the foregoing analyses and factors Bear Stearns
arrived at its opinion; however, the summary set forth above does not purport
to be a complete description of the analysis performed and factors considered
by Bear Stearns in arriving at its opinion, although it does reflect all
material factors considered and analyses performed by Bear Stearns. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analysis or summary description. Selecting portions of
the analyses or of the summary set forth above, without considering the
analysis as a whole, could create an incomplete view of the processes
underlying Bear Stearns' opinion. In arriving at its opinion, Bear Stearns
considered the results of all such reviews, calculations and analyses. The
analyses were prepared solely for purposes of providing its opinion as to the
fairness of the consideration to be received by the Company pursuant to the
Securities Issuance, from a financial point of view, to the
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Company and do not purport to be appraisals or necessarily reflect the prices at
which securities might actually be sold to other parties. Analyses based upon
future prospects are not necessarily indicative of actual future results, which
may be significantly more or less favorable than suggested by such analyses. As
described above, Bear Stearns' opinion and presentation to the Board of
Directors was one of many factors taken into consideration by the Board of
Directors in making its determination to approve the Securities Issuance and
recommend the Proposals to the stockholders of the Company.
Bear Stearns is an internationally recognized investment
banking firm and is continually engaged in the valuation of businesses and their
securities and in rendering opinions in connection with mergers, acquisitions,
corporate transactions and other purposes. The Company retained Bear Stearns
based on its qualifications, expertise and reputation in providing advice to
companies as well as its familiarity with the Company.
Previously, in November 1993, Bear Stearns and Morgan Stanley
were jointly engaged by the Company to assist it as its financial advisors in
responding to "several companies expressing a desire to discuss a business
combination." Bear Stearns and Morgan Stanley were charged with "exploring all
alternatives to maximize shareholder value." Although such efforts by Bear
Stearns and Morgan Stanley did not produce any offers for the Company in its
entirety, the Company did sell its games and puzzles business to Hasbro, Inc. In
connection with the aforementioned sale of the games and puzzles business, Bear
Stearns and Morgan Stanley were each paid a customary transaction fee. In
September 1992, Bear Stearns lead-managed, with Morgan Stanley as co-manager,
the Company's $150 million offering of Senior Notes.
Jefferies
At the January 25, 1996 meeting of the Board of Directors, Jefferies
made an oral presentation as to its analysis of the fairness from a financial
point of view of the consideration to be received by the Company from the GPH
equity investment (which at the time, as described above, contemplated a $60
million investment by GPH). On January 31, 1996, Jefferies delivered its written
opinion as of such date to the Board of Directors to the effect that, based upon
and subject to the various considerations set forth in its opinion, the
consideration to be received by the Company from the Securities Issuance is fair
to the Company from a financial point of view. Except as set forth below and in
the full text of Jefferies' opinion, no limitations were imposed by the Board of
Directors upon Jefferies with respect to the investigations made or procedures
followed by it in rendering its opinion. In rendering its opinion, Jefferies did
not opine as to any other transactions or contractual arrangements to be entered
into or payments to be made by or to the Company or any other person
concurrently with the Securities Issuance. In addition, Jefferies was not
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requested to opine as to, and its opinion did not address, the underlying
business decision of the Board of Directors to proceed with or to effect the
Securities Issuance.
The full text of the opinion of Jefferies, dated April __,
1996, is attached as Appendix X to this Proxy Statement and sets forth the
assumptions made, matters considered and limits on the review undertaken.
Stockholders are urged to read the opinion of Jefferies in its entirety. The
summary of the opinion of Jefferies set forth in this Proxy Statement is
qualified in its entirety by reference to the full text of such opinion set
forth as Appendix X to this Proxy Statement. The Jefferies opinion is addressed
only to the Board of Directors, is directed only to the fairness, from a
financial point of view, of the consideration to be received by the Company from
the Securities Issuance and does not constitute a recommendation to any
stockholder of the Company as to how such stockholder should vote on the
Proposals at the Special Meeting.
In connection with the provision of its opinion, Jefferies,
among other things, (i) reviewed drafts of the Securities Purchase Agreement
(including the Exhibits thereto) and certain financial and other information
about the Company that was publicly available or furnished to Jefferies by the
Company, including certain internal financial analyses, budgets and estimated
financial performance for its fiscal year ending February 3, 1996, reports and
other information prepared by the Company's management; (ii) held discussions
with representatives of the management of the Company concerning the business,
properties and prospects of the Company; and (iii) conducted such other reviews,
analyses and inquiries relating to the Company as it deemed appropriate.
In addition, Jefferies assumed and relied upon, without
independent investigation or verification, the accuracy, completeness and fair
presentation of all financial and other information that was provided to
Jefferies by or on behalf of the Company, Mr. Snyder, GPH or Warburg Pincus or
that was publicly available for purposes of rendering its opinion, and its
opinion is expressly conditioned upon all such information (whether written or
oral) being complete, accurate and fair in all material respects. Furthermore,
the Company did not prepare, and Jefferies did not accordingly review or conduct
valuation analyses based upon, any financial projections with respect to the
estimated future performance of the Company, and Jefferies' opinion is, as a
result, qualified by the absence of such reviews and analyses. Jefferies,
moreover, did not make an independent evaluation or appraisal or conduct a
physical inspection of any of the tangible or intangible assets of the Company,
nor was Jefferies furnished with any such appraisals.
In performing its analysis, Jefferies considered such
financial and other factors as Jefferies deemed appropriate under the
circumstances, including, among others: (i) the business and financial aspects
of the Securities Issuance; (ii) the historical and current markets for the
Common Stock; (iii) the financial
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impact of the Securities Issuance upon the Company; (iv) the discussions with
Mr. Snyder and with representatives of GPH, Warburg Pincus and the Company's
management referred to above; (v) certain of the Company's operating and
financial information; (vi) the Company's Annual Reports to Stockholders and
Annual Reports on Form 10-K for its last three full fiscal years and its
Quarterly Reports on Form 10-Q filed since the date of its most recent such Form
10-K; (vii) the potential negative impact on the prices of the Company's equity
and debt securities of the Company's expected financial performance for its
fiscal year ending February 3, 1996 in the absence of the proposed transaction
with GPH or another similar extraordinary transaction; (viii) the fact that (a)
the Company was unsuccessful in effecting a sale or similar extraordinary
transaction during a public auction conducted during 1994 or thereafter and (b)
no other potential equity investors or strategic acquirors have made a formal
investment or acquisition proposal to the Company since the September
Announcement; (ix) the degree of control that GPH and Warburg Pincus will have
with respect to the Company; (x) the potentially positive impact of new senior
management led by Mr. Snyder and the affiliation with Warburg Pincus on the
prices of the Company's equity and debt securities, its capital raising
capacity and its ability to access the capital markets; (xi) the consummation of
the Securities Issuance being conditioned upon the approval of the Company's
stockholders; and (xii) such other information as Jefferies deemed to be
appropriate. Jefferies also conducted such other reviews, analyses and inquiries
relating to the Company, Mr. Snyder, GPH and Warburg Pincus (in addition to
those set forth above) as it considered proper.
Jefferies' opinion is based on economic, monetary, political
and market conditions prevailing, and stock prices and other circumstances and
conditions existing, on the date thereof. Jefferies also notes that such
conditions are subject to rapid and unpredictable change. In addition, Jefferies
did not express any opinion as to the market value of the Common Stock or the
price or trading range at which any of the securities of the Company may trade
following the consummation of the Securities Issuance.
The following is a summary of the analyses performed by
Jefferies in connection with Jefferies' opinion to the Board of Directors.
Financial and Operating Performance of the Company. As
part of its overall analysis, Jefferies examined the historical financial and
operating performance of the Company for its last three full fiscal years and
for the twelve-month period ended October 28, 1995 ("LTM"). This analysis
considered the Company's reported revenues, gross profit, earnings before
interest and income taxes ("EBIT"), earnings before interest, taxes,
depreciation and amortization ("EBITDA") and net income. Jefferies noted (i)
that on an LTM basis, EBITDA, EBIT and net income were all substantially
negative, and (ii) that the Company
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expected to report significant negative EBITDA, EBIT and net income for the
fiscal year ending February 3, 1996.
Jefferies noted that because of the significant negative
operating results for the Company on an LTM basis, it was not meaningful to
conduct any valuation analysis based on (i) total enterprise value to EBIT,
(ii) total enterprise value to EBITDA and (iii) price/earnings multiples.
The Series B Convertible Preferred Stock. As part of its
overall analysis, Jefferies also evaluated the terms of the Series B Convertible
Preferred Stock, including the implied floating dividend yield of 7.5% to 15%
and the implied conversion premium associated with such Series B Convertible
Preferred Stock. In its review of the Series B Convertible Preferred Stock's
implied floating dividend yield, Jefferies considered the financial condition of
the Company and Jefferies' historical experience involving private equity
investments and trading levels of public and private high yield securities. In
its review of the Series B Convertible Preferred Stock's implied conversion
premium, Jefferies noted that, based upon (i) the $10 conversion price
associated with the Series B Convertible Preferred Stock and (ii) the closing
price of the Common Stock of $9.625 per share on January 29, 1995, the resulting
4% implied conversion premium associated with the Series B Convertible Preferred
Stock appeared, in isolation, historically low. However, Jefferies noted that
such implied conversion premium was likely understated in light of other
factors, including, (i) the price at which the Common Stock would presumably
trade in light of the expected financial and operating performance for the
fiscal year ending February 3, 1996 and in the absence of an extraordinary
transaction such as the Securities Issuance, and (ii) the fact that the price of
the Common Stock had increased significantly, approximately 18.5%, during the
three-week period leading up to the public announcement of the execution of the
Securities Purchase Agreement. In addition, based on a range of market prices of
the Common Stock, Jefferies noted that the following range of implied conversion
premiums of the Series B Convertible Preferred Stock would result: (i) at a
Common Stock price of $6.00 per share, the implied conversion premium would be
66.7%; (ii) at a Common Stock price of $7.00 per share, the implied conversion
premium would be 42.9%; (iii) at a Common Stock price of $8.00 per share, the
implied conversion premium would be 25.0%; (iv) at a Common Stock Price of $9.00
per share, the implied conversion premium would be 11.1%; and (v) at a Common
Stock price of $10.00 per share, the implied conversion premium would be 0.0%.
The Warrant. Jefferies also analyzed the terms of the Warrant
as part of its overall analysis. In its valuation of the Warrant, Jefferies
undertook various considerations, including use of the Black-Scholes model, to
develop a reference valuation range for the Warrant, at an assumed volatility
level of 40%, ranging from approximately $6 million to $8 million. Jefferies
noted that the Warrant also provided an incentive for the new senior management
of the Company to increase the market price of
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the Common Stock and would be a source of an additional equity infusion into the
Company upon exercise of the Warrant (unless the holder elects a cashless
exercise as permitted by the terms of the Warrant (see "SECURITIES PURCHASE
AGREEMENT -- Terms of the Warrant -- Exercise"). Furthermore, Jefferies noted
various intangible benefits to be received by the Company in connection with the
Securities Issuance, including among others: (i) the potentially positive impact
of new senior management led by Mr. Snyder and the affiliation of Warburg Pincus
on the prices of the Company's equity and debt securities, as evidenced (and
described more fully below) by the respective movements of the Company's equity
and debt securities in reaction to the Company's public announcements involving
Mr. Snyder and Warburg Pincus during the five-month period preceding the public
announcement of the Securities Issuance; (ii) the likely resulting increase in
the credibility of the Company with its stockholders and other constituencies,
including suppliers, vendors and equity analysts; (iii) the greater likelihood
for realizing the value of the Company's intangible assets, including its
well-established brand names, archives and libraries; and (iv) the significant
investment of cash and immediate access to growth capital created by the
Securities Issuance.
Stock Market and Bond Market Trading Activity. As part of its
review and analysis, Jefferies also examined the historical trading performance
of the Common Stock in light of the recent financial and operating trends of the
Company. In particular, Jefferies reviewed the closing prices of the Common
Stock surrounding the dates of each of the September and October Announcements,
the Termination Announcement and the public announcement of the execution of the
Securities Purchase Agreement. Jefferies noted that (i) in the two weeks
immediately prior to the first trading day after the date of the September
Announcement, the closing price of the Common Stock had increased significantly,
by approximately 20%; (ii) on the first trading day after the date of the
September Announcement, the closing price of the Common Stock had increased
approximately 18.4% from the previous day's close; (iii) on the date of the
Termination Announcement, the closing price of the Common Stock had fallen
approximately 22.6% from the previous day's close; (iv) on the day after the
date of the Termination Announcement, the closing price of the Common Stock had
fallen approximately 33.0% from the Common Stock's closing price on October 16,
1995, the day prior to the Termination Announcement; and (v) by late December
1995, the closing price of the Common Stock had fallen approximately 24.4% from
the Common Stock's closing price on the date of the Termination Announcement.
In addition to examining the trading performance in the
Common Stock, Jefferies reviewed the performance levels in the Company's debt
securities. Following the Termination Announcement in October 1995, Standard &
Poor's downgraded the Company's $150 million face amount Senior Notes from
"BB-" to "B". On November 1, 1995, Moody's Investors Service downgraded the
Senior Notes from "Ba3" to "B1". Jefferies noted that these downgradings still
did not fully reflect the continuing declines
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in operating profitability of the Company. In that connection, Jefferies noted
that, as of January 24, 1996, there was a bid for the Senior Notes at
approximately 77% of par, implying a yield of approximately 13%, a yield more
typical for securities with lower ratings than the above-referenced downgradings
of the Senior Notes.
Analysis of Selected Publicly Traded Companies. Jefferies
compared certain operating and financial information of the Company to certain
publicly available operating, financial, trading and valuation information of
six publicly traded companies which are engaged in the publishing, juvenile
products or greeting card business and which, in Jefferies' judgment, were
comparable to the Company for purposes of this analysis. These companies
included Houghton Mifflin Company, Scholastic Corporation, Thomas Nelson Inc.,
Educational Development Corporation, John Wiley & Sons and Steek-Vaughn
Publishing Corporation (collectively, the "Comparable Companies"). Jefferies'
analysis of the Comparable Companies included reviewing their total enterprise
values as a multiple of revenues, EBITDA and EBIT and the market prices of the
stock of those companies as a multiple of earnings per share. In addition,
Jefferies analyzed various financial and operating performance measures of the
Comparable Companies, including revenue growth, EBITDA growth, EBITDA margins,
EBIT growth, EBIT margins, net income margins, earnings per share growth, return
on equity and total debt as a percentage of total capitalization. In reviewing
the valuation parameters of the Company, Jefferies noted that the Company's
value could only be analyzed based on a multiple of revenues as a result of its
recent financial and operating performance and the lack of any estimates or
projections for the Company. Jefferies' analysis of the Comparable Companies
indicated that the range of total enterprise value to revenues multiples was
1.1x to 3.5x with an arithmetic mean of 1.4x. Jefferies noted that on a total
enterprise value to revenue multiple basis, the Company traded at a significant
discount to the trading multiples of its peers. Jefferies also noted that total
enterprise value to revenue multiple valuations are not generally regarded as a
reliable method of valuation.
Recent Trends in the Company's Results of Operations. In
evaluating the terms of the Securities Issuance, Jefferies considered all of the
intangible aspects of the Securities Issuance as well as the lack of alternative
options or strategic opportunities for the Company. Jefferies noted that no
formal offers were made to acquire the Company in its entirety as a result of
the efforts of Bear Stearns and Morgan Stanley commencing in November 1993, as
described above. Jefferies further noted that the Company's operating
performance, working capital investment and liquidity had continued to decline
following this auction process. In addition to evaluating both the tangible and
intangible benefits of the Securities Issuance, Jefferies reviewed the existing
liquidity and prospects for future liquidity for the business under several
scenarios.
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Based on the foregoing analyses and factors Jefferies arrived
at its opinion; however, the summary set forth above does not propose to be a
complete description of the analysis performed and factors considered by
Jefferies in arriving at its opinion, although it does reflect all material
factors considered and analyses performed by Jefferies. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analyses and the application of those methods to
particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Furthermore, in arriving at its opinion,
Jefferies did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor. Accordingly, Jefferies' analyses
must be considered as a whole. Considering any portion of such analyses and of
the factors considered, without considering all analyses and factors, could
create a misleading or incomplete view of the process underlying the Jefferies
opinion. In its analyses, Jefferies made many assumptions with respect to
general business and economic conditions and other matters, many of which are
beyond the control of the Company. In addition, analyses relating to the value
of the Company's securities do not purport to be appraisals or to reflect the
prices at which securities might actually be sold to other parties. As
described above, Jefferies opinion was only one factor considered by the Board
of Directors in making its determination to approve the Securities Issuance.
The Company selected Jefferies to render an opinion in
connection with the Securities Issuance based upon Jefferies' qualifications,
expertise and reputation, including the fact that Jefferies, as part of its
investment banking business, is continually engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
competitive biddings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. In the
ordinary course of its business, Jefferies may actively trade securities of the
Company for its own account and for the accounts of its customers and,
accordingly, may, at any time, hold a long or short position in such securities.
Fees and Expenses
Pursuant to letter agreements entered into on September 11, 1995 with
Bear Stearns and on October 6, 1995 (and as amended on January 10, 1996) with
Jefferies, Bear Stearns and Jefferies were retained to render fairness opinions
in respect of the Transactions. Bear Stearns and Jefferies originally were
retained following the September Announcement to render fairness opinions to an
independent committee of the Board of Directors appointed at that time to assist
the Board of Directors in assessing the proposed transactions. Because the
Transactions contemplated by the Securities Purchase Agreement did not involve
any sale of shares by Mr. Bernstein or his affiliates to GPH, the Board of
Directors determined, upon advice of legal counsel, that
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an independent committee was not required in connection with the Board of
Directors' assessment of the Transactions. Accordingly, the independent
committee was disbanded, and Bear Stearns and Jefferies were retained to issue
opinions to the Board of Directors on the same terms.
The Company has agreed to pay (i) Bear Stearns a fee of
$575,000 and up to an additional $25,000 for Bear Stearns' reasonable
out-of-pocket expenses (including the reasonable fees and disbursements of
counsel) incurred in connection with the rendering of such fairness opinion and
(ii) Jefferies a fee of $400,000 plus expenses up to an additional $50,000.
Pursuant to a separate letter agreement entered into on September 11, 1995, the
Company has agreed to pay Bear Stearns an additional fee of $650,000 in respect
of other financial advisory services performed in connection with the GPH equity
investment as described above. The Company has agreed to indemnify both Bear
Stearns and Jefferies and certain related persons against certain liabilities in
connection with their respective engagements by the Company, including certain
liabilities under the federal securities laws.
Use of Proceeds
The estimated net cash proceeds to the Company from the sale
of the Series B Convertible Preferred Stock and the Warrant to GPH will be
$56,500,000, after giving effect to the payment of estimated transaction
expenses (see "SECURITIES PURCHASE AGREEMENT -- Expenses") and the payments
under the severance and management arrangements described under "THE PROPOSALS
- -- Interests of Certain Persons in the Transactions -- Severance and Management
Arrangements." Approximately $10 million of such proceeds will be used by the
Company to redeem the outstanding shares of Series A Preferred Stock (which is
mandatorily redeemable by the Company on March 31, 1996) as contemplated by the
Securities Purchase Agreement (see "THE PROPOSALS -- Interests of Certain
Persons in the Transactions -- Redemption of Series A Preferred Stock due March
31, 1996"), and the remainder will be available to the Company for general
working capital purposes, including new product development and future
acquisitions. The Company does not currently have any commitments or
understandings regarding the use of such proceeds. Mr. Snyder has advised the
Company that he intends to use the net proceeds from the investment to pursue a
multi-pronged strategy to build upon the GOLDEN BOOKS(Registered) franchise.
This strategy will include strengthening relationships with the Company's
existing mass market retailers, increasing distribution through non-mass
channels, including bookstores, extending the existing product line to
include books for parents and families and, where appropriate, expanding the
GOLDEN BOOKS(Registered) name into non-book areas, such as home video,
television and multi-media. Although Mr. Snyder has advised the Company that
he has not yet finalized any plans regarding the future operations of the
Company, Mr. Snyder has indicated that his plans, when fully developed, may
involve a restructuring of operations which could result in
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substantial charges to operations or changes in the classification of the
Company's assets and liabilities.
Certain Considerations
While the Board of Directors is unanimously of the opinion
that the Proposals are fair to, and in the best interests of, the Company and
its stockholders, stockholders should consider the following possible
consequences of completion of the Transactions when evaluating the Proposals:
Diminished Ability to Sell the Company; Antitakeover
Effect
The Series B Convertible Preferred Stock initially will be
convertible into shares of Common Stock representing approximately 23% of the
shares of Common Stock then outstanding, and the Series B Convertible Preferred
Stock will vote on an as- if-converted basis together with the Common Stock, as
a single class, on all matters submitted to a vote of the stockholders of the
Company, including the election of directors other than the Series B Directors
(as defined below). The Series B Convertible Preferred Stock also will initially
be entitled to vote as a class for one-third of the nine members of the Board of
Directors (the "Series B Directors"). During each of the first four years
following initial issuance of the Series B Convertible Preferred Stock, 195,000
shares of Common Stock will be delivered quarterly (subject to certain
adjustments) in lieu of cash dividends on the Series B Convertible Preferred
Stock. Moreover, the Warrant will entitle GPH to purchase up to 3,250,000 shares
of Common Stock, at an exercise price of $10 per share, beginning in the third
year after initial issuance (or sooner under certain circumstances). See
"SECURITIES PURCHASE AGREEMENT -- Terms of Series B Convertible Preferred Stock"
and "-- Terms of the Warrant." In addition, Mr. Snyder purchased 599,465 shares
of Common Stock from the Company on January 31, 1996 when he was elected as
President, and will be granted a non-qualified stock option following completion
of the GPH equity investment to purchase an additional 1,113,293 shares. In the
event that the Securities Purchase Agreement is terminated in accordance with
its terms or Mr. Snyder is not employed by the Company on May 22, 1996, the
stock grant will be rescinded. See "THE PROPOSALS -- Interests of Certain
Persons in the Transactions -- Snyder Employment Arrangements." Further, by
virtue of the irrevocable proxies granted to GPH by Mr. Bernstein and certain of
his affiliated entities pursuant to agreements dated January 31, 1996 in respect
of 3,996,771 shares of Common Stock owned by them (the "Irrevocable Proxies"),
GPH will control, through the Irrevocable Proxies, the voting of an additional
3,996,771 shares of Common Stock immediately following completion of its equity
investment (which, after giving effect to the consummation of the Transactions,
will constitute approximately 14% of the total voting power of the outstanding
shares of capital stock of the Company immediately following the consummation of
the Transactions). However, such voting power is subject to decrease if Mr.
Bernstein or such other entities transfer the shares to
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which the Irrevocable Proxies relate to persons other than affiliates of Mr.
Bernstein. Furthermore, the Securities Purchase Agreement contains no
restrictions on the ability of GPH to acquire additional shares of Common Stock,
whether in the open market or otherwise. Accordingly, GPH, together with Mr.
Snyder, will control approximately 39% of the voting power of the outstanding
capital stock of the Company immediately following completion of its equity
investment and will have the ability to acquire an even greater stake. Finally,
for so long as at least one-half of the shares of Series B Convertible Preferred
Stock initially issued are owned by GPH and certain of its affiliates, certain
matters will be subject to the consent of the holders of a majority of the
shares of Series B Convertible Preferred Stock. See "SECURITIES PURCHASE
AGREEMENT -- Terms of the Series B Convertible Preferred Stock." The foregoing
will make it more difficult for a third party to acquire control of the Company
without the consent of GPH and, therefore, may discourage third parties from
making an acquisition proposal or seeking to acquire control of the Company.
Board Representation; Control of Management
The Series B Convertible Preferred Stock will initially be
entitled to vote separately as a class for the Series B Directors and on the
approval of certain material corporate transactions, and will vote, on an
as-if-converted basis, together with the Common Stock on the election of the
remaining members of the Board of Directors and on all other matters submitted
to a vote of the stockholders of the Company. If the Proposals are adopted at
the Special Meeting, each of the members of the Board of Directors immediately
following completion of GPH's equity investment will have been nominated by GPH.
See "ELECTION OF DIRECTORS." In addition, Mr. Snyder will serve as Chairman and
Chief Executive Officer of the Company upon the completion of GPH's equity
investment. Consequently, Mr. Snyder and GPH will have significant influence
over the management and policies of the Company.
Dilution
The Securities Purchase Agreement contemplates the issuance
by the Company of 13,000 shares of Series B Convertible Preferred Stock
convertible into shares of Common Stock initially representing approximately
23% of the voting power of the outstanding Common Stock, at an initial
conversion price of $10 per share. Because the Series B Convertible Preferred
Stock will vote on an as-if-converted basis with the Common Stock, the issuance
of the Series B Convertible Preferred Stock will dilute the voting rights of
existing holders of Common Stock. This issuance also could have the effect of
diluting the economic interests of the existing holders of Common Stock. The
Series B Convertible Preferred Stock will be entitled to receive dividends and
liquidating distributions prior to the payment of such dividends or
distributions on the Common Stock. Whether such issuance will have a dilutive
effect on the earnings per share of the Common Stock and, if so, the extent of
such dilution will
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depend upon, among other factors, the actual earnings generated by the
application of the proceeds to the Company from the Transactions. See "THE
PROPOSALS -- Use of Proceeds." The issuance of up to 3,250,000 shares of Common
Stock upon exercise of the Warrant, at an exercise price of $10 per share, or
upon the payment of dividends on the Series B Convertible Preferred Stock by
delivery of 3,120,000 shares of Common Stock over the first four years after the
date of initial issuance, will have the effect of further diluting the voting
rights of existing holders of Common Stock. Moreover, such issuances, as well as
the right of the holder of the Warrant, in lieu of exercising the Warrant, to
receive shares of Common Stock having a value equal to the difference between
the then current market price of the Common Stock and the $10 exercise price,
may, depending on the market price of the Common Stock at the time, have a
dilutive effect on their economic interests as well. In addition, 599,465 shares
of Common Stock were issued to Mr. Snyder when he was elected President of the
Company, it is expected that Mr. Snyder will be granted a non-qualified stock
option to purchase 1,113,293 shares of Common Stock pursuant to his employment
agreement following the closing of GPH's equity investment, and certain aspects
of the Snyder Employment Arrangements are expected to result in an immediate
charge to operations when they are entered into following the completion of the
GPH equity investment. See "SUMMARY -- Pro Forma Capitalization," "THE PROPOSALS
- -- Interests of Certain Persons in the Transactions -- Snyder Employment
Arrangements" and "SECURITIES PURCHASE AGREEMENT -- Terms of the Series B
Convertible Preferred Stock" and "-- Terms of the Warrant."
Dependence on Mr. Snyder
Following the completion of GPH's equity investment, the
success of the Company will be dependent in part on the efforts and abilities of
Mr. Snyder. Accordingly, if the Company were to lose the services of Mr. Snyder
before a qualified replacement could be obtained, the Company's business could
be materially and adversely affected. The Company is advised by Mr. Snyder and
GPH that, under the terms of an employment agreement to be entered into upon the
closing of GPH's equity investment, if Mr. Snyder dies or becomes disabled
during the term of his employment with the Company, the Company will pay him or
his legal representatives any accrued, but unpaid, salary and vacation pay, a
pro-rated annual bonus, any deferred compensation not yet paid to him and any
other benefits provided by the Company in accordance with the terms and
provisions of the Company's plans or programs. See "THE PROPOSALS -- Interests
of Certain Persons in the Transactions -- Snyder Employment Arrangements" for a
description of the terms of Mr. Snyder's employment agreement, including the
Company's obligations to him upon the termination of his employment under
various circumstances.
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Certain Negotiated Features of the Transactions
Stockholders should be aware of the following additional
aspects and provisions of the Securities Purchase Agreement and the Transactions
that were negotiated on behalf of the Company and the stockholders and were
required by the parties as a condition to the signing of the Securities Purchase
Agreement.
Status of Bernstein Shares
As described under "THE PROPOSALS -- Background of and Reasons
for the Transactions," the transactions described in the September and October
Announcements contemplated that shares of Common Stock beneficially owned by Mr.
Bernstein and certain of his affiliated entities would be purchased in
connection with the arrangements contemplated thereby. Consistent with public
statements made by Mr. Bernstein and as also stated in his letter to
stockholders appearing in the Company's 1995 annual report to stockholders, the
Transactions contemplated by the Securities Purchase Agreement do not provide
for the purchase of shares owned by Mr. Bernstein or any of his affiliates,
which will remain outstanding following the completion of GPH's equity
investment. The investment by GPH of $65 million (prior to the payment of
expenses) will be made directly in the Company in exchange for the issuance of
the Series B Convertible Preferred Stock and Warrant. Pursuant to the Bernstein
Registration Rights Agreement, Bernstein Entities will have certain registration
rights with respect to their shares of Common Stock. See "The Proposals --
Interests of Certain Persons in the Transactions -- Bernstein Registration
Rights Agreement."
Irrevocable Proxies
Warburg Pincus required that Mr. Bernstein and certain of the
Bernstein Entities relinquish their voting rights with respect to their shares
of Common Stock as a condition to Warburg Pincus' participation in the
Transactions. In addition, Warburg Pincus required that Mr. Bernstein and such
entities agree to certain transfer restrictions with respect to their shares of
Common Stock. Accordingly, concurrent with the execution of the Securities
Purchase Agreement, each of Mr. Bernstein and certain of the Bernstein Entities
owning in the aggregate 3,996,771 shares of Common Stock executed Irrevocable
Proxies in favor of GPH in respect of such shares. The following is a summary of
certain provisions of the Irrevocable Proxies, each of which is substantially
identical. The Irrevocable Proxy granted by Mr. Bernstein to GPH is attached as
Appendix III to this Proxy Statement and is incorporated herein by reference.
Such summary is qualified in its entirety by reference to the Irrevocable
Proxies.
Pursuant to the Irrevocable Proxies, GPH will have the power
to vote, on behalf of the Bernstein Entities party thereto, their Bernstein
Shares in such manner and upon such matters as GPH deems proper (other than
voting against, or for the removal
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of, existing members of the Board of Directors except as contemplated by the
Securities Purchase Agreement), including voting such Bernstein Shares in favor
of the Proposals and against any transaction that would make it impractical for
GPH to effect the Transactions. Pursuant to the Securities Purchase Agreement,
GPH has agreed to vote the Irrevocable Proxies in favor of the Proposals at the
Special Meeting. Such voting rights will terminate upon the earlier to occur of
(i) the termination of the Securities Purchase Agreement in accordance with its
terms and (ii) whenever GPH and certain affiliates beneficially own in the
aggregate less than 15% of the outstanding Common Stock on a fully-diluted basis
(determined as described in the Irrevocable Proxies).
Mr. Bernstein has agreed in his Irrevocable Proxy, subject to
his fiduciary duties to the Company, to use his best efforts to prevent the
Company from taking any action in violation of the Securities Purchase
Agreement. Additionally, pursuant to the Irrevocable Proxies the Bernstein
Entities party thereto have agreed, prior to completion of GPH's equity
investment, not to (i) take or permit any action that would result in the
representations contained in the Irrevocable Proxies not being true, (ii)
directly or indirectly, solicit or initiate any proposals or offers from any
person or entity relating to the acquisition of any properties, assets, business
or equity interest, or any merger or other business combination, of the Company,
or discuss, furnish any information or otherwise assist any person or entity
with respect to such proposals or offers; provided that Mr. Bernstein may
participate in discussions or negotiations with or furnish information to any
other person or entity if the Board of Directors, on advice of counsel,
determines that Mr. Bernstein, in his capacity as Chairman and Chief Executive
Officer of the Company, should so participate or furnish such information, (iii)
grant any proxies or enter into any voting trusts with respect to their
Bernstein Shares, (iv) acquire or sell or otherwise dispose of shares of Common
Stock or (v) seek or solicit any such acquisition or sale or other disposition
of shares of Common Stock. Notwithstanding the foregoing, the Bernstein Entities
shall be entitled to sell all or a portion of their Bernstein Shares to any
purchaser (i) in amounts not to exceed the limitations set forth in SEC Rule
144(e) in the case of non-negotiated, public, open-market transactions, and (ii)
in all other cases, other than to an Entrepreneurial Investor (as defined in the
Irrevocable Proxies).
Once any Bernstein Shares subject to the Irrevocable Proxies
are transferred in accordance with the terms thereof, the purchaser of such
shares will not be bound by the voting and transfer restrictions described
above.
Termination of the Securities Purchase Agreement
The Securities Purchase Agreement permits the Company, in
certain specified circumstances, upon the payment of a $2 million break-up fee,
to terminate the Securities Purchase Agreement and accept an unsolicited
proposal from a third party
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which the Board of Directors reasonably believes is likely to result in a
business combination that is likely to be more favorable to the stockholders of
the Company than the Transactions. See "SECURITIES PURCHASE AGREEMENT --
Termination and Termination Fee."
Election of Directors
As described under "ELECTION OF DIRECTORS," if the
Transactions are consummated, a majority of the members of the Board of
Directors will be designees of GPH. However, other than the Series B Directors,
GPH will have no contractual right thereafter to name any of the directors of
the Company.
Series B Convertible Preferred Stock Antidilution
Adjustments
As described below under "SECURITIES PURCHASE AGREEMENT --
Terms of the Series B Convertible Preferred Stock," the rate and price at which
the shares of Series B Convertible Preferred Stock are convertible into shares
of Common Stock are subject to customary antidilution adjustments. However, the
Series B Convertible Preferred Stock provides that the conversion rate and price
will not be subject to adjustment in respect of (i) an issuance of Common Stock
to Warburg Pincus and certain of its affiliates unless such issuance has been
approved by a majority of the directors of the Company who are neither the
designees of the holders of the Series B Convertible Preferred Stock nor
individuals associated with Warburg Pincus or certain of its affiliates, or (ii)
an issuance of Common Stock in a transaction that has not been registered under
the Securities Act of 1933, as amended (the "Securities Act"), unless an
investment bank of national standing and reputation, engaged for a fee by the
Company pursuant to a written engagement letter, has been consulted by the
Company with respect to the structure and has participated in the negotiation of
such issuance.
Management Services
The Board of Directors has authorized the Company to enter
into a Management Agreement (the "Management Agreement") with P&E Properties,
Inc., a corporation owned by Mr. Bernstein ("P&E Properties"). Pursuant to the
Management Agreement, for a transition period of 180 days following completion
of GPH's equity investment, P&E Properties will perform such duties as are
requested from time to time by Mr. Snyder, but in no event will P&E Properties
be required to perform duties other than those that are substantially the same
as those performed by the Company's employees located at the Company's principal
executive offices in New York City as of the date of the Management Agreement.
In addition, P&E Properties will use its best efforts to retain the services and
pay the compensation of such employees, whose employment by the Company will be
terminated upon completion of GPH's equity investment, as are necessary to
perform such services on P&E Properties' behalf. Mr. Bernstein has agreed to
cause P&E Properties to perform its obligations
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under the Management Agreement. The Company will pay P&E Properties the sum of
$1.2 million at the closing of GPH's equity investment for the cost (including
the cost of employing such former Company employees) of providing such
management services.
Interests of Certain Persons in the Transactions
In considering the recommendation of the Board of Directors
with respect to the Proposals, stockholders should be aware that certain members
of the Board of Directors and management have certain interests with respect to
the Proposals that may conflict with and are in addition to the interests of the
other stockholders of the Company. The Board of Directors was aware of these
interests and considered them, among other matters, in approving the Securities
Purchase Agreement, the Transactions and the Proposals.
Bernstein Registration Rights Agreement
In view of the fact that Mr. Bernstein and the other Bernstein
Entities would otherwise be restricted under the federal securities laws and the
rules and regulations promulgated thereunder as to the manner in which they can
sell their shares of Common Stock because of the size of the block and Mr.
Bernstein's affiliation with the Company, GPH has agreed that the Company grant
certain registration rights to the Bernstein Entities, effective following the
closing of GPH's equity investment, in respect of their shares of Common Stock
pursuant to a registration rights agreement between the Company and the
Bernstein Entities (the "Bernstein Registration Rights Agreement"). The
following is a summary of certain provisions of the Bernstein Registration
Rights Agreement, which is attached as Appendix II to this Proxy Statement and
is incorporated herein by reference. Such summary is qualified in its entirety
by reference to the Bernstein Registration Rights Agreement.
The Bernstein Registration Rights Agreement contains customary
terms and conditions and provides, among other things, that the holders of
Registrable Securities (as defined below) thereunder will have the right to
require the Company to use its best efforts to register under the Securities
Act, Registrable Securities in up to two demand registrations (subject to a
"black-out" period of up to 90 days not more than once during any 12-month
period and the requirement that shares not be sold to "Entrepreneurial
Investors", as defined below under "-- Irrevocable Proxies") and an unlimited
number of incidental ("piggyback") registrations. Subject to certain
limitations, holders of Registrable Securities will also have the right, during
the first two months following completion of the GPH equity investment, to
request a shelf registration of their securities pursuant to Securities and
Exchange Commission (the "SEC") Rule 415 for up to a three-month period
following the closing of the GPH equity investment. "Registrable Securities" are
defined in the Bernstein Registration Rights Agreement as any shares of Common
Stock owned by the Bernstein Entities on the date of execution of the Bernstein
Registration Rights Agreement
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and any capital stock of the Company issued as a dividend or other distribution
with respect to, or in exchange for or in replacement of, any such shares. The
Bernstein Entities will pay all registration expenses (including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses, the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company, which
shall be paid in any event by the Company)) in connection with each
registration of Registrable Securities requested by the Bernstein Entities
pursuant to the Bernstein Registration Rights Agreement, together with
underwriting discounts and commissions and fees and disbursements of counsel to
the Bernstein Entities. The Company also will agree in the Bernstein
Registration Rights Agreement to customary indemnification and contribution
protections to selling holders of Registrable Securities under the federal
securities laws and otherwise; provided that the Company shall not be required
to indemnify the Bernstein Entities for any losses arising out of or based on
any representation or warranty made by the Company in the Securities Purchase
Agreement until the date of issuance of the Company's audited consolidated
financial statements for the fiscal year ending February 1, 1997.
Redemption of Series A Preferred Stock
due March 31, 1996
As described above under "THE PROPOSALS -- Use of Proceeds,"
approximately $10 million of the proceeds from the sale of the Series B
Convertible Preferred Stock and the Warrant to GPH will be used by the Company
to redeem the outstanding shares of Series A Preferred Stock due March 31, 1996
concurrent with the closing of the GPH equity investment, at a redemption price
equal to the liquidation value thereof plus accrued and unpaid dividends to the
date of redemption. The Series A Preferred Stock is mandatorily redeemable by
the Company in accordance with its terms on March 31, 1996. Although the
stockholders of the Company approved adoption of an amendment to the Amended and
Restated Certificate of Incorporation of the Company (the "Restated
Certificate") at the 1995 annual meeting of stockholders providing for an
extension of the mandatory redemption date until March 31, 1998, in view of the
resumption of discussions with Mr. Snyder and Warburg Pincus during December
1995, such amendment was not made effective by the necessary filings with the
Delaware Secretary of State. Mr. Bernstein owns 9,200 shares of Series A
Preferred Stock, representing 46.07% of the shares of Series A Preferred Stock
outstanding. If the Transactions are not consummated, the Company intends to
file the amendment with the Delaware Secretary of State, thereby extending the
mandatory redemption date to March 31, 1998.
Directors' and Officers' Liability Insurance Coverage
The Company has agreed in the Securities Purchase Agreement
that, through the third anniversary of the completion of GPH's equity investment
and for so long thereafter as any
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claim asserted prior to such date has not been fully adjudicated by a court of
competent jurisdiction, it will provide the usual extended coverage under the
Company's executive liability insurance for current and former directors and
officers of the Company and its subsidiaries and other persons serving in a
fiduciary capacity at the direction of the board of directors or any officer of
the Company or any of its subsidiaries, with respect to matters occurring prior
to completion of GPH's equity investment, at least to the extent covered by the
current Company liability insurance coverage. Such insurance coverage will be
of a scope of coverage and in amounts and having deductibles at least
equivalent to that currently maintained by the Company and otherwise reasonably
comparable to the coverage currently maintained by the Company. The Company has
been advised that the costs of such coverage are estimated to not exceed
$350,000 for such three-year period. The Company also has agreed during such
period not to amend or modify provisions of the Restated Certificate or the
Company's By-laws providing for indemnification of directors and officers in any
manner that would adversely affect such individuals, unless required by law. The
extended insurance coverage will enable the Company to fund its obligations to
such directors, officers and fiduciaries under such indemnity provisions.
Snyder Employment Arrangements
Concurrent with the signing of the Securities Purchase
Agreement, Mr. Snyder entered into an interim employment agreement with the
Company (the "Interim Employment Agreement"), which was unanimously approved by
the Board of Directors, pursuant to which Mr. Snyder became President of the
Company until the earlier of the completion of GPH's equity investment, the
termination of the Securities Purchase Agreement in accordance with its terms
and his death or disability. Mr. Snyder will be compensated during this period
based on a per annum salary of $400,000, and will be entitled to participate in
employee benefit plans and programs sponsored by the Company. The Company has
agreed in the Securities Purchase Agreement not to terminate Mr. Snyder's
employment as President prior to the completion of GPH's equity investment other
than for cause.
In accordance with the Interim Employment Agreement, the
Company issued 599,465 shares of Common Stock (the "Snyder Shares") to Mr.
Snyder on January 31, 1996, at a price of $8.00 per share, in exchange for a
ten-year nonrecourse note executed by Mr. Snyder in the amount of the purchase
price, secured by a pledge of such shares. See Note 3 to the table under
"SUMMARY -- Pro Forma Capitalization." In addition, the Interim Employment
Agreement provides that upon the earliest of (x) a termination of Mr. Snyder's
employment for any reason, (y) the tenth anniversary of the Interim Employment
Agreement and (z) a disposition of any of the Snyder Shares after the closing of
GPH's equity investment, Mr. Snyder will receive a special bonus equal in amount
to the purchase price of the Snyder Shares (prorated in the case of a sale of
less than all of the Snyder Shares). The Interim Employment Agreement also
grants Mr. Snyder rights to
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acquire a proportionate amount of additional shares at the same price as the
initial purchase, and on other similar terms (including the use of a nonrecourse
note), in respect of issuances by the Company of additional equity of up to $50
million during the 12 months following completion of GPH's equity investment. In
the event that the Securities Purchase Agreement is terminated in accordance
with its terms or Mr. Snyder is not employed by the Company on May 22, 1996,
the stock issuance and the note will be rescinded.
The Company is advised by Mr. Snyder and GPH that, upon the
closing of GPH's equity investment, Mr. Snyder will enter into an employment
agreement with the Company pursuant to which he will become Chairman and Chief
Executive Officer of the Company (the "Snyder Employment Agreement"). The
following description of the Snyder Employment Agreement and the other
arrangements for Mr. Snyder's employment by the Company following completion of
GPH's equity investment (together, the "Snyder Employment Arrangements") is
based on the draft of the Snyder Employment Agreement furnished by Mr. Snyder
and Warburg Pincus to the Board of Directors in connection with its approval of
the Securities Purchase Agreement and the Transactions. GPH has advised the
Company that it is contemplated that the Snyder Employment Agreement will be
entered into immediately upon the closing of GPH's equity investment. In
determining that the Transactions are fair to and in the best interests of the
Company and the stockholders, the Board of Directors has not separately
considered the fairness of the terms of, or approved the Company's entering
into, the Snyder Employment Agreement. Similarly, neither Bear Stearns nor
Jefferies have taken the Snyder Employment Arrangements into account in
rendering their fairness opinions described elsewhere in this Proxy Statement.
Under the Snyder Employment Agreement, Mr. Snyder will
continue as the Company's President and will succeed Mr. Bernstein as the
Company's Chairman of the Board of Directors and Chief Executive Officer. The
term of employment under the Snyder Employment Agreement will be five years (the
"Term"). If less than three years remain in the Term upon the occurrence of a
change of control (as defined in the Snyder Employment Agreement), the Term will
automatically be extended until the third anniversary of the change of control
upon the consent of the Company or its successor. In the absence of such
consent, the Term shall automatically end and Mr. Snyder will receive payments
and benefits as if he had been terminated without cause (as defined in the
Snyder Employment Agreement). Mr. Snyder will receive an annual base salary,
subject to discretionary increases, of $500,000 (retroactive to February 4,
1996) and an annual incentive bonus equal to 100% of annual base salary under
the Company's Executive Officer Bonus Plan, if certain targeted performance
criteria are met. The annual incentive bonus could be increased to up to 200% of
annual base salary if the Company's performance exceeds targeted goals.
The Snyder Employment Agreement also provides that the Company
will grant Mr. Snyder a non-qualified stock option to
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acquire 1,113,293 shares of Common Stock at a per share exercise price equal to
the fair market value of the Common Stock on the date of grant (the "Option").
The Option will have a term of ten years and will become exercisable upon the
earliest to occur of: (1) three years and four months following the date of
grant; (2)upon a change of control; (3) upon Mr. Snyder's termination of
employment due to death or disability (as defined in the Snyder Employment
Agreement); (4) upon Mr. Snyder's termination by the Company without cause (as
defined in the Snyder Employment Agreement); or (5) upon termination by Mr.
Snyder of his employment for good reason (as defined in the Snyder Employment
Agreement). If the Company issues up to an additional $50 million of equity
securities within twelve months after completion of GPH's equity investment,
additional options will be granted to avoid dilution of the interest in the
Company represented by the Option. In addition, the Company will pay Mr. Snyder
a one-time special bonus (the "Special Bonus") equal to the product obtained by
multiplying the number of shares covered by the Option by the amount by which
the fair market value of the Common Stock on the date of grant of the Option or
the date immediately preceding the payment of the Special Bonus, whichever is
less, exceeds $8.00. The Special Bonus will be paid on the earlier of (i) the
fifth anniversary of the Snyder Employment Agreement (if Mr. Snyder is employed
by the Company on that date) or (ii) the date of Mr. Snyder's termination of
employment other than by the Company for cause or by Mr. Snyder without good
reason or upon his death or disability. The Special Bonus will cease to be
payable upon the termination of Mr. Snyder's employment for cause or termination
by Mr. Snyder without good reason.
Commencing on the later of the fifth anniversary of the Snyder
Employment Agreement or the cessation of Mr. Snyder's employment (other than due
to his death), Mr. Snyder will receive a supplemental single-life annuity
retirement benefit of $250,000 per annum. This retirement benefit will be
increased to 60% of Mr. Snyder's highest average base salary and bonus payments
if the fair market value of the Common Stock on the fifth anniversary of the
date of the Snyder Employment Agreement is less than the exercise price of the
Option, as described above. This increased retirement benefit will be offset by
any other defined benefit pension amounts payable to Mr. Snyder by any previous
employer (which the Company has been advised are significant) or by the Company.
In addition, Mr. Snyder will receive active and retiree
medical benefits (not to exceed a $3 million lifetime cap) and, at his election,
either term life insurance coverage with a death benefit of at least $3 million
or a monthly cash allowance equal to the cost of such insurance. Mr. Snyder will
also be eligible to participate generally in all incentive, savings, retirement
and welfare benefit programs available to other senior executives of the
Company. In no event shall the incentive, savings, retirement and welfare
benefits programs maintained by the Company after a change of control provide
less favorable benefits
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to Mr. Snyder or his family than were provided to them prior to the change of
control.
If Mr. Snyder's employment is terminated by the Company
without cause or by Mr. Snyder for good reason, all stock options and other
stock-based awards will become immediately exercisable or vested, as the case
may be, and the Company will pay Mr. Snyder in cash in one lump sum (1) any
salary and vacation pay accrued, but unpaid, through the date of termination
and any deferred compensation not yet paid to him; (2) the greater of the
target annual bonus for the year of termination or the actual bonus amount
paid or payable for the most recently completed fiscal year of the
Company (the "Highest Annual Bonus"), in each case pro-rated through the date of
termination; (3) three times his annual base salary and Highest Annual Bonus or,
if greater, the sum of his annual base salary and Highest Annual Bonus times the
number of years (including fractions thereof) remaining in the Term as of the
date of termination; and (4) the actuarial equivalent of any retirement benefits
that would have accrued during the remainder of the Term or three years,
whichever is longer. In addition, Mr. Snyder will be entitled to continuation of
welfare and fringe benefits for the greater of three years or the remaining
Term.
If Mr. Snyder terminates his employment without good reason or
if he dies or becomes disabled, the Company will pay him or his legal
representatives any accrued, but unpaid, salary and vacation pay, a pro-rated
annual bonus (determined as set forth above), any deferred compensation not yet
paid to him and any other benefits provided by the Company in accordance with
the terms and provisions of the Company's plans or programs. If Mr. Snyder's
employment is terminated by the Company for cause, or by Mr. Snyder without good
reason, the Company will pay him accrued, but unpaid, salary and deferred
compensation not yet paid to him and any other benefits provided by the Company
in accordance with the terms and provisions of the Company's plan or programs.
In that case, Mr. Snyder will forfeit all unvested stock options.
The Company also will pay all legal and professional fees
which Mr. Snyder may reasonably incur as a result of the negotiation or
enforcement of any provision of the Snyder Employment Agreement. If any payments
made to Mr. Snyder under the Snyder Employment Agreement or otherwise are
subject to the 20% excise tax imposed by Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Excess Parachute Payments"), the Company will pay
Mr. Snyder an additional amount (the "Additional Payment") such that, after
payment of all taxes attributable to the Additional Payment (including any
additional excise taxes thereon), he retains a portion of the Additional Payment
equal to the excise tax imposed on the Excess Parachute Payments.
Under the terms of the Snyder Employment Agreement, Mr. Snyder
may not disclose any confidential information relating to the Company or any
affiliate to anyone other than the Company and those designated by it, and he
may not solicit any employee
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or customer of the Company or any affiliate prior to the later of the fifth
anniversary of the Snyder Employment Agreement or one year after his termination
of employment with the Company.
Severance and Management Arrangements
Concurrent with its approval of the Securities Purchase
Agreement, the Board of Directors determined that the Company will make
severance payments totalling $1.8 million to certain officers and employees
(other than Mr. Bernstein) of the Company who will resign their positions with
the Company on the date of completion of GPH's equity investment. See Note 2
under the Summary Compensation Table under "ELECTION OF DIRECTORS -- Executive
Compensation" for additional information with respect to the severance payments.
As described above under "THE PROPOSALS -- Certain Negotiated
Features of the Transactions -- Management Services," upon the completion of
GPH's equity investment the Company will enter into the Management Agreement
with a corporation owned by Mr. Bernstein for the purpose of providing
management services as requested from time to time by Mr. Snyder for a
transition period of 180 days thereafter.
Regulatory Matters
The Company is not aware of any regulatory approvals or
filings, or any other consents or approvals, required for the consummation of
the Transactions, except as provided under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended ("HSR Act"). Under the HSR Act and the
rules promulgated thereunder by the Federal Trade Commission (the "FTC"), the
Transactions may not be consummated until notifications have been given and
certain information has been furnished to the FTC and the Antitrust Division of
the Department of Justice (the "Antitrust Division") and the applicable waiting
period has expired or been terminated. On March 8, 1996 and March 11, 1996,
notification and report forms were filed by GPH and by the Company,
respectively, under the HSR Act with the FTC and the Antitrust Division relating
to the Transactions. Early termination of the waiting period under the HSR Act
was granted by the FTC on March 25, 1996.
At any time before or after consummation of the Transactions,
notwithstanding that the waiting period under the HSR Act has expired or been
terminated, the Antitrust Division, the FTC or any state could take such action
under applicable antitrust laws as it deems necessary or desirable in the public
interest. Such action could include seeking to enjoin the consummation of the
Transactions or seeking divestiture of substantial assets of the Company.
Private parties may also seek to take legal action under applicable antitrust
laws under certain circumstances.
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Section 203 of the DGCL
The Company is a Delaware corporation subject to Section 203
of the Delaware General Corporation Law (the "DGCL"). Generally, Section 203
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
after the date the person became an interested stockholder, unless (i) prior
to such date, either the business combination in question or the transaction
resulting in such person becoming an interested stockholder is approved by the
board of directors of the relevant corporation, (ii) upon consummation of the
transaction which resulted in the stockholder becoming an interested
stockholder, the interested stockholder owns at least 85% of the outstanding
voting stock of the relevant corporation or (iii) on or after such date the
business combination is approved by the board of directors of the relevant
corporation and by the affirmative vote of at least 66 2/3% of the outstanding
voting stock that is not owned by the interested stockholder. A "business
combination" includes mergers, assets sales and other transactions resulting
in a financial benefit to the interested stockholder. An "interested
stockholder" is a person who, together with affiliates and associates,
beneficially owns 15% or more of the relevant corporation's outstanding voting
stock. As required by the Securities Purchase Agreement, the Board of
Directors has taken appropriate action so that the provisions of Section 203
of the DGCL shall not be applicable to the execution and delivery of the
Securities Purchase Agreement and the consummation of the Transactions,
including the execution and delivery of the Irrevocable Proxies.
Litigation
On September 8, 1995, the Pill Class Action was filed on
behalf of all stockholders of the Company (other than the defendants named
below) in the Delaware Court of Chancery. The Amended Complaint was filed on
October 5, 1995. The substantially similar Miller and Polikoff Class Actions
were filed in the Delaware Chancery Court on October 6, 1995. The Class Actions
name as defendants the Company, the directors of the Company, the President of
the Company's wholly-owned subsidiary, Western Publishing Company, Inc., Warburg
Pincus and Mr. Snyder. The Class Actions challenge the transactions contemplated
by the October Announcement, alleging, among other things, that (i) such
transaction was an attempt to deny the Company's stockholders (other than the
defendants) their right to share in the control premium being paid to Mr.
Bernstein, (ii) the public stockholders were not being adequately compensated
for the potential earnings of the Company, (iii) Mr. Bernstein was being unduly
compensated by such transaction, obtaining the right, given to no other
stockholder, to sell his Common Stock at a substantial premium, (iv) the
defendants failed to consider alternate transactions and (v) the defendants
violated fiduciary and other common law duties owed to the stockholders (other
than the defendants) by not exercising independent business judgment and having
conflicts of interest.
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The Class Actions seek to preliminarily and permanently enjoin such transaction
or, if consummated, to rescind such transaction, and also pray for an award of
compensatory damages. The defendants have denied, and continue to deny, that
they have committed any violations of law in connection with the transactions
proposed at the date of filing of the respective Class Actions. Additionally, in
view of the revised structure for the Transactions contemplated by the
Securities Purchase Agreement, the defendants believe, based on the advice of
counsel, that the claims made in the Class Actions are no longer relevant and
wholly without merit. Should the Class Actions proceed, the defendants intend to
defend such lawsuits vigorously.
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SECURITIES PURCHASE AGREEMENT (Proposal No. 1)
At the Special Meeting, the stockholders are being asked to
approve the Securities Purchase Agreement and the performance by the Company of
all transactions and acts on the part of the Company contemplated under the
Securities Purchase Agreement, including (a) the issuance and sale to GPH, for a
cash purchase price of $65 million, of shares of Series B Convertible Preferred
Stock (and any shares of Common Stock issuable upon the conversion thereof) and
the Warrant (and any shares of Common Stock issuable upon the exercise thereof),
(b) the redemption by the Company of the outstanding shares of Series A
Preferred Stock due March 31, 1996 from the proceeds of GPH's investment, (c)
the grant of certain registration rights to GPH in respect of the Series B
Convertible Preferred Stock and the Warrant and the underlying Common Stock
pursuant to a registration rights agreement between the Company and GPH (the
"GPH Registration Rights Agreement"), (d) the grant of certain registration
rights to Mr. Bernstein and certain of his affiliates in respect of their shares
of Common Stock pursuant to the Bernstein Registration Rights Agreement and (e)
the Company's execution of the Snyder Employment Agreement upon the closing of
GPH's equity investment. The approval of the matters set forth in clause (a) of
the preceding sentence is required by the rules of the National Association of
Securities Dealers, Inc. (the "NASD") for corporations with securities quoted on
the Nasdaq National Market. The following is a summary of certain provisions of
the Securities Purchase Agreement, which is attached as Appendix I to this Proxy
Statement and is incorporated herein by reference. Such summary is qualified in
its entirety by reference to the Securities Purchase Agreement.
The Board of Directors reserves its right, pursuant to the
Securities Purchase Agreement, to amend the provisions of the Securities
Purchase Agreement in all respects in accordance with its terms and without
stockholder approval before or after approval of the Proposals by the Company's
stockholders. The Board of Directors also reserves the right to terminate the
Securities Purchase Agreement in accordance with its terms notwithstanding
stockholder approval.
Issuance and Sale of Series B Convertible Preferred Stock and Warrant
Pursuant to the terms of the Securities Purchase Agreement,
the Company has agreed, subject to the terms and conditions set forth therein,
to issue to GPH at the closing of the equity investment by GPH contemplated by
the Securities Purchase Agreement (the "Closing"), 13,000 shares of Series B
Convertible Preferred Stock with a liquidation value of $65 million, and the
Warrant to purchase 3,250,000 shares of Common Stock at a price of $10 per
share, in exchange for the payment by GPH of $65 million in cash at the Closing.
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Terms of the Series B Convertible Preferred Stock
General
Pursuant to the terms of the Securities Purchase Agreement,
the Company will issue and sell, and GPH will purchase, 13,000 shares of Series
B Convertible Preferred Stock at the Closing. The preferences and rights of the
Series B Convertible Preferred Stock are set forth in a Certificate of
Designations, Number, Voting Powers, Preferences and Rights of Series B
Convertible Preferred Stock that will be filed with the Secretary of State of
Delaware at the time of the Closing (the "Certificate of Designations"). The
following is a summary of certain provisions of the Certificate of Designations,
which is attached as Appendix IV to this Proxy Statement and is incorporated
herein by reference. Such summary is qualified in its entirety by reference to
the Certificate of Designations.
Dividends
Pursuant to the Certificate of Designations, the Series B
Convertible Preferred Stock shall be entitled to receive a 12% annual dividend
payable (i) during each of the first four years following the date of initial
issuance of the Series B Convertible Preferred Stock (the "Initial Issuance
Date"), by delivery quarterly of an aggregate of 195,000 shares of Common Stock,
subject to certain adjustments described below, and (ii) thereafter, when and as
declared out of legally available funds, in cash (computed on the basis of a
360-day year of twelve 30-day months) at the rate of $150 per share, compounded
quarterly, all of which dividends shall be cumulative from the Initial Issuance
Date. In the event that (x) the product of (i) the number of shares of Common
Stock per share of Series B Convertible Preferred Stock to be distributed in any
quarter during the first four years following the Initial Issuance Date and (ii)
the average closing price of a share of Common Stock for the ten consecutive
trading days immediately preceding the applicable dividend payment date (the
"Dividend Value") is less than $93.75, then, in addition to such shares of
Common Stock, the holders of Series B Convertible Preferred Stock shall receive
on the applicable dividend payment date, out of legally available funds of the
Company, cash per share of Series B Convertible Preferred Stock in an amount
equal to the excess of $93.75 over the Dividend Value, compounded quarterly, and
(y) the Dividend Value exceeds $187.50, then the number of shares of Common
Stock to be so distributed shall be reduced by an amount sufficient to cause the
Dividend Value to equal $187.50 (subject in each case to adjustment in the event
of any dividend, stock split, stock distribution or combination with respect to
any such shares). Dividends will be payable on the 1st day of February, May,
August and November of each year before any dividends are paid on the Common
Stock.
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Liquidation
The holders of Series B Convertible Preferred Stock shall have
the right to receive $5,000 per share, plus accrued and unpaid dividends, in the
event of a voluntary or involuntary liquidation, dissolution or winding up of
the Company. Such liquidation preference shall rank senior to any liquidation
rights of the Common Stock. The merger or sale of the Company or the sale of all
or substantially all its assets shall not be deemed to be a liquidation,
dissolution or winding up of the Company for this purpose.
Redemption
The Series B Convertible Preferred Stock shall be subject to
optional redemption by the Company at a redemption price of $5,000 per share,
plus an amount equal to any accrued and unpaid dividends, at any time on or
after the fourth anniversary of the Initial Issuance Date. The Company is not
required to mandatorily redeem the Series B Convertible Preferred Stock and the
Series B Convertible Preferred Stock is not the subject of any sinking fund
requirement.
Voting and Other Rights
In addition to any voting rights granted under the DGCL, each
share of Series B Convertible Preferred Stock shall be entitled to vote, on an
as-if-converted basis, together with the Common Stock as one class on all
matters submitted to a vote of the stockholders of the Company, including the
election of directors (in addition to electing the Series B Directors).
Consequently, subject to adjustment as provided in the Certificate of
Designations, each share of Series B Convertible Preferred Stock will have a
vote equal to 500 shares of Common Stock. In addition, the Company may not,
without the affirmative vote or consent of a majority of the holders of Series B
Convertible Preferred Stock, amend, alter or repeal the preferences, special
rights or other powers of the Series B Convertible Preferred Stock so as to
adversely affect the rights of the holders of Series B Convertible Preferred
Stock, including, without limitation, authorizing a series or class of stock
having any preference or priority over, or being on a parity with, the Series B
Convertible Preferred Stock either as to dividends or on liquidation.
Subject to the limitations described below, the holders of
Series B Convertible Preferred Stock will have the right to elect, as a class,
one-third of the members of the Board of Directors, which shall on the Initial
Issuance Date have nine members; provided, however, that upon such time as less
than (i) 40% of the shares of Series B Convertible Preferred Stock issued on the
Initial Issuance Date are owned by GPH and certain of its affiliates, the
holders of Series B Convertible Preferred Stock will have the right to elect, as
a class, two Series B Directors, (ii) 30% of the shares of Series B Convertible
Preferred Stock issued pursuant on the Initial Issuance Date are owned by GPH
and
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certain of its affiliates, the holders of Series B Convertible Preferred Stock
will have the right to elect, as a class, one Series B Director and (iii) 20%
of the shares of Series B Convertible Preferred Stock issued on the Initial
Issuance Date are owned by GPH and certain of its affiliates, the holders of
Series B Convertible Preferred Stock shall no longer have a right, as a class,
to elect any member of the Board of Directors. Furthermore, the Certificate of
Designations will prohibit the Company (and, in the case of clauses (ii),
(iii), (iv) and (v) below, its subsidiaries), for so long as at least one-half
of the shares of Series B Convertible Preferred Stock issued on the Initial
Issuance Date are owned by GPH and certain of its affiliates, without first
obtaining the consent of the holders of a majority of the shares of Series B
Convertible Preferred Stock, voting as a separate class, from engaging in the
following transactions or taking the following actions:
(i) amend or repeal any provision of the Restated
Certificate or the Company's By-laws, including without
limitation a change in the number of members of the Board of
Directors;
(ii) authorize or effect the incurrence or issuance of any
indebtedness (other than pursuant to an agreement to incur the same
which has been approved in writing by holders of a majority of
outstanding shares of Series B Convertible Preferred Stock, and other
than pursuant to that certain Credit Agreement, dated September 29,
1995, between Western Publishing Company, Inc. and Heller Financial,
Inc.) or shares of capital stock or rights to acquire capital stock
other than, in the case of shares of Common Stock, (x) options to
acquire up to 1,874,300 shares of Common Stock issued to employees of
the Company pursuant to the Amended and Restated 1986 Employee Stock
Option Plan (the "1986 Plan") or (y) thereafter approved with the
consent of the holders of record of a majority of the then outstanding
shares of Series B Convertible Preferred Stock; provided, however, that
the incurrence of indebtedness among the Company and its subsidiaries
shall not require such consent;
(iii) authorize or effect (A) in one or in a series of two or more
related transactions, any sale, lease, license, transfer or other
disposition of assets for consideration in excess of $5,000,000 (other
than in the ordinary course of business or among the Company and its
subsidiaries); (B) any merger or consolidation or other reorganization
involving the Company or any of its subsidiaries (other than with one
another or in respect of which the aggregate consideration paid to or
received by the Company or its subsidiaries is less than $5,000,000) or
(C) a liquidation, winding up, dissolution or adoption of any plan for
the same other than the liquidation, winding up, dissolution or
adoption of any plan for the same of a subsidiary into the Company or
another subsidiary thereof;
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(iv) authorize or effect, in one or in a series of two or more
related transactions, (A) any acquisition or lease of assets or (B) any
license of patent, trademark or other rights relating to any
intellectual property, in each case, that involves by its terms a per
annum payment in excess of $5,000,000 as determined in good faith by
the Board of Directors, other than among the Company and its
subsidiaries or in the ordinary course of business; or
(v) terminate the employment of the chief executive officer
of the Company.
Notwithstanding the foregoing, in the event that the shares of Series B
Convertible Preferred Stock are held by more than 10 holders, then the right of
the holders to elect Series B Directors and to vote as a class on the matters
listed above shall terminate.
Conversion
The Series B Convertible Preferred Stock is convertible, at
the option of the holders of Series B Convertible Preferred Stock, into shares
of Common Stock, at the exchange rate of 500 shares of Common Stock for each
share of Series B Convertible Preferred Stock, at any time from and after the
Initial Issuance Date, representing a conversion price of $10 per share of
Series B Convertible Preferred Stock. The number of shares of Common Stock for
which the Series B Convertible Preferred Stock may be converted is subject to
customary antidilution adjustments pursuant to the Certificate of Designations
to prevent dilution on the occurrence of certain events ("Triggering
Transactions"), including: (i) stock dividends or other distributions of Common
Stock, (ii) certain issuances of Common Stock (or other securities convertible
into or exercisable for Common Stock) at a price per share (or having a
conversion or exercise price per share) less than the conversion price of the
Series B Convertible Preferred Stock at such time, or (iii) a merger,
consolidation or other reorganization of the Company. Notwithstanding the
foregoing, the conversion rate shall not be so reduced if (A) for so long as the
holders of the Series B Convertible Preferred Stock have class voting rights to
elect one or more Series B Directors or to approve certain transactions as
described above, such Triggering Transaction involves a grant, issuance or sale
of Common Stock to GPH or certain of its affiliates, other than ratably to all
holders of Common Stock, and such Triggering Transaction has not been approved
by a majority of the non-Series B Directors (other than natural persons having
certain relations with GPH) or (B) the Triggering Transaction involves a grant,
issuance or sale of Common Stock that has not been registered pursuant to the
Securities Act and an investment bank of national standing and reputation,
engaged for a fee by the Company pursuant to a written engagement letter, has
not been consulted by the Company with respect to the structure of such
Triggering Transaction and participated in the negotiation of such Triggering
Transaction. The foregoing anti-dilution adjustments will not apply to any
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Common Stock issued or issuable to any person or entity: (i) on exercise of
options outstanding as of the Initial Issuance Date to acquire up to 1,874,300
shares of Common Stock issued to employees of the Company pursuant to the 1986
Plan and any options approved by the holders of record of a majority of the
outstanding shares of Series B Convertible Preferred Stock, (ii) pursuant to
options granted to Mr. Snyder under the terms of the Snyder Employment
Arrangements, (iii) on conversion of the Series B Convertible Preferred Stock or
Series A Preferred Stock, (iv) as a dividend on the Series B Convertible
Preferred Stock or (v) on exercise of the Warrant.
Preemptive Rights
The holders of Series B Convertible Preferred Stock will have
no preemptive rights to purchase any securities issued by the Company. The
holders of Common Stock and Series A Preferred Stock have no preemptive rights
to purchase Series B Convertible Preferred Stock or any other securities issued
by the Company.
Terms of the Warrant
General
The Warrant is to be issued to GPH pursuant to the Securities
Purchase Agreement. The following is a summary of certain provisions of the
Warrant, the form of which is attached as Appendix V to this Proxy Statement and
is incorporated herein by reference. Such summary is qualified in its entirety
by reference to such form of Warrant.
Exercise
The Warrant will initially entitle the holder thereof to
purchase 3,250,000 shares of Common Stock at a price of $10 per share (the
"Exercise Price"), subject to adjustment as described below. The Warrant will be
exercisable beginning on the second anniversary of the date of issuance (subject
to acceleration in the event of a public announcement of certain bona fide
Business Combination Proposals (as defined in "SECURITIES PURCHASE AGREEMENT --
Pre-Closing Covenants") or the initiation of a proxy solicitation for control of
the Board of Directors by any person or entity (other than GPH or certain of its
affiliated entities)) until the seventh anniversary of the date of issuance. The
Warrant may be exercised by surrendering the Warrant to the Company, at its
office in New York, New York, accompanied by payment of an amount equal to the
Exercise Price multiplied by the number of shares being purchased pursuant to
such exercise. In lieu of exercising the Warrant, the holder may elect to
receive a payment equal to the difference between (i) the market price of the
Common Stock multiplied by the number of shares as to which the Warrant is then
being exercised and (ii) the Exercise Price with respect to such shares, payable
by the Company to the holder of the Warrant only in shares of Common Stock
valued at the market price on the date of exercise.
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Antidilution and Exercise Price Adjustments
The number of shares of Common Stock purchasable upon the
exercise of the Warrant and the Exercise Price are subject to customary
antidilution adjustments in connection with the occurrence of certain events,
substantially the same as those applicable to the Series B Convertible Preferred
Stock as described above under "THE SECURITIES PURCHASE AGREEMENT -- Terms of
the Series B Convertible Preferred Stock -- Conversion."
Transferability
The Securities Purchase Agreement prohibits GPH from selling,
transferring or assigning the Warrant other than to an affiliate until the
earlier to occur of (i) the second anniversary of the Closing Date and (ii) the
date on which a bona fide Business Combination Proposal is publicly announced or
a proxy solicitation for control of the Board of Directors is initiated by any
person other than GPH or any of its affiliates.
Terms of the GPH Registration Rights Agreement
Pursuant to the terms of the Securities Purchase Agreement,
the Company has agreed to enter into the Registration Rights Agreement with GPH
at the Closing. The following is a summary of certain provisions of the GPH
Registration Rights Agreement, which is attached as Appendix VI to this Proxy
Statement and is incorporated herein by reference. Such summary is qualified in
its entirety by reference to the GPH Registration Rights Agreement.
The GPH Registration Rights Agreement will contain customary
terms and conditions and will provide, among other things, that the holders of
Registrable Securities (as defined below) thereunder will have the right to
require the Company to use its best efforts to register under the Securities Act
Registrable Securities in up to three demand registrations and an unlimited
number of incidental ("piggyback") registrations. Subject to certain
limitations, holders of Registrable Securities will also have the right to
request unlimited registrations of their securities on SEC Form S-3 and to
effect a shelf registration of such securities pursuant to SEC Rule 415, and to
keep such shelf registration continuously effective for up to 18 months.
"Registrable Securities" will be defined in the GPH Registration Rights
Agreement as (i) any shares of Series B Convertible Preferred Stock, (ii) any
shares of Common Stock issued upon conversion of shares of Series B Convertible
Preferred Stock, (iii) the Warrant or any portion thereof, (iv) any shares of
Common Stock issued upon the exercise of the Warrant or any portion thereof and
(v) any capital stock of the Company issued as a dividend or other distribution
with respect to, or in exchange for or in replacement of, any securities
referred to in clauses (i) through (iv) above. The Company will pay all
registration expenses in connection with each registration of Registrable
Securities pursuant to the GPH
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Registration Rights Agreement, except for underwriting discounts and
commissions and fees and disbursements of counsel to the selling holders. The
Company also will agree in the GPH Registration Rights Agreement to customary
indemnification and contribution protections to selling holders of Registrable
Securities under the federal securities laws and otherwise.
Representations and Warranties
The Securities Purchase Agreement contains various customary
representations and warranties of the parties, none of which survive the
Closing, made as of the date of the Securities Purchase Agreement and to be made
as of the date of the Closing, including, among other things, representations
(A) from both parties relating to (i) each party's organization and similar
corporate matters, (ii) the authorization, execution, delivery, performance and
enforceability of the Securities Purchase Agreement and related matters and
(iii) required consents or approvals and violations of any instruments or laws;
(B) representations from the Company relating to (i) the capital structure of
the Company and its subsidiaries and equity investments, (ii) the documents and
reports filed by the Company with the SEC and the accuracy of the information
contained therein, (iii) the accuracy of the information provided by the Company
with respect to this Proxy Statement, (iv) the Company's business, properties,
assets, condition (financial or otherwise), liabilities or operations of the
Company and the absence of any material adverse change thereto and (v) the
Company's having taken all actions so that the restrictions of Section 203 of
the DGCL will not apply to the consummation of the transactions contemplated by
the Securities Purchase Agreement; and (C) representations from GPH relating to
(i) GPH's having sufficient funds to effect the transactions contemplated by the
Securities Purchase Agreement and (ii) GPH's purchasing the Series B Convertible
Preferred Stock and the Warrant for investment for its own (or an affiliate's)
account and not with a view to the distribution of any part of the Series B
Convertible Preferred Stock or the Warrant.
Pre-Closing Covenants
Pursuant to the Securities Purchase Agreement, the Company has
agreed that prior to the Closing, unless otherwise agreed to by either GPH or
Mr. Snyder, it will, among other things: (i) afford GPH and its representatives
full access during normal business hours to its properties, books, contracts,
commitments, records and personnel; (ii) carry on its business in the usual,
regular and ordinary course; (iii) preserve intact its business organization;
(iv) keep available the services of officers and employees; (v) preserve its
relationships with customers, suppliers and others material to the operation of
its business; (vi) maintain its insurance coverage and its books and records;
(vii) comply in all material respects with all applicable laws and regulations,
(viii) maintain its properties and equipment in good repair, working order and
condition, ordinary wear and tear excepted; and (ix) maintain in full force
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and effect and perform in all material respects its obligations under all
material contracts and commitments. Further, the Company has agreed that prior
to the Closing, unless otherwise agreed to by either GPH or Mr. Snyder, it will
not, among other things: (i) sell or pledge or agree to sell or pledge any
capital stock owned by it or any of its subsidiaries; (ii) amend the Restated
Certificate or the By-laws, except as contemplated by the Securities Purchase
Agreement; (iii) split, combine or reclassify its outstanding capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for shares of the capital stock, or, except as
contemplated by the Securities Purchase Agreement, declare, set aside or pay any
dividend or other distribution payable in cash, stock or property (other than
dividends payable on the Series A Preferred Stock, to the extent otherwise
permitted); or (iv) directly or indirectly redeem, purchase or otherwise acquire
or agree to redeem, purchase or otherwise acquire any shares of its capital
stock, except as contemplated by the Securities Purchase Agreement or pursuant
to existing contractual rights.
Additionally, the Company has agreed that unless otherwise
agreed to by either GPH or Mr. Snyder, it will not, nor will it permit any of
its subsidiaries to: (i) except as required by the Securities Purchase
Agreement, issue, deliver or sell or agree to issue, deliver or sell any
additional shares of, or stock appreciation rights or rights of any kind to
acquire any shares of, its capital stock of any class, or any option, rights or
warrants to acquire, or securities convertible into, shares of capital stock
other than (x) issuances of Common Stock pursuant to the exercise of outstanding
warrants or stock options or (y) grants of employee stock options at fair market
value at the time of grant and issuances of Common Stock upon exercise thereof,
in the ordinary course of business and consistent with past practice (other than
to certain executive officers of the Company located at its New York City
offices and their affiliates, who shall not be eligible to receive such grants
subsequent to the date of the Securities Purchase Agreement); provided that the
number of shares of Common Stock issuable upon exercise of all employee stock
options outstanding on the date of the Securities Purchase Agreement and those
granted thereafter and before the Closing shall not exceed the sum of 1,874,300;
(ii) except for the sale of the Company's Fayetteville, North Carolina facility,
acquire, lease or dispose or agree to acquire, lease or dispose of any capital
assets or any other assets other than in the ordinary course of business; (iii)
incur additional indebtedness or encumber or grant a security interest in any
asset or enter into any transaction other than in the ordinary course of
business; (iv) incur any liability or obligation, or contribute any asset, to a
subsidiary of the Company other than in the ordinary course of business; (v)
acquire or agree to acquire by merging or consolidating with, or by purchasing a
substantial equity interest in, or by any other manner, any business or any
corporation, partnership or other business organization or division thereof, in
each case in this clause (v) which are material, individually or in the
aggregate, to the Company and
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its subsidiaries taken as a whole; (vi) adopt, enter into, amend or terminate
any contract, agreement or other arrangement with respect to the actions
described in clauses (i) through (v) that is not otherwise permitted by the
exceptions contained therein; (vii) except as required to comply with
applicable law, (A) adopt, enter into, terminate or amend any Company employee
benefit plan or arrangement, (B) increase in any manner the compensation or
fringe benefits of any director, officer or employee (except for normal
increases in the ordinary course of business that are consistent with past
practice and that, in the aggregate, do not result in a material increase in
benefits or compensation expense to such party and its subsidiaries relative to
the level in effect prior to such increase), (C) pay any benefit not provided
under any existing Company employee benefit plan or arrangement, (D) except for
benefits that have already been earned or vested without acceleration, grant
any awards or make any payments under any bonus, incentive, performance or
other compensation plan or arrangement or Company benefit plan, except for (x)
the making of matching and annual contributions to 401(k) plans in the ordinary
course of business and consistent with past practice and (z) the granting of
employee stock options and the issuance of Common Stock upon exercise thereof,
to the extent permitted by subclauses (x) and (y) of clause (i) above, (E) take
any action to fund or in any other way secure the payment of compensation or
benefits under any Company employee benefit plan or arrangement, other than in
the ordinary course of business consistent with past practice, or (F) adopt,
enter into, amend or terminate any contract, agreement or other arrangement to
do any of the actions described in this clause (vii) that is not otherwise
permitted by the exceptions contained herein; (viii) make any investments in
non-investment grade securities; (ix) make any change in its accounting policies
or procedures except as required under statutory accounting practices or
generally accepted accounting principles, as applicable; (x) take any action
that would, or reasonably might be expected to, result in any of its
representations and warranties set forth in the Securities Purchase Agreement
being or becoming untrue in any material respect, or in any of the conditions
set forth in the Securities Purchase Agreement not being satisfied, or (unless
such action is required by applicable law) which would adversely affect the
ability of the Company to obtain any of the regulatory approvals required to
consummate the transactions contemplated by the Securities Purchase Agreement;
(xi) terminate or materially modify the employment arrangements of Mr. Snyder,
other than for "cause" (as defined in the draft of the Snyder Employment
Agreement furnished to the Board of Directors); and (xii) enter into any
agreement to perform any of the actions prohibited under this paragraph and the
immediately preceding paragraph and not otherwise permitted by the exceptions
contained therein.
Non-Solicitation of Business Combination Proposals
The Securities Purchase Agreement provides that the Company
shall not, nor shall any of its subsidiaries, directly or indirectly, take (nor
shall the Company authorize or permit its subsidiaries, officers, directors,
employees, representatives,
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investment bankers, attorneys, accountants or other agents or affiliates, to
take) any action to (i) solicit or initiate the submission of any Business
Combination Proposal (as defined below), (ii) enter into any agreement with
respect to any Business Combination Proposal or (iii) participate in any way in
discussions or negotiations with, or furnish any information to, any person in
connection with, or take any other action to facilitate any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Business Combination Proposal. "Business Combination Proposal" means
any tender or exchange offer, proposal for a merger, consolidation or other
series of related transactions in a business combination involving the Company
or any subsidiary of the Company or any other proposal or offer to enter into a
Third Party Business Combination (as defined below). "Third Party Business
Combination" means the occurrence of any of the following events: (A) the
Company or any subsidiary of the Company is acquired by merger or otherwise by
any person, entity or group, other than GPH or certain affiliates thereof (a
"Third Party"); (B) the Company or any subsidiary of the Company enters into an
agreement with a Third Party which contemplates the acquisition of 25% or more
of the total assets of the Company and its subsidiaries taken as a whole; (C)
the Company enters into a merger or other agreement with a Third Party which
contemplates the acquisition of beneficial ownership of more than 25% of the
outstanding shares of the Common Stock (or securities convertible thereinto or
exercisable therefor); (D) a Third Party acquires more than 25% of the total
assets of the Company and its subsidiaries taken as a whole; (E) a Third Party
who, as of the date 10 days preceding the date of the Securities Purchase
Agreement, beneficially owns less than 10% of the outstanding shares of the
Common Stock obtains beneficial ownership of such number of shares of Common
Stock such that it beneficially owns more than 25% of the outstanding shares of
Common Stock, or any person, entity or group which beneficially owns (or has the
right to acquire) 10% or more of the outstanding shares of the Common Stock
increases its beneficial ownership of the outstanding shares of Common Stock by
10% or more; (F) the Company adopts a plan of liquidation relating to more than
25% of the total assets of the Company and its subsidiaries taken as a whole;
(G) the Company repurchases more than 25% of the outstanding shares of the
Company's capital stock; or (H) there is a public announcement or written
proposal with respect to a plan or intention by the Company or a Third Party to
effect any of the foregoing transactions (provided such transaction is
consummated during the nine month period following such public announcement or
written proposal).
Notwithstanding the foregoing, the Company may participate in
discussions or negotiations with or furnish information to any third party which
makes an unsolicited proposal of a transaction which the Board of Directors
reasonably believes is likely to result in a Business Combination Proposal
pursuant to which such third party would, or would have the right to, acquire
more than 25% of the outstanding voting capital stock of the Company and which
the Board of Directors reasonably
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determines, based upon advice of its financial advisors, is financially
superior than the transactions contemplated by the Securities Purchase Agreement
and is likely to be consummated (a "Superior Proposal").
In addition to the obligations of the Company set forth in the
preceding two paragraphs, the Securities Purchase Agreement also provides that
the Company (i) shall promptly advise GPH of any request for information or of
any Business Combination Proposal, or any inquiry with respect to or which
appears to be intended to or could reasonably be expected to lead to any
Business Combination Proposal, the material terms and conditions of such
request, Business Combination Proposal or inquiry, and the identity of the
person making any such request, Business Combination Proposal or inquiry, and
the identity of the person making any such request, Business Combination
Proposal or inquiry, and (ii) shall keep GPH fully informed of the status and
details of any such request, Business Combination Proposal or inquiry and (iii)
shall promptly furnish GPH a copy of any written proposal in connection
therewith.
Conditions to Closing
In addition to the approval and adoption of the Proposals by
the stockholders of the Company, the obligations of the Company and GPH to
effect the Transactions are subject to the fulfillment or waiver of certain
conditions specified in the Securities Purchase Agreement, including, among
others: (i) the continuing accuracy of the representations and warranties of the
respective parties contained in the Securities Purchase Agreement in all
material respects except if the aggregate of any breaches have not resulted in,
and are not likely to result in, a material adverse effect on the business,
properties, assets, condition (financial or otherwise), liabilities or
operations of the breaching party and its subsidiaries taken as a whole; (ii)
the performance and compliance in all material respects by the respective
parties of all obligations under the Securities Purchase Agreement required to
be performed on or prior to the Closing Date; (iii) the absence of any
injunction or other order by any federal or state court preventing consummation
of the Transactions and of any legal challenge seeking to prevent such
consummation; (iv) the applicable waiting period under the HSR Act having
expired or been terminated; and (v) the absence of a material breach of any of
the provisions of the Irrevocable Proxies.
Termination and Termination Fee
The Securities Purchase Agreement may be terminated (a) at any
time by mutual consent of the parties; (b) by either party if (i) the
Transactions have not occurred on or before May 22, 1996, provided the
terminating party is not otherwise in material breach of its representations,
warranties, covenants or agreements under the Securities Purchase Agreement;
(ii) the requisite vote of the stockholders of the Company to approve any of the
Proposals (other than the Proposals relating to the
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proposed amendments to the Restated Certificate) has not been obtained; (iii)
any court or other governmental entity of competent jurisdiction shall have
issued a final permanent order enjoining or otherwise prohibiting the
consummation of the Transactions; or (iv) if there has been a material breach
on the part of the other of any representation, warranty, covenant or agreement
set forth in the Securities Purchase Agreement which has not been cured within
fifteen business days of notice by the other party thereof; or (c) by either
party, if the Board of Directors reasonably determines that a Business
Combination Proposal is likely to result in a Superior Proposal; provided,
however, that such termination under this clause (c) shall not be effective
unless and until (i) simultaneously with such termination the Company enters
into a definitive agreement to effect such Business Combination Proposal and
(ii) the Company has made payment in full of the Termination Fee (as defined
below).
If (i) the Transactions are not consummated as a result of a
material breach of the non-solicitation covenant described above under "THE
SECURITIES PURCHASE AGREEMENT -- Non-Solicitation of Business Combination
Proposals," (ii) the Securities Purchase Agreement is terminated as a result of
the Company's entering into a definitive agreement with respect to a Business
Combination Proposal or (iii) a Third Party Business Combination has been
consummated either (A) prior to the termination of the Securities Purchase
Agreement under specified circumstances or (B) within nine months following the
date of the termination of the Securities Purchase Agreement by GPH as a result
of the breach of a representation, warranty, covenant or agreement by the
Company in the Securities Purchase Agreement (which shall not have been cured
within fifteen days of notice thereof), then the Company shall pay to GPH a
termination fee of $2,000,000 (the "Termination Fee").
Expenses
Except with respect to the Termination Fee described above,
the Securities Purchase Agreement provides that each party will pay its own
costs and expenses incurred in connection therewith; provided that (a) if the
Transactions are consummated or if they are not consummated as a result of a
material breach by the Company of any representation or warranty contained in
the Securities Purchase Agreement, all costs and expenses incurred by GPH in
connection therewith shall be paid by the Company, and (b) if the Transactions
are not consummated for any other reason, all costs and expenses incurred by GPH
in connection therewith from and after December 14, 1995 shall be paid by the
Company. In either case the Company shall not be responsible for costs and
expenses incurred by GPH in an amount exceeding $4,000,000.
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---------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
APPROVAL OF THE SECURITIES PURCHASE AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY.
---------------
ELECTION OF DIRECTORS (Proposal No. 2)
General
The Board of Directors currently consists of five directors.
As contemplated by the Securities Purchase Agreement, six directors are to be
elected at the Special Meeting, who will qualify as such only upon the Closing,
to serve until the next annual meeting of stockholders of the Company and until
their successors are duly elected and qualified. At the Closing, the five
incumbent directors will resign. The Board of Directors proposes the election of
the following six nominees, who have been designated by GPH in accordance with
the provisions of the Securities Purchase Agreement:
Shahara Ahmad-Llewellyn
Barry Diller
Linda L. Janklow
Marshall Rose
Richard E. Snyder
H. Brian Thompson
The Board of Directors has no reason to believe that any of
the foregoing nominees will not serve if elected and qualified, but if any of
them should become unavailable to serve as a director or be withdrawn from
nomination, the Board of Directors will designate a substitute nominee named by
GPH, and the persons named as proxy holders will vote for the substitute
nominee.
If the nominees listed above are elected and are qualified as
directors, they are expected to serve until the 1996 annual meeting of
stockholders and until their successors are duly elected and qualified. Because
such nominees have been nominated by the Board of Directors pursuant to the
terms of the
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Securities Purchase Agreement, they will not be qualified as directors and take
office, even if elected at the Special Meeting, until immediately upon the
Closing. Until such time, in accordance with the Company's By-laws, the current
directors will remain in office. Moreover, if the Closing does not occur for
any reason, including by reason of any of the Proposals (other than the
Proposals relating to the proposed amendments to the Restated Certificate) not
being approved at the Special Meeting, then the foregoing nominees will not
qualify as directors even if elected at the Special Meeting, and the current
directors will continue to serve in office until their successors are duly
elected and qualified in accordance with the DGCL and the Company's By-laws.
In addition to the six directors to be elected at the Special
Meeting, upon the Closing (i) the size of the Board of Directors will be
increased to nine, (ii) the three individuals named below under "ELECTION OF
DIRECTORS -- Business Experience of Series B Directors" will be elected by GPH
in its capacity as the holder of the Series B Convertible Preferred Stock to
serve as the Series B Directors and (iii) the incumbent directors will resign as
directors of the Company. Accordingly, immediately following the Closing, all
members of the Board of Directors will have been nominated by GPH.
---------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR ELECTION
OF THE NOMINEES AS DIRECTORS LISTED ABOVE.
---------------
Business Experience of Nominees
Shahara Ahmad-Llewellyn
Age: 52
Ms. Ahmad-Llewellyn is Vice Chairman of Philadelphia
Coca-Cola Bottling Company Inc. From its founding in 1971 until
1991, she served as President of H.A.V.A. Inc., a home health
care company. Ms. Ahmad-Llewellyn is President of the Board of
Directors of the Northside Center for Child Development, and a
member of the Board of Directors of The New 42nd Street
Corporation, The Dance Theater of Harlem, Jazz at Lincoln Center,
the American Red Cross of Greater New York and The Madeira School
in McLean, VA. Ms. Ahmad-Llewellyn previously served as
Chairperson of the Small Business Administration District
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<PAGE>
Advisory Council for Region II, as Vice President, of the Home
Care Council of New York City Inc. and as a Presidential
appointee to the White House Conference on Small Business.
Barry Diller
Age: 53
Mr. Diller has been a director and the Chairman of the Board
and Chief Executive Officer of Silver King Communications, Inc. since August 24,
1995. He was Chairman of the Board and Chief Executive Officer of QVC Network,
Inc. (now QVC, Inc.) from January 1993 until February 28, 1995. From 1984 to
1992, Mr. Diller served as the Chairman of the Board and Chief Executive Officer
of Fox, Inc. Prior to joining Fox, Inc., Mr. Diller served for 10 years as
Chairman of the Board and Chief Executive Officer of Gulf & Western's (now
Paramount Communications) Paramount Pictures Corporation. Mr. Diller is a
director and Chairman of the Board of Home Shopping Network, Inc., and he also
serves on the Board of the Museum of Television and Radio and is a member of the
Board of Councilors for the University of Southern California's School of
Cinema-Television. Mr. Diller also serves on the Board of Directors for AIDS
Project Los Angeles and the Executive Board for the Medical Sciences for UCLA.
Linda L. Janklow
Age: 56
Ms. Janklow is Chairman, Lincoln Center Theater, having served
in this capacity since 1991. Prior thereto, she served as Vice-Chairman, Lincoln
Center Theater since 1979. She is a member of the Board of Directors, Lincoln
Center for the Performing Arts, Inc. She has also been Chairman of Arts
Connection, the largest arts-in-education organization in New York City since
its founding in 1978. She is Chairman of the Collection Committee and a founding
Trustee of the American Museum of the Moving Image. She is also a member of the
Board of Directors of The New 42nd Street Corporation.
Marshall Rose
Age: 59
Mr. Rose is Managing Partner of The Georgetown Group, a
privately held real estate development and financial services group. Mr. Rose
serves as a Director of One Liberty Properties and Estee Lauder Companies, Inc.
and as a Trustee of BRT Realty Trust. In addition, Mr. Rose serves as Chairman
of the Executive Committee and Chairman of the Board Emeritus of The New York
Public Library; as Trustee of the New York University Medical Center; as
Director of Lincoln Center for the Performing Arts; as a Member of the Executive
Committee of the Board of Visitors of The Graduate School and University Center
of The
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<PAGE>
City University of New York; as Director and Executive Committee member of
the Bryant Park Restoration Committee; and as a Trustee of the Robert Steel
Foundation for Pediatric Cancer Research.
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<PAGE>
Richard E. Snyder
Age: 62
On January 31, 1996, in connection with the signing of the
Securities Purchase Agreement, Mr. Snyder was elected as President of the
Company. Prior to that time, Mr. Snyder had, since 1994, been an independent
business consultant and investor. He was the Chairman and Chief Executive
Officer of Simon & Schuster from 1975 to 1994. Mr. Snyder is a director of
Franklin Electronic Publishers, Inc. and of Reliance Group Holdings, Inc.
H. Brian Thompson
Age: 56
Mr. Thompson has been Chairman of the Board of Directors and
Chief Executive Officer of LCI International and its subsidiaries since July
1991. Mr. Thompson previously served as executive vice president of MCI
Communications Corporation where he was responsible for all eight of MCI's
operating divisions and various other senior management capacities from 1981 to
1991. These capacities included vice president responsible for all staff
functions, Divisional president and Senior Vice President responsible for
strategic development and corporate planning. Mr. Thompson is a director of
Microdyne Corporation, NeXstar Pharmaceuticals, Inc., STN Incorporated and
Comcast UK Cable Partners Limited.
Business Experience of Series B Directors
James A. Eskridge
Age: 53
Mr. Eskridge currently serves as a senior advisor for Mattel,
Inc., and was Group President-Mattel from April 1995 through March 1996, and
served previously as the President of Fisher-Price, Inc. from November 1993
through April 1995. Prior thereto, Mr. Eskridge served as Executive Vice
President and Chief Financial Officer of Mattel from December 1988 through
November 1993.
David A. Tanner
Age: 37
Mr. Tanner has served as a Managing Director of E.M.
Warburg, Pincus & Co., Inc. since January 1993. Mr. Tanner served as a Vice
President of E.M. Warburg from January 1991 to January 1993 and was an
associate at E.M. Warburg from March 1986 to December 1990. Prior to joining
E.M. Warburg, Mr. Tanner was engaged in the private practice of law with the
law firm of Simpson Thacher & Bartlett. Mr. Tanner is a director of
RenaissanceRe Holdings Ltd.
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<PAGE>
John L. Vogelstein
Age: 61
Mr. Vogelstein has served since 1982 as Vice Chairman of the
Board of Directors, and since 1994 as President, of E.M. Warburg Pincus & Co.,
Inc. Prior thereto, he was an officer and a director of E.M. Warburg & Co. and
certain of its affiliates. Mr. Vogelstein is currently a director of AEGIS GROUP
plc., ADVO Inc., LCI International, Mattel Inc., Value Health, Inc., and several
privately held companies.
Business Experience of Current Directors
Richard A. Bernstein
Director since: 1984
Age: 49
Mr. Bernstein has been Chairman and Chief Executive Officer of
the Company and Chairman of Western Publishing Company, Inc. since February
1984. From 1984 to August 1989, Mr. Bernstein was also President of the Company.
In November 1986, Mr. Bernstein became Chairman, President and Chief Executive
Officer of Penn Corporation. He is President of P & E Properties, Inc., a
private commercial real estate ownership/management company, and has been for
more than five years. Mr. Bernstein is the sole shareholder of P & E Properties,
Inc. He is a member of the Regional Advisory Board of Chemical Bank, a member of
the Board of Trustees of New York University, a member of the Board of Overseers
of the New York University Stern School of Business, a Director and Vice
President of the Police Athletic League, Inc., a member of the Board of Trustees
of New York University's Hospital for Joint Diseases/Orthopedic Institute, a
member of the Board of Directors of The Big Apple Circus, Inc., and a member of
The Economic Club of New York.
Richard H. Hochman
Director since: 1995
Age: 50
Mr. Hochman has been Chairman of Regent Capital Partners,
L.P., a private investment company, since April 1995. From 1990 through April
1995 he was a managing director of the Corporate Finance Department of
PaineWebber Incorporated. Mr. Hochman also serves on the Board of Directors of
Cablevision Systems Corporation and Alliance Entertainment Corporation.
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<PAGE>
John F. Moore
Director since: 1995
Age: 58
Mr. Moore is Chief Executive Officer of Mindscape, Inc. Mr.
Moore served as President and Chief Executive Officer of the Company's principal
operating subsidiary, Western Publishing Company, Inc., from May 1995 until his
resignation on January 26, 1996. From 1991 to 1995, Mr. Moore was President and
Chief Operating Officer of Penguin USA, the large book publishing unit of
Pearson Group, a London-based international media company. From 1985 to 1991,
Mr. Moore was President of Parker Brothers, Inc., and from 1980 to 1985, he was
President of Kenner Parker Toys Canada.
Jenny Morgenthau
Director since: 1992
Age: 50
Ms. Morgenthau is Executive Director, Chief Executive
and Chief Operating Officer of The Fresh Air Fund, serving in
that capacity since 1983. Between 1977 and 1983, Ms. Morgenthau
was the Director, Office of Program Planning, for the New York
City Human Resources Administration. Ms. Morgenthau is a member
of the Board of Directors of Paul Newman's Hole in the Wall Gang
camp, The National Dance Institute, The Baron de Hirsch Fund and
the New York Chapter of The American Jewish Committee.
Michael A. Pietrangelo
Director since: 1989
Age: 52
Mr. Pietrangelo is President of the Personal Care
Products Group of IVAX Corporation. From May 1990 through
February 1994, he was President and Chief Executive Officer of
CLEO Inc., a subsidiary of Gibson Greetings, Inc. From July 1989
through April 1990, Mr. Pietrangelo served as President and Chief
Operating Officer of the Company. Between 1985 and July 1989,
Mr. Pietrangelo was President of Schering-Plough's Personal Care
Group. Mr. Pietrangelo is a member of the Board of Directors of
Universal Heights, Inc., Medicis Pharmaceutical Corporation, The
American Parkinson Disease Association and The Memphis College of
Art. He is also Of Counsel to the law firm of Weirich and
Pietrangelo in Memphis, Tennessee.
Business Experience of Executive Officers
Richard A. Bernstein
Age: 49
Mr. Bernstein has been Chairman and Chief Executive
Officer of the Company and Chairman of Western Publishing
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Company, Inc. since February 1984. From 1984 to August 1989, Mr. Bernstein was
also President of the Company. In November 1986, Mr. Bernstein became Chairman,
President and Chief Executive Officer of Penn Corporation. He is President of P
& E Properties, Inc., a private commercial real estate ownership/management
company, and has been for more than five years. Mr. Bernstein is the sole
shareholder of P & E Properties, Inc. He is a member of the Regional Advisory
Board of Chemical Bank, a member of the Board of Trustees of New York
University, a member of the Board of Overseers of the New York University Stern
School of Business, a Director and Vice President of the Police Athletic League,
Inc., a member of the Board of Trustees of New York University's Hospital for
Joint Diseases/Orthopedic Institute, a member of the Board of Directors of The
Big Apple Circus, Inc., and a member of The Economic Club of New York.
James A. Cohen
Age: 50
Mr. Cohen has been Senior Vice President-Legal Affairs and
Secretary of the Company since December 1991 and a senior executive of P & E
Properties, Inc. since February 1984. He became Senior Vice President-Legal
Affairs & Secretary of Western Publishing Company, Inc. in January 1995. From
February 1984 until December 1991 he was Vice President, General Counsel and
Secretary of the Company. In March 1987, Mr. Cohen became Secretary of Western
Publishing Company, Inc. and in January 1993, Vice President-Legal Affairs of
that corporation. In November 1986, Mr. Cohen became Secretary of Penn
Corporation, in April 1987, Vice President and General Counsel, and in May 1991,
Vice President-Legal Affairs and Secretary of that corporation.
Ira A. Gomberg
Age: 52
Mr. Gomberg has been Vice President-Business Development and
Corporate Communications of the Company since February 1986. In April 1987, Mr.
Gomberg became a Vice President of Penn Corporation. In addition, he is a Vice
President and Assistant Secretary of Western Publishing Company, Inc. Since
February 1986, he has also been a senior executive of P & E Properties, Inc.
From 1976 through January 1986, Mr. Gomberg was employed by Sony Corporation of
America, a manufacturer and distributor of consumer electronic products, first
as General Counsel and after November 1983 as Vice President-Government Affairs.
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<PAGE>
Dale Gordon
Age: 48
Mr. Gordon joined Western Publishing Company, Inc. in August
1993 as Vice President and General Counsel. He became Vice President and
General Counsel of the Company and Penn Corporation in January, 1994. From 1980
through July 1993 he was with Playboy Enterprises, Inc. in various
legal/management positions, most recently as Vice President, Secretary and
Associate General Counsel.
Steven M. Grossman
Age: 35
Mr. Grossman has been Executive Vice President, Treasurer and
Chief Financial Officer of the Company since June 1994. Prior to that, Mr.
Grossman was Vice President-Financial Planning. Since July 1992, he has also
been an employee of P & E Properties, Inc. From August 1983 to July 1992 Mr.
Grossman was with the public accounting firm of Deloitte & Touche LLP. He is a
Certified Public Accountant licensed in the State of New York.
Michael J. Kutchin
Age: 38
Mr. Kutchin joined Western Publishing Company, Inc. in
February 1995 as Vice President-Corporate Controller and was appointed Chief
Financial Officer in September 1995. Before joining Western Publishing Company,
Inc., he was Vice President- Chief Financial Officer of Ganton Technologies,
Inc. From 1982 through 1989 Mr. Kutchin was with the public accounting firm of
Price Waterhouse LLP. He is a Certified Public Accountant.
Ilan Reich
Age: 41
Mr. Reich has been Vice President-Special Projects of the
Company since October 1992. Since December 1987 he has also been an employee of
P & E Properties, Inc.
Richard E. Snyder
Age: 63
Mr. Snyder was elected as President of the Company on January
31, 1996, in connection with the signing of the Securities Purchase Agreement.
Prior to that time, Mr. Snyder had, since 1994, been an independent business
consultant and investor. He was the Chairman and Chief Executive Officer of
Simon & Schuster from 1975 to 1994. Mr. Snyder is a director of Franklin
Electronic Publishers, Inc. and of Reliance Group Holdings, Inc.
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<PAGE>
Hal B. Weiss
Age: 39
Mr. Weiss has been Vice President and Assistant Treasurer of
the Company since August 1990. From April 1986 until July 1990, Mr. Weiss was
Controller and Assistant Treasurer of the Company and from November 1986 until
July 1989 he was Controller of Penn Corporation. In addition, Mr. Weiss has
been Controller of P & E Properties, Inc. since 1985. Mr. Weiss is a Certified
Public Accountant. Prior to joining the Company in 1985, Mr. Weiss practiced
public accounting at the firm of Turner, Imowitz and Company.
Board Meetings and Committees of the Board
Board of Directors. During Fiscal 1996, the Board of Directors
met nine times and all directors attended more than 75% of the meetings and 100%
of their respective committee meetings.
Audit Committee. The Audit Committee met once during Fiscal
1996. Pursuant to Board of Directors' authorization, the Committee reviews with
the independent auditors and the Company's internal audit department the general
scope of their respective audit coverages. Such reviews include consideration of
the Company's accounting practices, business ethics and conflicts of interest
policies, procedures and system of internal accounting controls and any
significant problems encountered. The Audit Committee also recommends to the
Board of Directors the appointment of the Company's principal independent
auditors.
The Audit Committee advises the Board of Directors of its
activities and may present to the Board of Directors its recommendation and
conclusions as to any matters considered by the Audit Committee. At least
annually, the Audit Committee reviews the services performed and the fees
charged by the independent auditors engaged by the Company and determines that
the non-audit services rendered by the independent auditors do not compromise
their independence.
The independent auditors and the Company's internal audit
department have direct access to the Audit Committee and may discuss with it any
matters which may arise in connection with audits, the maintenance of internal
accounting controls or any other matters relating to the Company's financial
affairs. Furthermore, the Audit Committee may authorize the independent auditors
to investigate any matters which the Audit Committee deems appropriate any may
present its recommendations and conclusions to the Board of Directors.
The Audit Committee is currently composed of Mr. Hochman
(Chairperson), Ms. Morgenthau and Mr. Pietrangelo.
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Executive Compensation Committee. The Executive Compensation
Committee reviews the Company's executive compensation policies and practices
each year and approves the compensation of senior officers. The Committee's
approval of the compensation of the chief executive officer and other employee
directors are reviewed with and approved by all of the directors.
The Executive Compensation Committee is currently composed of
Ms. Morgenthau (Chairperson), Mr. Hochman and Mr. Pietrangelo.
Nominating Committee. The Board of Directors does not
presently have a nominating committee.
Stock Option Committee. The Stock Option Committee administers
the Amended and Restated 1986 Employee Stock Option Plan. The Stock Option
Committee members are not eligible to receive options. Options may be granted at
such times and in such amounts as may be determined by the Stock Option
Committee.
The Stock Option Committee is currently composed of Mr.
Pietrangelo (Chairperson), Mr. Hochman and Ms. Morgenthau.
Directors Remuneration. Employee directors receive no
additional compensation for service on the Board of Directors or its committees.
Each non-employee director receives an annual retainer fee in the amount of
$15,000 together with a fee in the amount of $500 for each meeting of the Board
of Directors attended and related out-of-pocket expenses.
Compensation Committee Interlocks and Insider Participation
The Executive Compensation Committee and Stock Option
Committee consist of Mr. Hochman, Ms. Morgenthau and Mr. Pietrangelo, none of
whom are former or current officers or employees of the Company or any of its
subsidiaries, other than Mr. Pietrangelo who served as President and Chief
Operating Officer of the Company from July 1989 through April 1990. No executive
officer of the Company serves as an officer, director or member of a
Compensation Committee of any entity for which any of the persons serving on the
Board of Directors of the Company or on the executive Compensation Committee or
Stock Option Committee of the Company is an executive officer.
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Executive Compensation
The following table sets forth information for the past three
years for the Chief Executive Officer, the other four most highly compensated
executive officers of the Company, the former President and Chief Executive
Officer of Western Publishing Company, Inc. and the former Senior Vice
President, Finance and Administration of Western Publishing Company, Inc.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
--------------------------
Annual Long-Term
Compensation Compensation
-------------------- ------------
Securities
Fiscal Underlying All Other
Name and Principal Position Year Salary ($) Bonus ($) Options(#)(4) Compensation ($)(5)
- --------------------------- ------ ---------- --------- ------------- -------------------
<S> <C> <C> <C> <C> <C>
Richard A. Bernstein 1996 540,000 -- -- 12,533
Chairman and Chief Executive Officer of Western 1995 540,000 -- 30,000 12,706
Publishing Group, Inc.; Chairman of Western Publishing 1994 529,231 -- -- 15,133
Company, Inc.; Chairman, President and
Chief Executive Officer of Penn Corporation
John F. Moore(1) 1996 269,750 -- 300,000 79,060
Former President and Chief Executive Officer of
Western Publishing Company, Inc.
Steven M. Grossman(2) 1996 207,000 -- -- 10,044
Executive Vice President, Treasurer 1995 201,179 -- 30,000 7,720
and Chief Financial Officer of 1994 96,701 -- -- 4,334
Western Publishing Group, Inc.
James A. Cohen(2) 1996 212,500 -- -- 10,044
Senior Vice President, Legal Affairs of 1995 196,809 -- 25,000 10,044
Western Publishing Group, Inc. 1994 141,317 -- -- 9,107
Ira A. Gomberg(2) 1996 238,500 -- -- 10,044
Vice President, Business Development and 1995 237,558 -- 25,000 10,044
Corporate Communications of 1994 178,605 -- -- 10,649
Western Publishing Group, Inc.
Ilan K. Reich(2) 1996 212,500 -- -- 8,657
Vice President, Special Projects of 1995 196,481 -- 25,000 8,657
Western Publishing Group, Inc. 1994 149,817 -- -- 7,723
Bruce A. Bernberg(3) 1996 230,000 25,000 25,000 12,741
Former Senior Vice President, Finance and 1995 230,000 -- 15,000 13,861
Administration of Western Publishing Company, Inc. 1994 230,000 23,650 -- 15,983
</TABLE>
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- --------------
(1) Mr. Moore joined the Company in May, 1995 and resigned
effective January 26, 1996.
(2) Salaries of Messrs. Grossman, Cohen, Gomberg and Reich are
allocated among the Company and unaffiliated businesses
based upon the services rendered to each entity. As
described under "THE PROPOSALS-- Interests of Certain
Persons in the Transactions-- Severance and Management
Arrangements," Messrs. Grossman, Cohen, Gomberg and Reich
will each receive severance payments of $375,000 upon the Closing.
(3) Effective February 16, 1996, Mr. Bernberg retired from the Company.
(4) Options to acquire shares of Common Stock.
(5) Includes amounts contributed by the Company as matching contributions
equal to 60% of the first 6% of earnings (to a maximum Company
contribution of $5,544) and a 3% annual Company contribution based on
employee's annual compensation (up to the Internal Revenue Service
limitation of $150,000 of compensation) to the Golden Comprehensive
Security Program (the "Program"). In calendar year 1995, contributions
to the Program with respect to Messrs. Bernstein, Grossman, Cohen,
Gomberg, Reich and Bernberg were $10,044, $10,044, $10,044, $10,044,
$8,657 and $9,257, respectively. In calendar year 1994, contributions
to the Program with respect to Messrs. Bernstein, Grossman, Cohen,
Gomberg, Reich and Bernberg were $10,044, $7,720, $10,044, $10,044,
$8,657 and $9,914, respectively. In calendar year 1993, contributions
to the Program with respect to Messrs. Bernstein, Grossman, Cohen,
Gomberg, Reich and Bernberg were $12,471, $4,334, $9,107, $10,649,
$7,723 and $12,296, respectively.
In addition, the following amounts were paid or accrued during the last
three years pursuant to the Executive Medical Reimbursement Plan and
the excess life insurance program:
In calendar year 1995, the Executive Medical Reimbursement Plan paid
premiums for each of Messrs. Bernstein, Moore and Bernberg of $1,800,
$750 and $1,800, respectively. During the same period, the Company paid
excess life insurance premiums for Messrs. Bernstein, Moore and
Bernberg of $689, $402 and $680, respectively. In calendar year 1994,
the Executive Medical Reimbursement Plan paid premiums for each of
Messrs. Bernstein and Bernberg of $1,800. During the same period, the
Company paid excess life insurance premiums for Messrs. Bernstein and
Bernberg of $862 and $1,152,
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respectively. In calendar year 1993, the Executive Medical
Reimbursement Plan paid premiums for each of Messrs. Bernstein and
Bernberg of $1,800. During the same period, the Company paid excess
life insurance premiums for each of Messrs. Bernstein and Bernberg of
$862.
In calendar years 1995, 1994 and 1993, $995, $995 and $1,025,
respectively, was paid to Mr. Bernberg for financial planning
assistance.
In accordance with his employment agreement, Mr. Moore was entitled to
the reimbursement of moving expenses which amounted to $77,908,
including the related income tax gross up.
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<TABLE>
<CAPTION>
OPTION GRANTS IN THE LAST FISCAL YEAR
Individual Grants
------------------------------
Number of Percent of Total Potential Realizable Value at
Securities Options Assumed Annual Rates of Stock
Underlying Granted To Appreciation For Option Term(3)
Options Employees In Exercise Price Expiration -------------------------------
Name Granted (#) Fiscal Year $/Share Date 5% 10%
---- ----------- ---------------- -------------- ---------- ---- -----
<S> <C> <C> <C> <C> <C> <C>
John F. Moore 150,000 31.8% $ 9.50 5/30/97(2) 95,000 190,000
150,000 31.8% $13.50 5/30/97(2) 135,000 270,000
Bruce A. Bernberg(1) 25,000 5.3% $11.75 3/17/96 13,464 26,927
- ------------
</TABLE>
(1) The options granted to Mr. Bernberg were immediately vested on the
date granted. As Mr. Bernberg retired effective February 16, 1996,
these options will expire pursuant to their terms on March 17, 1996.
(2) In accordance with his employment agreement, Mr. Moore was granted
options to acquire 300,000 shares of Common Stock (150,000 shares at an
exercise price of $9.50 and 150,000 shares at an exercise price of
$13.50). The options granted vested 1/5 per year beginning on the first
anniversary of the grant. On January 25, 1996, the aforementioned
options were cancelled. Simultaneously, new options to acquire 300,000
shares of Common Stock (150,000 shares at an exercise price of $9.50
and 150,000 shares at an exercise price of $13.50) were granted. The
market value of the underlying securities at January 25, 1996 was
$9.375. These options were immediately vested on the date granted and
expire May 30, 1997. The new options were granted to Mr. Moore in
consideration for his waiving all benefits under his employment
agreement upon his termination of employment.
(3) The dollar gains under these columns result from calculations assuming
5% and 10% growth rates and are not intended to forecast future price
appreciation of Common Stock of the Company. The gains reflect a future
value based upon growth at these prescribed rates. The Company is not
aware of any formula which will determine with reasonable accuracy a
present value based on future unknown or volatile factors.
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AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END VALUE
<TABLE>
<CAPTION>
Value of Unexercised
Number of Unexercised Options In-The-Money Options At
Shares Held at February 3, 1996(#) February 3, 1996(1)
Acquired on Value ------------------------------ ------------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ----------- ----------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Richard A. Bernstein.......... -- -- 32,500 35,000 -- --
John F. Moore................. -- -- 300,000 -- $206,250 --
Steven M. Grossman............ -- -- 20,000 17,500 -- --
James A. Cohen................ -- -- 36,667 23,333 -- $4,375
Ira A. Gomberg................ -- -- 36,667 23,333 -- 4,375
Ilan K. Reich................. -- -- 21,667 23,333 -- 4,375
Bruce A. Bernberg............. -- -- 42,500 12,500 21,875 --
</TABLE>
- -------------
(1) Market value of underlying securities at February 3, 1996 was $10.875.
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Certain Transactions
In Fiscal 1996, the Company paid P&E Properties, Inc. ("P&E
Properties"), a corporation owned by Mr. Bernstein, approximately $290,000 to
reimburse P&E Properties for the use of an airplane owned by P&E Properties.
When commercially available flights are available to the destination, the
Company reimburses P&E Properties at the rate of the normal first class fare.
When commercial flights are not available, the Company reimburses P&E Properties
at an amount equal to the hourly variable operating costs of the airplane, times
the number of hours of use. The Company also reimburses P&E Properties for
out-of-pocket expenditures made by P&E Properties on the Company's behalf.
Salaries are paid by P&E Properties to Mr. Bernstein and
certain other officers whose services are rendered to P&E Properties. Salaries
paid to such persons were not related to services performed by P&E Properties
for the Company. None of the services provided by P&E Properties to the Company
were provided pursuant to a written agreement. The Company believes that the
terms of its transactions with P&E Properties were no less favorable than could
have been obtained from unaffiliated third parties on an arm's-length basis.
During Fiscal 1996, the Company provided a bridge loan to Mr.
John F. Moore, former President and Chief Executive Officer of Western
Publishing Company, Inc., a wholly-owned subsidiary of the Company ("Western"),
in the amount of $620,000 for the purchase of a primary residence in Racine,
Wisconsin. Such loan and accrued interest at the applicable federal rate was
repaid following the closing of the sale of Mr. Moore's former primary residence
in September, 1995.
In Fiscal 1996, Western agreed to license six properties owned
or licensed by Western to Powerhouse Entertainment Company, Inc. ("Powerhouse"),
a corporation affiliated with Mr. Bernstein, pursuant to which Powerhouse would
develop certain interactive CD-ROM storybooks and other computer software
products (the "Products") based upon these properties. Under the terms of the
arrangement, all development costs would be incurred by Powerhouse, the
Products' content, packaging and design would be subject to Westerns' approval
and Western would be paid a royalty based upon the net proceeds of the sales of
the Products. The Company believes that the terms of this arrangement with
Powerhouse were no less favorable than could be obtained from unaffiliated third
parties on an arms'-length basis.
Concurrent with the execution of the Securities Purchase
Agreement and the Transactions contemplated thereby, Western and Powerhouse
entered into an agreement relating to the existing arrangement between
Powerhouse and Western (the "Powerhouse Agreement"). The Powerhouse Agreement
provides,
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<PAGE>
among other things, that, immediately after the Closing, Western will exercise
one of three options (the "Options"), such chosen Option to replace and
supersede the existing arrangement in its entirety. Under the Options, any one
of which may be selected by the Company, (i) the existing arrangement could
continue in full force and effect; (ii) the existing arrangement could be
terminated, the Products destroyed and Powerhouse reimbursed its development
costs and expenses; or (iii) upon the completion of the development of the
Products, Western acquires the Products from Powerhouse and pays a royalty to
Powerhouse for the use of its proprietary software technology.
As described under "THE PROPOSALS -- Interests of Certain
Persons in the Transactions -- Severance and Management Arrangements," P&E
Properties will receive a payment of $1.2 million upon the Closing pursuant to a
management agreement with the Company to provide services (including finance and
accounting, cash management, real estate matters, labor negotiations and
corporate administration) as requested from time to time by Mr. Snyder for a
period of 180 days following the Closing.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), requires the Company's executive officers,
directors and persons who own more than ten percent of a registered class of the
Company's equity securities ("Reporting Persons") to file reports of ownership
and changes in ownership on Forms 3, 4 and 5 with the SEC. These Reporting
Persons are required by SEC regulation to furnish the Company with copies of all
Forms 3, 4 and 5 they file with the SEC. Based solely on the Company's review of
the copies of the forms it has received and written representations from certain
Reporting Persons, the Company believes that all of its Reporting Persons
complied with all filing requirements applicable to them with respect to
transactions during calendar year 1995.
AMENDMENTS TO 1995 STOCK OPTION PLAN (Proposal No. 3)
On July 19, 1995, the Board of Directors adopted, subject to
stockholder approval, the 1995 Stock Option Plan (the "Stock Option Plan") to
serve as a replacement for the 1986 Employee Stock Option Plan. Stockholders
approved the adoption of the Stock Option Plan at the 1995 Annual Meeting of
Stockholders of the Company.
In connection with the Board of Directors' approval of, and as
contemplated by, the Securities Purchase Agreement, the Board of Directors
adopted the following amendments to the Stock Option Plan (the "Amendments"),
subject to stockholder approval and to the consummation of the Transactions
under the Securities Purchase Agreement: (1) an increase in the number of
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shares of Common Stock available for the grant of options by 1,500,000
(including the formula grant feature for non-employee directors of the Company
referred to below); (2) an increase in the maximum number of shares of Common
Stock for which options may be granted to any person in any one calendar year to
1,500,000; (3) permitting the Stock Option Committee (as defined below) to
determine the meaning of the term "cause" as used in the Stock Option Plan on a
grant-by-grant basis; and (4) a formula option grant feature for non-employee
directors of the Company. The Amendments will enable the Company to grant stock
options to Mr. Snyder as contemplated by the Snyder Employment Agreement at the
Closing (see "THE PROPOSALS -- Interests of Certain Persons in the Transactions
- -- Snyder Employment Arrangements"), and will also increase the number of shares
available for the grant of options to key employees following the Closing.
The formula grant feature will provide for the grant of a
non-qualified stock option to purchase 5,000 shares of Common Stock to each
non-employee director of the Company on the date of Closing. Thereafter, on the
date that a person first becomes a non-employee director, he or she will
automatically be granted a non-qualified stock option to purchase 5,000 shares
of Common Stock. The formula grant feature also will provide for the annual
automatic grant of an option to purchase 3,000 shares of Common Stock to each
non-employee director on the date of each annual meeting of stockholders of the
Company following such individual's first becoming a non-employee director. Each
such option granted to a non-employee director will have an exercise price per
share equal to the fair market value of the Common Stock on the date of grant,
will be fully vested and exercisable as of the date of grant and will have a
term of ten years.
Approval of the adoption of the Amendments at the Special
Meeting is a condition to the consummation of the Transactions under the
Securities Purchase Agreement and is necessary to effectuate elements of the
Snyder Employment Arrangements. See "SECURITIES PURCHASE AGREEMENT -- Conditions
to Closing." The Amendments will be abandoned and the Stock Option Plan will not
be so amended, even if adoption of the Amendments is approved by the
stockholders at the Special Meeting, if the Transactions are not consummated for
any reason.
Description of the Stock Option Plan
The Stock Option Plan currently provides for the issuance of
options to purchase up to an aggregate of 750,000 shares of Common Stock. The
Stock Option Plan provides for the granting of options intended to qualify as
incentive stock options as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), and non-qualified stock options to key
employees of the Company or its subsidiaries, including officers and employee
directors of the Company or its
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subsidiaries who are also employees, and to consultants who perform services for
the Company or its subsidiaries. Currently, no person may receive in any one
calendar year options to purchase more than 500,000 shares of Common Stock.
The Stock Option Plan is administered by a disinterested
committee appointed by the Board of Directors which is comprised of at least two
disinterested members of the Board of Directors (the "Stock Option Committee").
Among other things, the Stock Option Committee determines, subject to the
provisions of the Stock Option Plan, the key employees and consultants to whom
options should be granted, the nature of the options to be granted, the number
of options to be granted and the exercise price, the vesting schedule and the
term of the options and all other conditions and terms of the options to be
granted. The number of grantees may vary from year to year. It is not possible
to state in advance the exact number or identity of the grantees or the amounts
of the grants. To date, no options have been granted under the Stock Option
Plan. For information concerning stock options to be granted to Mr. Snyder
pursuant to the Snyder Employment Agreement following the Closing, see "THE
PROPOSALS -- Interests of Certain Persons in the Transactions -- Snyder
Employment Arrangements."
The exercise price of incentive stock options granted under
the Stock Option Plan may not be less than the fair market value of the shares
at the time the option is granted. The exercise price of non-qualified stock
options granted under the Stock Option Plan may not be less than 85% of the fair
market value of the shares at the time the option is granted. An optionee may
pay the option price in cash or, if permitted by the Stock Option Committee, by
delivering to the Company shares of Common Stock that have a fair market value
equal to the option price or a combination of cash and shares. Shares may not be
issued or transferred upon the exercise of an option until the option price is
paid in full.
Options generally become exercisable over such period as the
Stock Option Committee may prescribe, and expire no later than ten years from
the date of grant, subject to earlier termination on the optionee's termination
of employment or relationship with the Company. The Stock Option Committee may
accelerate the exercisability of any outstanding stock options, at any time or
upon the occurrence of any event. Options are not assignable or otherwise
transferable other than by will or the laws of descent and distribution, except
that the Stock Option Committee may permit transfers by an optionee to his
family members. Shares subject to options granted under the Stock Option Plan
that have lapsed or terminated may again be subject to options granted under the
Stock Option Plan. Furthermore, the Stock Option Committee may offer to exchange
new options for existing options, with the shares subject to the existing
options again being available for grant under options.
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The Board of Directors may amend or terminate the Stock Option
Plan at any time; provided that approval by the stockholders of the Company will
be obtained if necessary or desirable to comply with applicable law.
Federal Income Tax Consequences to Optionees
For federal tax purposes, an optionee is not subject to tax
upon the grant of an option. If the option is not an incentive stock option, the
optionee will generally recognize ordinary income at the time of exercise of the
option in an amount equal to the difference between the fair market value of the
shares and the exercise price. A subsequent sale of the shares will result in a
capital gain or loss. If the option is an incentive stock option, the optionee
will generally not recognize income until the sale of the shares. If the shares
are held for the requisite holding periods, then all gain on the sale will be
treated as long-term capital gain. If the requisite holding periods are not
satisfied (a "disqualifying disposition"), then the portion of the gain equal to
the difference between the market value of the shares at the time of exercise
and the exercise price will generally be treated as ordinary income. The Company
will be entitled to a tax deduction in an amount corresponding to any ordinary
income recognized by the optionee.
Federal Income Tax Consequences to the Company
The Company will generally be entitled to a deduction for
federal income tax purposes at the same time and in the same amount as an
optionee is required to recognize ordinary income as described above. To the
extent an optionee realizes capital gains as described above, the Company will
not be entitled to any deduction for federal income tax purposes. Therefore, the
Company will not be entitled to any tax deduction in connection with incentive
stock options with respect to which there is no disqualifying disposition.
The Company believes that compensation attributable to options
granted under the Stock Option Plan at a price at least equal to the fair market
value of the underlying option shares at the date of grant may reasonably be
treated as performance-based compensation and will not be subject to the
limitations contained in Section 162(m) of the Code on the deductibility of
non-performance related compensation paid to certain corporate executives in
excess of $1 million in any taxable year. For a
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discussion of Section 162(m) of the Code, see "EXECUTIVE OFFICER BONUS PLAN."
---------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE FOR APPROVAL OF THE ADOPTION OF THE
AMENDMENTS TO THE STOCK OPTION PLAN.
---------------
EXECUTIVE OFFICER BONUS PLAN (Proposal No. 4)
In connection with the Board of Directors' approval of, and as
contemplated by, the Securities Purchase Agreement, the Compensation Committee
of the Board of Directors (the "Compensation Committee") adopted the Executive
Officer Bonus Plan (the "Bonus Plan"), subject to stockholder approval and to
the consummation of the Transactions under the Securities Purchase Agreement.
The Bonus Plan will enable the Company, through the Compensation Committee, to
award bonuses to Mr. Snyder under the Bonus Plan as contemplated by the Snyder
Employment Agreement following the Closing (see "THE PROPOSALS -- Interests of
Certain Persons in the Transactions--Snyder Employment Arrangements"), as well
as to other executive officers of the Company following the Closing.
Approval of the adoption of the Bonus Plan by the Compensation
Committee is a condition to the consummation of the Transactions under the
Securities Purchase Agreement. See "SECURITIES PURCHASE AGREEMENT -- Conditions
to Closing." The Bonus Plan will be abandoned and no awards thereunder will be
made, even if adoption of the Bonus Plan is approved by the stockholders at the
Special Meeting, if the Transactions are not consummated for any reason.
The Bonus Plan has been structured, and its adoption has been
made subject to stockholder approval, in order to assure that the Company will
be able to deduct bonus payments to Mr. Snyder as contemplated by the Snyder
Employment Agreement and to other executive officers under the Bonus Plan. In
1993, the Code was amended to add Section 162(m), which precludes the Company
from taking a tax deduction for individual compensation in excess of $1 million
to each of the Company's highest paid executives. There are, however, certain
exceptions to this limitation, specifically for compensation that is
performance-based within the meaning of Section 162(m) and approved by the
stockholders. Accordingly, in order to qualify the Bonus Plan under Section
162(m) of the Code and maximize the deductibility by the Company of bonus
payments made to executive officers (including Mr. Snyder), the Compensation
Committee directed that the Bonus Plan be submitted to the stockholders of the
Company for their approval at the Special Meeting.
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Terms of the Bonus Plan
The following is a summary of certain provisions of the Bonus
Plan, which is attached as Appendix VII to this Proxy Statement and is
incorporated herein by reference. Such summary is qualified in its entirety by
reference to the Bonus Plan.
The purpose of the Bonus Plan is to advance the interests of
the Company and its stockholders by providing incentives in the form of periodic
cash bonus awards to certain senior executive officers of the Company.
The Bonus Plan will be administered by the Compensation
Committee, as such committee is from time to time constituted. The Compensation
Committee may delegate its duties and powers in whole or in part to any
subcommittee thereof consisting solely of at least two "outside directors," as
defined under Section 162(m) of the Code and Treasury Regulations promulgated
thereunder.
The Compensation Committee has the exclusive authority to
select the senior executives of the Company (a "Participant") to be granted
bonus awards ("Bonuses") under the Bonus Plan, to determine the size and terms
of the Bonus to be made to each individual selected, to modify the terms of any
Bonus that has been granted (except with respect to any modification which would
increase the amount of compensation payable to a "Covered Employee," as such
term is defined in Section 162(m) of the Code), to determine the time when
Bonuses will be awarded, to establish performance objectives in respect to
Bonuses and to certify that such performance objectives were attained. The
Compensation Committee is authorized to interpret the Bonus Plan, to establish,
amend and rescind any rules and regulations relating to the Bonus Plan, and to
make any other determinations which it deems necessary or desirable for the
administration of the Bonus Plan.
The Compensation Committee may in its discretion award a Bonus
to a Participant for any fiscal year of the Company (a "Year"). The amount of a
Participant's Bonus shall be an amount (the "Maximum Bonus") determinable from
written performance goals approved by the Committee not later than 90 days
following the beginning of the Year to which such goals relate and while the
outcome is substantially uncertain. The performance goals and formula applicable
to each affected Participant shall be set forth in a written schedule
established by the Compensation Committee (the "Bonus Schedule"). The
performance goals must be objective and based on actual versus budgeted earnings
before interest, income taxes, depreciation and amortization. The Bonus Schedule
shall specify the manner in which the Maximum Bonuses shall be determined if the
performance goals are met and the period or periods to which the performance
goals apply. The performance goals and Maximum Bonus applicable to any affected
Participant may be adjusted in such manner as the Compensation
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Committee determines to be proper and may be made without a loss of
deductibility of Bonuses under Section 162(m) of the Code. The amount of the
Bonus actually paid to any affected Participant may be less than the Maximum
Bonus at the discretion of the Compensation Committee, but shall be no greater
than the amount of such Participant's Maximum Bonus. No awards may be made under
the Bonus Plan until following the Closing. Notwithstanding any other provision
of the Bonus Plan to the contrary, however, in no event may a Participant's
Maximum Bonus for any Year under the Bonus Plan exceed $2 million. If the
Company were nevertheless to decide to pay a larger bonus, a portion thereof may
not be deductible under Section 162(m).
The Plan may be amended or suspended in whole or in part at
any time and from time to time, or may be terminated at any time, by the
Compensation Committee. Amendments will require stockholder approval only if
required under Section 162(m) of the Code.
Federal Income Tax Consequences
Under present federal income tax law, Participants will
realize ordinary income equal to the amount of the Bonus received in the year of
receipt. The Company will receive a deduction for the amount constituting
ordinary income to the Participant, provided that the Bonus Plan satisfies the
requirements of Section 162(m) of the Code. It is the Company's intention that
the Bonus Plan be adopted and administered in a manner that maximizes the
deductibility of compensation for the Company under Section 162(m) of the Code.
---------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
APPROVAL OF THE ADOPTION OF THE BONUS PLAN.
---------------
CHARTER AMENDMENTS
The proposed amendments to the Restated Certificate set forth
in the foregoing Notice of Special Meeting of Stockholders (the "Charter
Amendments") have been approved by the Board of Directors and are being
submitted to a vote of the stockholders of the Company pursuant to the
requirements of the Securities Purchase Agreement. However, approval of the
Charter Amendments by the stockholders is not a condition to the consummation of
the Transactions under the Securities Purchase Agreement. See "SECURITIES
PURCHASE AGREEMENT -- Conditions to Closing." None of the Charter Amendments
will be effected, even if adopted by the stockholders at the Special Meeting, if
the Transactions are not consummated for any reason.
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Approval of the Charter Amendments by the stockholders shall
be deemed also to constitute approval of a resolution authorizing the Board of
Directors, at any time prior to the filing of the Charter Amendments with the
Delaware Secretary of State, to abandon any such proposed amendment without
further action by the stockholders, in connection with the termination of the
Securities Purchase Agreement or otherwise, notwithstanding approval of such
amendment by the stockholders of the Company at the Special Meeting. Reference
is made to Appendix VIII to this Proxy Statement, which is incorporated by
reference herein and sets forth the full text of the Charter Amendments.
AMENDMENT TO CHANGE THE NAME OF THE COMPANY (Proposal No. 5)
The Board of Directors has adopted an amendment to Article
First of the Restated Certificate that, subject to stockholder approval, changes
the name of the Company to "Golden Books Family Entertainment, Inc." This is the
name under which GPH intends to operate the business of the Company following
the Closing. The Company has been advised by GPH that, in the view of Mr. Snyder
and GPH, the proposed name change will be of benefit to the Company and its
stockholders in view of the Company's well-known GOLDEN BOOKS(R) trademark.
---------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A
VOTE FOR ADOPTION OF THE PROPOSED AMENDMENT TO
CHANGE THE NAME OF THE COMPANY TO "GOLDEN BOOKS FAMILY
ENTERTAINMENT, INC."
---------------
AMENDMENTS TO INCREASE THE AUTHORIZED COMMON AND
PREFERRED STOCK (Proposal Nos. 6 and 7)
The Restated Certificate currently authorizes the issuance of
40,000,000 shares of Common Stock and 100,000 shares of preferred stock, without
par value (the "Preferred Stock"). As of April 9, 1996, 21,666,739 shares of
Common Stock were outstanding, 208,800 shares were held in treasury, 2,580,300
shares of Common Stock were reserved for issuance upon the exercise of options
granted and available for future grants under the Company's existing stock
option plans, and 416,042 shares were subject to the conversion privilege of the
Series A Preferred Stock (all of which will be redeemed at the Closing under the
Securities Purchase Agreement). In addition, as of the date of this Proxy
Statement, 19,970 shares of Preferred Stock were outstanding, representing the
shares of Series A Preferred Stock which will be redeemed at the Closing
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and will thereupon again constitute authorized and unissued shares of Preferred
Stock. In connection with the consummation of the Transactions, the Board of
Directors has reserved an additional 14,370,000 shares, including 6,500,000
shares issuable upon conversion of the Series B Convertible Preferred Stock,
3,120,000 shares issuable as stock dividends on the Series B Convertible
Preferred Stock, 3,250,000 shares issuable upon exercise of the Warrant and
1,500,000 additional shares available for the grant of options under the Stock
Option Plan. See "SECURITIES PURCHASE AGREEMENT -- Terms of the Series B
Convertible Preferred Stock" and "-- Terms of the Warrant" and "AMENDMENTS TO
1995 STOCK OPTION PLAN." Accordingly, giving effect to the consummation of the
Transactions contemplated by the Securities Purchase Agreement, a balance of
1,382,961 authorized shares of Common Stock and 87,000 authorized shares of
Preferred Stock will be available to the Board of Directors for future stock
issuances.
The Board of Directors has adopted an amendment to Article
Fourth of the Restated Certificate that, subject to stockholder approval,
increases the authorized number of shares of Common Stock to 60,000,000 and
increases the authorized number of shares of Preferred Stock to 200,000. The
Board of Directors believes that the authorization of such additional shares of
Common and Preferred Stock is appropriate in order to provide added flexibility
for future corporate purposes, which may include capital and financing needs,
stock distributions and stock splits, business acquisitions, management
incentive and employee benefit plans and other general corporate purposes. The
increase in the number of authorized shares of Common and Preferred Stock will
permit the Board of Directors to approve the issuance of additional shares of
Common Stock or Preferred Stock if warranted without the need for further action
by stockholders to authorize such shares, subject to present or future
requirements of any stock exchange upon which the Common Stock may be listed
(including the rules of the NASD governing corporations (such as the Company)
with securities quoted on the Nasdaq National Market) and applicable law.
Currently, the rules of the NASD require stockholder approval by a majority of
the total votes cast in person or by proxy prior to the issuance of designated
securities by an issuer with securities quoted on the Nasdaq National Market (1)
where the issuance would result in a change of control of the issuer, (2) in
connection with the acquisition of the stock or assets of another company if an
affiliate of the issuer has certain interlocking interests with the company to
be acquired or where the issuer issues more than 20% of its currently
outstanding shares or (3) in connection with a transaction, other than a public
offering, involving the sale or issuance of more than 20% of the common stock or
voting power outstanding before the issuance. The Board of Directors believes
that the availability of such additional shares of Common and Preferred Stock
would enable the Company to act promptly to take
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advantage of various corporate opportunities as such opportunities arise
without the delay or cost of calling a special meeting of stockholders.
The additional authorized shares of Common Stock and Preferred
Stock could also conceivably be issued to make any attempt to acquire control of
the Company more difficult and costly and thereby discourage attempts to acquire
the Company. For example, additional shares of Common Stock or Preferred Stock
could be sold in private placement transactions to purchasers who support the
Board of Directors and who are opposed to a takeover bid which the Board of
Directors believes is not in the best interests of the Company and its
stockholders. Additionally, the Board of Directors could authorize holders of a
series of Preferred Stock to vote either separately as a class or with the
holders of the Common Stock on any merger, sale or exchange of assets by the
Company or any other extraordinary corporate transaction. Additional shares of
Common Stock or shares of Preferred Stock convertible into Common Stock could
also be issued to increase the aggregate number of outstanding shares of Common
Stock, thereby diluting the interest of parties attempting to obtain control of
the Company. If an issuance of additional shares of Common or Preferred Stock is
made on other than a pro rata basis to all stockholders, dilution of ownership
interest and voting power of existing stockholders may occur and, depending on
the consideration for which the shares were issued, could dilute earnings per
share.
There are at present no plans or arrangements concerning the
issuance of additional shares of Common Stock or Preferred Stock, except
pursuant to outstanding stock options and employee benefit plans and the Series
A Preferred Stock (which will be redeemed at the Closing), and except as
contemplated by the Securities Purchase Agreement and the Snyder Employment
Arrangements (see "THE PROPOSALS -- Interests of Certain Persons in the
Transactions -- Snyder Employment Arrangements"). If any plans or arrangements
are made concerning the issuance of any such shares, holders of the then
outstanding shares of Common Stock or Preferred Stock may or may not be given
the opportunity to vote thereon, depending upon the nature of any such
transaction, the law applicable thereto, the policy of any stock exchange
(including the NASD) upon which the shares of Common Stock may be listed at such
time and the judgment of the Board of Directors.
None of the outstanding shares of any class of capital stock
of the Company has preemptive rights or cumulative voting rights. The proposed
amendment would not change the terms and conditions of any outstanding shares of
Common Stock. Each certificate representing shares of Common Stock outstanding
immediately prior to the effective date of the proposed amendments, if they are
adopted by the stockholders at the
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Special Meeting, would remain outstanding and represent the same number of
shares of Common Stock as before such effective date.
---------------
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
ADOPTION OF THE PROPOSED AMENDMENTS TO INCREASE THE
AUTHORIZED COMMON AND PREFERRED STOCK.
---------------
STOCKHOLDER PROPOSALS FOR THE 1996 ANNUAL MEETING
Any proposal of a stockholder intended to be presented at the
Company's 1996 Annual Meeting of Stockholders must have been received by the
Secretary of the Company by January 3, 1996 for inclusion in the notice of
meeting and proxy statement relating to the 1996 Annual Meeting.
INDEPENDENT AUDITORS
The consolidated financial statements of the Company and its
subsidiaries at February 3, 1996 and January 28, 1995 and for each of the three
fiscal years in the period ended February 3, 1996 included in this Proxy
Statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report (which report expresses an unqualified opinion and
includes an explanatory paragraph relating to the change in fiscal 1994 in the
method of accounting for postretirement benefits other than pensions to conform
with Statement of Financial Accounting Standards No. 106) which appears
elsewhere in this Proxy Statement.
Deloitte & Touche LLP has served as the Company's independent
auditors since its incorporation in 1984. Representatives of Deloitte & Touche
LLP will attend the Special Meeting and will have an opportunity to make a
statement and to respond to appropriate questions from stockholders.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of
the Exchange Act. In accordance therewith, the Company files reports, proxy
statements and other information with the SEC. Reports, proxy statements and
other information filed by the Company can be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Regional Offices of the Commission at Seven
World Trade Center, New York, New York 10048, and Northwest Atrium Center, 500
West Madison Street, Chicago, Illinois 60621. Copies of such material can be
obtained from the Public Reference Section of the SEC at
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prescribed rates by writing to the SEC at 450 Fifth Street, N.W., Washington,
D.C. 20549.
By Order of the Board of Directors,
James A. Cohen
Secretary
April __, 1996
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the audited
consolidated financial statements of the Company for the three fiscal years
ended February 3, 1996 and related notes thereto appearing above.
Fiscal Year Ended February 3, 1996 (Fiscal 1996)
Compared to Fiscal Year Ended January 28, 1995 (Fiscal 1995)
Revenues for the year ended February 3, 1996 decreased $28.3 million (7.0%)
to $374.3 million as compared to $402.6 million for the year ended January 28,
1995. Consumer Products Segment revenues decreased $33.9 million (9.8%) for the
year. The decrease resulted from the decline in unit and dollar sales of the
Company's interactive electronic storybooks and products reflecting the
competitive environment, the maturity of certain older formats, and the price
reductions implemented by the Company on a number of formats in the third
quarter of Fiscal 1996 in an effort to further reduce its inventory of these
products. In addition, the Company experienced lower sales in its paper
tableware and party goods division as the performance of certain licensed
products declined in comparison to the prior year. The reduced productivity of
these licensed products is attributable to their declining popularity with the
consumer as these products approach maturity and in light of the Fiscal 1996
performance of certain licenses utilized by competitors. Sales in the Company's
other core Consumer Products categories, including picture, color and activity
books rebounded in the fourth quarter, in comparison to the comparable period of
the prior year, and concluded Fiscal 1996 with minor increases over the prior
year. All product categories utilizing licenses associated with major motion
pictures released in Fiscal 1996 experienced lower sales as compared to products
utilizing major motion picture releases in Fiscal 1995. Further, the minor sales
increases of core products and decreases in sales of non-core products resulted,
in part, from financial setbacks at a number of the Company's regional mass
merchant customers and the non-quantifiable impact of the personnel distractions
resulting from the contemplated sale of a major interest in the Company and the
resulting change in management. Commercial product segment revenues which are
comprised of printing services, increased $5.6 million (9.9%) for the year ended
February 3, 1996. The increase for the year reflects double-digit growth in the
Company's graphic products and kit businesses, partially offset by a decline in
custom publishing sales.
Price decreases in the Consumer Products Segment were approximately 4%.
This decline primarily resulted from pricing adjustments of the Company's older
electronic storybook formats to reflect the ongoing competitive pressures in
this category and
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inventory reduction measures partially offset by minor price
increases in other product categories. Sales of printing services in the
Commercial Products Segment are the result of individual agreements entered
into with customers as to price and services performed. Accordingly, the effects
of inflation cannot be determined on the sales of printing services.
The loss before interest expense and income taxes for the year ended
February 3, 1996 was $42.9 million as compared to income of $2.5 million for the
year ended January 28, 1995. During Fiscal 1996, the Company recorded an $8.7
million provision for restructuring and closure of operations and an additional
gain of $2.0 million from its streamlining plan (the "Plan" or "streamlining
plan") as certain costs and expenses of implementing the Plan were less than
originally anticipated. During Fiscal 1995, the Company recorded a $20.4 million
gain on its streamlining plan and a $1.1 million reduction to the Company's
previously recorded provision for write-down of the Advertising Specialty
Division (the "Division"). Excluding the Fiscal 1996 and 1995 non-recurring
items, the loss before interest expense and income taxes increased $17.2
million. The increase was the result of a $12.3 million decrease in gross
profit, and a $4.9 million increase in selling, general and administrative
expenses.
Gross profit for the year ended February 3, 1996 was $92.9 million, as
compared to $105.1 million for the year ended January 28, 1995, a decrease of
11.7%. As a percentage of revenues, the gross profit margin decreased to 24.8%
for Fiscal 1996 as compared to 26.1% for Fiscal 1995. In the Consumer Products
Segment, gross profit decreased $13.8 million (14.1%) to $84.4 million for the
year ended February 3, 1996, as compared to the year ended January 28, 1995. As
a percentage of revenues, the Consumer Products Segment gross profit margin
decreased to 27.1% for Fiscal 1996 as compared to 28.5% for Fiscal 1995. A
portion of the decrease in gross profit margin for the year resulted from
unfavorable manufacturing variances as actual production was less than planned
due to the Company's lower sales level and its continued efforts to reduce
inventories.
Further, increased raw material prices for certain selling grades of paper,
certain price decreases in the Consumer Products Segment and the sell down of
inventory related to non-core discontinued product categories at less than
historical margins contributed to the decline in the gross profit margin. The
gross profit margin decline was mitigated by lower royalties as a percentage of
sales, reflecting a product mix shift from licensed to proprietary products. In
the Commercial Products Segment, the gross profit margin of printing services
increased to 13.4% in Fiscal 1996 from 12.0% in Fiscal 1995. The increase for
the year was due to lower unfavorable manufacturing variances.
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Selling, general and administrative expenses for the year ended February 3,
1996 increased $4.9 million (3.9%) to $129.0 million as compared to $124.1
million for the year ended January 28, 1995. The increase for the year is
primarily attributable to accelerated amortization of the Company's Storyland
racks as a result of the resumption of the operation of the Wal-Mart Storyland
program by Wal-Mart management at the beginning of the first quarter in Fiscal
1997 (see Financial Condition, Liquidity and Capital Resources). In addition,
Fiscal 1996 reflects a full year of depreciation of the Company's order
processing, customer service and inventory management system that was placed in
service during the fourth quarter of Fiscal 1995.
Interest expense for the year decreased $4.7 million to $12.9 million as
compared to $17.6 million in Fiscal 1995. The decrease was due to lower average
debt outstanding as the Company repaid all outstanding notes under its Revolving
Credit Agreement in the first quarter of Fiscal 1996, partially offset by higher
interest rates in the first quarter of Fiscal 1996 and the costs associated with
the Company's Receivable Purchasing Agreement. Total average outstanding debt
decreased to $152.8 million in Fiscal 1996 from $221.3 million in Fiscal 1995,
while average interest rates increased from 7.9% to 8.2%. The increase in
average interest rates resulted primarily from the increase in first quarter
short term rates and the composition of the average debt outstanding (see
Financial Condition, Liquidity and Capital Resources).
The Company's provision for income taxes was $11.3 million and $2.5 million
for the years ended February 3, 1996 and January 28, 1995, respectively. The
Fiscal 1996 provision includes a non-cash charge of $13.9 million, reflecting an
increase in the income tax valuation allowance as the future realization of
existing deductible temporary differences was uncertain. The effective income
tax rates from operations of 20.3% in Fiscal 1996 and 16.3% in Fiscal 1995 are
significantly below the Federal statutory rate due to losses incurred during
each year for which no tax benefit has been recognized. In Fiscal 1995, the
disproportionate provision was partially offset by permanent differences
relating to the sale of the Advertising Specialty Division. Profitable operating
results in subsequent years will benefit from an income tax provision rate which
will be lower than the statutory rate due to the reinstatement of deferred tax
assets for which valuation allowances have been established. At February 3,
1996, the Company had available net operating loss carryforwards of
approximately $65.9 million for Federal income tax purposes and approximately
$6.5 million for state income tax purposes. In addition, the Company had tax
credit carryforwards of approximately $3.7 million.
The loss for the year ended February 3, 1996, before the provision for
restructuring and closure of operations, the
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<PAGE>
additional gain on streamlining plan and the non-cash write-off of deferred
income taxes, was $46.4 million or $2.25 per share, compared to a loss of $18.4
million or $.91 per share, before the gain on streamlining plan, the adjustment
of the previously recorded provision for write-down of Division and the non-cash
write-off of deferred income taxes. During the year ended February 3, 1996, the
Company recorded net non-recurring charges of $20.6 million or $.98 per share
for the provision for restructuring and closure of operations, the additional
gain on streamlining plan and the non-cash write-off of deferred income taxes.
Therefore, the net loss for Fiscal 1996 was $67.0 million or $3.23 per share.
During the year ended January 28, 1995, the Company recorded non-recurring gains
of $21.5 million ($13.2 million, net of income taxes) or $.62 per share for the
Plan gain and the adjustment of the previously recorded provision for write-down
of Division and a non-cash charge of $12.4 million or $.59 per share for the
write-off of deferred income taxes. Therefore, the net loss for Fiscal 1995 was
$17.6 million or $.88 per share.
Fiscal Year Ended January 28, 1995 (Fiscal 1995)
Compared to Fiscal Year Ended January 29, 1994 (Fiscal 1994)
On May 12, 1993, the Company established a provision, including operating
losses through the expected disposition date, to write-down the assets of the
Advertising Specialty Division of its Penn Corporation subsidiary to net
realizable value. Further, on April 7, 1994, the Company announced the adoption
of a plan (the "Plan" or "streamlining plan") designed to improve its
competitive position and reduce its operating cost structure through the sale,
divestiture, consolidation or phase out of certain operations, properties and
products, and a reduction in its management, administrative and direct labor
workforces. The Plan included the sale of the game and puzzle operation, the
exit from direct marketing continuity clubs and school book club businesses, the
closure and sale of the Company's Fayetteville, North Carolina manufacturing and
distribution facility and streamlining the Company's publishing business so as
to focus on its core competencies. Therefore, subsequent to the Company's
quarter ended May 1, 1993, the results of operations do not include the results
of the Advertising Specialty Division and subsequent to January 29, 1994, the
results of operations do not include the results of those businesses and
facilities sold or closed as part of the Plan.
During the year ended January 28, 1995, the game and puzzle operation was
sold to Hasbro, Inc. for cash proceeds of $101.4 million; the sale of the
Advertising Specialty Division was completed for cash proceeds of $14.0 million;
the Direct Marketing Continuity Clubs business was sold for cash proceeds of
$10.2 million and the Company completed the sale of its School Book Club
business for cash proceeds of $4.3 million.
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<PAGE>
Revenues for the year ended January 28, 1995 decreased $214.1 million
(34.7%) to $402.6 million as compared to $616.7 million for the year ended
January 29, 1994. Excluding revenues of the operations disposed of under the
Plan, revenues decreased $76.3 million (15.9%) for the year ended January 28,
1995, as compared to the prior year. Consumer Products Segment revenues from
ongoing operations decreased $68.7 million (16.6%) for the year. The decline
resulted from lower sales of non-Western products after the management of the
Books 'R' Us program at Toys 'R' Us was assumed by Toys 'R' Us at the beginning
of Fiscal 1995; lower sales of interactive electronic storybooks as the growth
in new electronic storybook formats was offset by original formats approaching
maturity; and the continued reductions in retailers' on-hand inventories,
resulting in a slower order rate for restocking and future orders. Additionally,
the decrease for the year was further impacted by the decline in domestic
consumer product sales caused by distractions resulting from the previously
contemplated sale of the Company, market uncertainties and employee concerns
associated with announced and implemented overhead reduction measures and the
sales of certain of the Company's businesses as outlined in the Plan. Commercial
product segment revenues (other than revenues of the Advertising Specialty
Division) which are comprised of printing services, decreased $7.6 million
(11.7%) for the year ended January 28, 1995. The decline for the year was due to
decreases in sales of kits, services to third party software developers and
custom publishing.
Price increases in the Consumer Products Segment were approximately 3%.
Sales of printing services are the result of individual agreements entered into
with customers as to price and services performed. Accordingly, the effects of
inflation cannot be determined on the sales of printing services.
Income before interest expense and income taxes for the year ended January
28, 1995 was $2.5 million as compared to a loss of $47.1 million for the year
ended January 29, 1994. This improvement of $49.6 million was the result of a
$20.4 million gain on streamlining plan, a $1.1 million reduction to the
Company's previously recorded provision for write-down of the Advertising
Specialty Division, a $78.9 million decrease in selling, general and
administrative expenses and a $79.0 million decrease in gross profit. In
addition, operations for the year ended January 29, 1994 included a $28.2
million provision to write-down the carrying value of the assets of the
Advertising Specialty Division to their estimated net realizable value.
Gross profit for the year ended January 28, 1995 was $105.1 million, as
compared to $184.2 million for the year ended January 29, 1994, a decrease of
42.9%. As a percentage of revenues, the gross profit margin decreased to 26.1%
for Fiscal 1995 as compared to 29.9% for Fiscal 1994. For ongoing
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<PAGE>
operations, gross profit for Fiscal 1995 decreased $32.3 million (23.5%) to
$105.1 million, compared to $137.5 million in Fiscal 1994. As a percentage of
revenues, the gross profit margin decreased to 26.1% for Fiscal 1995 as compared
to 28.7% for Fiscal 1994. In the Consumer Products Segment, gross profit of
on-going operations decreased $32.3 million (24.7%) to $98.3 million for the
year ended January 28, 1995, as compared to the year ended January 29, 1994. As
a percentage of revenues, the Consumer Products Segment gross profit margin
decreased to 28.5% for Fiscal 1995 as compared to 31.5% for Fiscal 1994. A
substantial portion of the decrease in gross profit margin for the year arose
from negative manufacturing variances due to lower production in response to the
Company's continuing efforts to reduce inventories. Additionally, the decrease
in gross profit margin was attributable to a change in product mix, which caused
an increase in royalty costs and increased freight costs associated with
category management and direct store shipment programs. In the Commercial
Products Segment, the gross profit margin of printing services increased to
12.0% in Fiscal 1995 from 10.7% in Fiscal 1994. The increase for the year was
due to a more favorable product mix.
Selling, general and administrative expenses for the year ended January 28,
1995 decreased $78.9 million (38.9%) to $124.1 million as compared to $203.0
million for the year ended January 29, 1994. For ongoing operations, selling,
general and administrative expenses for the year ended January 28, 1995
decreased $19.6 million (13.6%) to $124.1 million as compared to $143.7 million
for the year ended January 29, 1994. The decrease was primarily attributable to
decreased sales promotion costs, including the costs of corrugated displays and
co-op advertising, and reduced personnel and other costs resulting from the
implementation of the Plan.
Interest expense for the year increased $1.3 million to $17.6 million as
compared to $16.3 million in Fiscal 1994. While the increase was due to higher
interest rates, it was substantially offset by increased earnings from invested
cash balances of $1.2 million. Total average outstanding debt decreased to
$221.3 million for the year from $248.7 million for the previous year, while
average interest rates increased from 6.6% to 7.9%. The increase in average
interest rates resulted primarily from the increase in short term rates (see
Financial Condition, Liquidity and Capital Resources).
The Company's income tax provision for Fiscal 1995 includes income taxes
resulting from the streamlining plan gain, the adjustment of the provision for
write-down of Division and an effective income tax benefit rate of 16.0% from
operations. The effective income tax benefit rate from operations is
significantly below the federal statutory rate due to losses incurred during the
year for which no tax benefit has been
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<PAGE>
recognized, partially offset by permanent differences relating to the sale of
the Advertising Specialty Division. Profitable operating results in subsequent
years will benefit from an income tax provision rate which will be lower than
the statutory rate due to the reinstatement of deferred tax assets for which a
valuation allowance was established in Fiscal 1995. For the year ended January
29, 1994, the income tax benefit rate was 35.2%.
The loss for the year ended January 28, 1995, before the streamlining plan
gain and the adjustment of the provision for write-down of Division and the
non-cash write-off of deferred income taxes was $18.4 million or $.91 per share,
compared to a loss of $21.7 million or $1.07 per share, before the provision for
write-down of Division and the cumulative effect of a change in accounting
principle (postretirement benefits other than pensions), for the year ended
January 29, 1994. During the year ended January 28, 1995, the Company recorded a
gain on streamlining plan of $20.4 million ($12.4 million, net of income taxes)
or $.59 per share, adjusted its provision for write-down of Division by $1.1
million ($.8 million, net of income taxes) or $.03 per share and recorded a
non-cash charge of $12.4 million or $.59 per share for the write-off of deferred
income taxes. Therefore, the net loss for Fiscal 1995 was $17.6 million or $.88
per share. During the year ended January 29, 1994, the Company adopted Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions", using the immediate recognition
method. As a result, the Company recorded a non-cash charge of $24.3 million
($14.8 million, net of income taxes) or $.71 per share as a cumulative effect of
a change in accounting principle in the statement of operations. Further, the
Company's provision for write-down of Division was $28.2 million ($19.3 million,
net of income taxes) or $.92 per share. Therefore, the net loss for Fiscal 1994
was $55.8 million or $2.70 per share.
Effects of Inflation
For Fiscal 1994 and the first three quarters of Fiscal 1995, the Company's
raw material costs, principally paper, remained relatively stable. In the fourth
quarter of Fiscal 1995 and throughout Fiscal 1996, the Company experienced
increases in the price of paper due to increased demand, decreases in imported
paper and an overall reduction in industry capacity. Pricing pressures make it
difficult for the Company to recover the effect of inflation and industry
dynamics on costs and expenses. To the extent possible, the Company's objective
is to offset the impact of inflation through productivity enhancements, product
specification changes and price increases.
Financial Condition, Liquidity and Capital Resources
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<PAGE>
Operations for the year ended February 3, 1996, excluding the non-cash
portion of the provision for restructuring and closure of operations, the
additional Plan gain, non-cash charges for depreciation, amortization and the
provision for losses on accounts receivable utilized cash of $49.6 million. The
operations for the year ended January 28, 1995, excluding the Plan gain, the
adjustment of the previously recorded provision for write-down of Division,
non-cash charges for depreciation, amortization and the provision for losses on
accounts receivable utilized cash of $24.8 million. During the years ended
February 3, 1996 and January 28, 1995, other changes in assets and liabilities
resulting from operating activities, provided cash of $50.5 million and $38.4
million, respectively, resulting in net cash provided by operating activities of
$.9 million and $13.6 million in Fiscal 1996 and 1995, respectively.
Acquisitions of property, plant and equipment were $17.9 million during the
year ended February 3, 1996 as compared to $19.3 million during the year ended
January 28, 1995. Capital expenditures for the year ended February 3, 1996
include costs associated with the completion of the Company's new order
processing, customer service and inventory management system, the acquisition of
a five unit web press, retail fixtures utilized in its category management
programs and the installation of emission control equipment in one of its
manufacturing facilities. During the second quarter of Fiscal 1996, the Company
commenced a facility expansion of its paper tableware and party goods operations
in Kalamazoo, Michigan, which is expected to be completed in the second quarter
of Fiscal 1997. The construction of the building addition phase of the expansion
is estimated to cost $5.1 million; of which $2.6 million has been expended
through February 3, 1996.
During the year ended February 3, 1996, financing activities utilized cash
of $32.3 million, primarily by the repayment of $32.0 million of outstanding
borrowings under the Company's Revolving Credit Agreement, and the Agreement was
terminated. Financing activities during the year ended January 28, 1995 utilized
cash of $49.1 million primarily by the repayment of $48.0 million of outstanding
borrowings under the Company's Revolving Credit Agreement.
Working capital decreased to $165.3 million from $228.2 million at January
28, 1995. This decrease resulted from the Company's investment in property,
plant and equipment and the funds required by its operations during Fiscal 1996.
Further, during the third quarter of Fiscal 1996, deferred income taxes of $13.9
million, including $10.7 million of current deferred income taxes were charged
to expense as the future realization of existing deductible temporary
differences is uncertain.
113
<PAGE>
During Fiscal 1994, the Company's Storyland category management program,
which provides retailers with the Company's management of all operational and
supply chain functions within a children's book department, was expanded to
Wal-Mart Stores, Inc. ("Wal-Mart") following a thirty store test in Fiscal 1993.
During Fiscal 1995 and 1996, the Storyland "store-within-an- aisle" program,
which included special racks, signage and full face presentation of children's
books, grew to 664 locations. During Fiscal 1996, it was determined that despite
the success of the program in expanding the sales of children's books at the
mass market level, operation of the program would be returned to Wal-Mart
management.
In anticipation of this change and in recognition of the trend among mass
market retailers to consolidate operating decisions at the headquarters level
rather than at store level, the Company announced the elimination of
approximately 400 positions from its in-store merchandising and sales forces in
the third quarter of Fiscal 1996. This workforce reduction was completed in
January, 1996. Management of the Company believes that over time the reorganized
sales and merchandising forces will be more appropriately suited to interact
with and meet the needs of their customer base.
As a result of the Wal-Mart decision and the sales and merchandising force
reorganization, rack management and product presentation will be the
responsibility of the Company's customers. Additionally, the Company will no
longer be responsible for the sourcing of third party ("guest") publisher
product for Storyland locations at Wal-Mart. In light of these developments, the
Company anticipates that its Customer Products sales will significantly decline
in the first quarter of Fiscal 1997, reflecting the elimination of guest
publisher sales and sales declines in other product categories as the amount of
retail selling space dedicated to the Company's products has been reduced.
However, the decline in sales and related gross profits will be substantially
offset by headcount reductions and operating cost efficiencies completed and
realized in Fiscal 1996 as well as a price increase implemented in the first
quarter of Fiscal 1997 to offset the impact of Fiscal 1996 raw material cost
increases. Further, management of the Company believes that its emphasis on the
headquarters operations of retailers will lead to promotional opportunities and
sales increases in the second half of Fiscal 1997.
During the year ended February 3, 1996, Western Publishing Company, Inc., a
wholly-owned subsidiary of the Company, entered into an extendable one-year
Receivables Purchasing Agreement, which includes a letter of credit facility,
with a financial institution providing for the sale of certain trade accounts
receivable on a non-recourse revolving basis, up to a maximum of $62.5 million
outstanding at any one time. As of
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February 3, 1996, there were $1.5 million of receivables outstanding under this
program. In the opinion of management, this Agreement will provide adequate
working capital to satisfy planned operating levels.
Proposed Equity Investment
On January 31, 1996, the Company entered into a Securities Purchase
Agreement (the "Agreement") with Golden Press Holding, L.L.C. ("Golden Press"),
a newly-formed Delaware limited liability company owned by Richard E. Snyder,
Barry Diller and Warburg, Pincus Ventures, L.P., pursuant to which Golden Press
will acquire a significant equity interest in the Company. The transaction is
subject to customary conditions, including stockholder approval.
Under the terms of the Agreement, Golden Press will invest $65 million of
cash in the Company in exchange for $65 million of newly-issued Series B
Convertible Preferred Stock and a warrant to purchase 3,250,000 shares of Common
Stock (the "Warrant"). The Series B Convertible Preferred Stock will have a
dividend rate of 12% per annum, will be convertible at $10 per share, and will
not have a mandatory redemption date. The preferred stock dividend will be
payable quarterly in 195,000 shares of Common Stock for the first four years,
subject to certain adjustments based on the market price of the Common Stock at
that time. Thereafter, preferred stock dividends will be paid in cash. The
Warrant, which will not be exercisable for the first two years, will have a
seven year term and an exercise price of $10 per share.
In conjunction with the proposed equity investment, a stockholder meeting
will be held to consider and act upon several proposals, including approval of
the equity investment transaction; an amendment to increase the Company's
authorized number of shares of Common Stock from 40,000,000 to 60,000,000
shares; an amendment to increase the Company's authorized number of shares of
Preferred Stock from 100,000 to 200,000 shares; and an amendment to increase the
number of shares of Common Stock available under the 1995 stock option plan from
750,000 shares to 2,250,000 shares.
The Agreement contemplates the redemption of the Company's Series A
Convertible Preferred Stock which was mandatorily redeemable by the Company in
accordance with its terms on March 31, 1996. As a result, the charter amendment
providing for the extension of the mandatory redemption date until March 31,
1998, which was previously approved by the requisite preferred and common
stockholders, was not made effective. If the equity investment transaction is
not consummated the Company intends to file the charter amendment,
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<PAGE>
thereby extending the mandatory redemption date to March 31, 1998.
Coincident with the Agreement, the Company entered into an interim
employment agreement (the "Interim Employment Agreement") with Richard E.
Snyder, whereby Mr. Snyder became President of the Company. Pursuant to the
Interim Employment Agreement, the Company issued 599,465 shares of Common Stock
to Mr. Snyder at a price of $8 per share in exchange for a non-recourse note in
the amount of the purchase price, secured by a pledge of the shares. Upon the
consummation of the equity investment, the Interim Employment Agreement will be
superseded by a five year employment agreement. Under the terms of the
agreement, Mr. Snyder will receive annual compensation of $500,000 and an annual
bonus opportunity of up to $1 million. Additionally, Mr. Snyder will receive
options to acquire 1,113,293 shares of the Company's Common Stock at fair value,
a one-time special bonus based on the market price of the Company's Common
Stock, supplemental retirement benefits, post-retirement medical benefits and
certain other benefits. A substantial portion of the costs associated with Mr.
Snyder's agreement will be charged to operations upon the closing of the equity
investment transaction.
Since his appointment, Mr. Snyder has not been directly involved in the
Company's business or financial decisions but has been assessing its operations.
Mr. Snyder has not yet finalized any plans regarding future operations. Such
plans will likely be finalized during Fiscal 1997 and may involve a
restructuring of operations which could result in substantial charges to
operations or changes in the classification of the Company's assets and
liabilities.
On a pro forma basis, after giving effect to the transactions contemplated
by the Agreement, the Company would have cash of $89.3 million, Stockholder's
Equity of $126.2 million and Total Capitalization of $365.3 million at February
3, 1996.
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<PAGE>
CONSOLIDATED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(In Thousands Except For Per Share Data)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
1996
Net sales $ 84,072 $ 93,093 $104,439 $ 87,968
Gross profit 18,474 25,944 23,234 20,528
Net loss (1) (13,308) (3,041) (37,488) (13,210)
Net loss per common share $ (.64) $ (.15) $ (1.79) $ (.64)
Weighted average number of common
shares 21,023 21,025 21,043 21,092
1995
Net sales $ 67,308 $104,410 $129,269 $ 97,367
Gross profit 10,629 28,370 39,282 22,652
Net (loss) income (2) (14,017) (2,932) 5,383 (6,013)
Net (loss) income per common share $ (.68) $ (.15) $ .25 $ (.30)
Weighted average number of common
shares 20,959 20,985 21,020 21,023
</TABLE>
(1) Includes an additional gain on streamlining plan of $2,000 recognized in
the Second Quarter, and the provision for restructuring and closure of
operations of $8,701 recognized in the Third Quarter.
(2) Includes gain on streamlining plan of $20,352 ($12,396, net of income
taxes) recognized in the Third Quarter, and a reduction to the Company's
previously recorded provision for write-down of Division of $1,100 ($753,
net of income taxes) recognized in the Fourth Quarter.
117
<PAGE>
INDEX TO FINANCIAL STATEMENTS
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
<S> <C>
Independent Auditors' Report......................................... F-2
Consolidated Balance Sheets as of February 3, 1996
and January 28, 1995............................................... F-3
Consolidated Statements of Operations for the
Years ended February 3, 1996, January 28, 1995 and
January 29, 1994................................................... F-4
Consolidated Statements of Common Stockholders' Equity
for the Years ended February 3, 1996, January 28, 1995 and
January 29, 1994................................................... F-5
Consolidated Statements of Cash Flows for the
Years ended February 3, 1996, January 28, 1995 and
January 29, 1994................................................... F-6
Notes to Consolidated Financial Statements........................... F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Western Publishing Group, Inc.:
We have audited the accompanying consolidated balance sheets of Western
Publishing Group, Inc. and subsidiaries as of February 3, 1996 and January 28,
1995, and the related consolidated statements of operations, common
stockholders' equity and cash flows for each of the three years in the period
ended February 3, 1996. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on the
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company at February 3, 1996 and
January 28, 1995, and the results of their operations and their cash flows for
each of the three years in the period ended February 3, 1996 in conformity with
generally accepted accounting principles.
As discussed in Note 15 to the consolidated financial statements, in Fiscal 1994
the Company changed their method of accounting for postretirement benefits other
than pensions to conform with Statement of Financial Accounting Standards No.
106.
/s/ DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin
April 2, 1996
F-2
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FEBRUARY 3, 1996 AND JANUARY 28, 1995
(In Thousands Except for Share and Per Share Data)
- --------------------------------------------------------------------------------
ASSETS
1996 1995
--------- ---------
CURRENT ASSETS:
Cash and cash equivalents $ 45,223 $ 85,406
Accounts receivable 61,033 83,251
Inventories 84,354 108,738
Prepublication and prepaid advertising costs 4,716 7,314
Royalty advances 3,240 2,221
Refundable income taxes 2,492 5,940
Deferred income taxes 10,676
Net assets held for sale 13,302 17,681
Other current assets 8,663 6,397
-------- -------
Total current assets 223,023 327,624
-------- -------
OTHER ASSETS:
Deferred income taxes 3,210
Other noncurrent assets 14,429 10,834
-------- -------
Total other assets 14,429 14,044
-------- -------
PROPERTY, PLANT AND EQUIPMENT:
Cost:
Land 1,022 1,022
Buildings and improvements 23,568 21,463
Machinery and equipment 98,420 96,317
Machinery and equipment in process
of installation 11,006 4,188
-------- -------
134,016 122,990
Less accumulated depreciation 58,566 47,325
------- -------
Total property, plant and equipment 75,450 75,665
------- -------
IDENTIFIED INTANGIBLES AND COST IN EXCESS
OF NET ASSETS ACQUIRED (GOODWILL), less accumulated
amortization of $21,205 and $19,173 9,063 11,473
-------- --------
TOTAL $321,965 $428,806
======== ========
See notes to consolidated financial statements.
LIABILITIES AND STOCKHOLDERS' EQUITY
1996 1995
-------- ---------
CURRENT LIABILITIES:
Accounts payable $ 19,000 $ 18,461
Accrued compensation and fringe benefits 8,073 8,770
Notes payable to banks 32,000
Other current liabilities 30,641 40,153
-------- ---------
Total current liabilities 57,714 99,384
NONCURRENT LIABILITIES:
Long-term debt 149,845 149,828
Accumulated post retirement benefit obligation 27,572 26,894
Other 2,481 1,921
-------- ---------
Total noncurrent liabilities 179,898 178,643
-------- ---------
CONVERTIBLE PREFERRED STOCK - Series A, 20,000
shares authorized, no par value, 19,970 shares
issued and outstanding; at mandatory
redemption amount 9,985 9,985
-------- ---------
COMMON STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value, 40,000,000 and
30,000,000 shares authorized, 21,875,539 and
21,232,074 shares issued 219 212
Additional paid-in capital 87,044 80,914
Note receivable from sale of Common Stock (4,796)
Retained earnings (deficit) (3,608) 64,287
Cumulative translation adjustments (1,669) (1,797)
-------- ---------
77,190 143,616
Less cost of Common Stock in
treasury - 208,800 shares 2,822 2,822
-------- ---------
Total common stockholders' equity 74,368 140,794
--------- ---------
TOTAL $ 321,965 $ 428,806
========= =========
F-3
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE YEARS ENDED FEBRUARY 3,1996
(In Thousands Except for Per Share Data)
- --------------------------------------------------------------------------------
1996 1995 1994
--------- ---------- ---------
REVENUES:
Net sales $ 369,572 $ 398,354 $ 613,464
Royalties and other income 4,685 4,201 3,211
--------- ---------- ---------
Total revenues 374,257 402,555 616,675
--------- ---------- ---------
COSTS AND EXPENSES:
Cost of sales 281,392 297,421 432,503
Selling, general and administrative 129,020 124,128 203,042
Provision for restructuring and
closure of operations 8,701
Gain on streamlining plan (2,000) (20,352)
Provision for write-down of Division (1,100) 28,180
--------- ---------- ---------
Total costs and expenses 417,113 400,097 663,725
--------- ---------- ---------
(LOSS) INCOME BEFORE INTEREST EXPENSE,
INCOME TAXES AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE (42,856) 2,458 (47,050)
INTEREST EXPENSE 12,859 17,567 16,270
--------- ---------- ---------
LOSS BEFORE INCOME TAXES
AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE (55,715) (15,109) (63,320)
PROVISION (BENEFIT) FOR INCOME TAXES 11,332 2,470 (22,295)
LOSS BEFORE CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE (67,047) (17,579) (41,025)
CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (14,800)
--------- --------- ---------
NET LOSS $ (67,047) $ (17,579) $ (55,825)
========= ========= =========
LOSS PER COMMON SHARE:
Before cumulative effect of change
in accounting principle $ (3.23) $ (0.88) $ (1.99)
Cumulative effect of change in
accounting principle (0.71)
--------- ---------- ---------
Net Loss $ (3.23) $ (0.88) $ (2.70)
========= ========= =========
See notes to consolidated financial statements.
F-4
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY
THREE YEARS ENDED FEBRUARY 3, 1996
(In Thousands Except for Share and Per Share Data)
<TABLE>
<CAPTION>
Common Stock Additional Note Receivable Retained Cumulative Treasury Stock
--------------- Paid-In from sale of Earnings Translation ---------------------
Shares Amount Capital Common Stock (deficit) Adjustments Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, JANUARY 30, 1993 21,148,424 $211 $79,914 $ 0 $139,387 $(1,444) 208,800 $2,822
Net loss (55,825)
Dividends on Preferred
Stock - $42.50 per share (848)
Excercise of stock options 18,900 1 299
Translation adjustments (200)
---------- ---- ------- ------- -------- ------- ------- ------
BALANCES, JANUARY 29, 1994 21,167,324 212 80,213 0 82,714 (1,644) 208,800 2,822
Net loss (17,579)
Dividends on Preferred Stock
- $42.50 per share (848)
Exercise of stock options 64,750 701
Translation adjustments (153)
---------- ---- ------- ------- -------- ------- ------- ------
BALANCES, JANUARY 28, 1995 21,232,074 212 80,914 0 64,287 (1,797) 208,800 2,822
Net loss (67,047)
Dividends on Preferred Stock
- $42.50 per share (848)
Exercise of stock options 44,000 1 516
Issuance of Common Stock 599,465 6 5,614 (4,796)
Translation adjustments 128
---------- ---- ------- ------- -------- ------- ------- ------
BALANCES, FEBRUARY 3, 1996 21,875,539 $219 $87,044 $(4,796) $(3,608) $(1,669) 208,800 $2,822
========== ==== ======= ======= ======== ======= ======= ======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE YEARS ENDED FEBRUARY 3, 1996
(In Thousands)
1996 1995 1994
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(67,047) $(17,579) $(55,825)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization 13,963 11,708 13,625
Amortization of intangibles arising
from acquisition 2,032 3,457 4,888
Provision for losses on accounts
receivable 1,440 472 5,662
Provision for restructuring and
closure of operations 1,954
Provision for write-down of Division (2,450) 26,405
Gain on streamlining plan (2,000) (20,352)
Cumulative effect of change in
accounting principle (before income
tax benefit) 24,300
Gains on sale of equipment (339) (187) (26)
Other 2,935 712 (187)
Changes in assets and liabilities:
Accounts receivable 20,451 54,174 (9,222)
Inventories 22,550 12,504 17,959
Prepublication, prepaid advertising
costs and royalty advances 1,579 1,189 1,229
Net assets held for sale (37,719)
Income taxes 2,614 6,890 (12,830)
Other current assets 546 3,954 (2,280)
Accounts payable 539 (22,226) (1,087)
Accrued compensation and fringe
benefits (696) (2,164) (1,021)
Other current liabilities (13,552) 12,881 (5,708)
Deferred income taxes 13,886 8,376 (20,340)
-------- -------- --------
Net cash provided by (used in)
operating activities 855 13,640 (14,458)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisitions of property, plant and
equipment (17,921) (19,307) (37,359)
Proceeds from streamlining plan 8,252 115,971
Proceeds from sale of Division 14,001
Proceeds from sale of equipment 566 225 119
Return of investment in joint venture 350 500 1,900
-------- -------- --------
Net cash (used in) provided
by investing activities (8,753) 111,390 (35,340)
-------- -------- --------
See notes to consolidated financial statements.
1996 1995 1994
CASH FLOWS FROM FINANCING ACTIVITIES:
(Repayments) borrowings under Credit
Agreement $(32,000) $(48,000) $50,000
Proceeds from sale of Common stock
(exercise of options) 517 701 300
Dividends paid on Preferred Stock (848) (848)
Other (768) (986) (562)
-------- -------- -------
Net cash (used in) provided
by financing activities (32,251) (49,133) 48,890
-------- -------- -------
EFFECT OF EXCHANGE RATE CHANGES
ON CASH (34) (4) (20)
-------- -------- -------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (40,183) 75,893 (928)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 85,406 9,513 10,441
-------- -------- -------
CASH AND CASH EQUIVALENTS, END
OF YEAR $ 45,223 $ 85,406 $ 9,513
======== ======== =======
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest $ 11,893 $ 16,663 $15,738
Income taxes, net of refunds
received (5,465) (12,829) 6,124
F-6
<PAGE>
WESTERN PUBLISHING GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED FEBRUARY 3, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The consolidated financial statements
include the accounts of Western Publishing Group, Inc., and its
wholly-owned subsidiaries (the "Company"). Certain reclassifications
have been made in the prior year financial statements to conform with
the current year presentation. All significant intercompany
transactions and balances are eliminated in consolidation.
Use of Estimates - The financial statements, which are prepared in
conformity with generally accepted accounting principles, include
amounts that are based, in part, on management's best estimates and
judgments.
Fiscal Year - The fiscal year of the Company ends on the Saturday
nearest January 31. Accordingly, Fiscal 1996 contained 53 weeks and
Fiscal 1995 and 1994 each contained 52 weeks.
Cash and Cash Equivalents - The Company considers all highly liquid
debt investments purchased with maturities of three months or less to
be cash equivalents. Cash equivalents consist of investments in high
grade commercial paper. Accordingly, these investments are subject to
minimal credit and market risk. As of January 30, 1994, the Company
adopted Statement of Financial Accounting Standards ("FAS") No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".
Under this statement, the Company is required to classify cash
equivalents into one or more of the following categories: held to
maturity, trading, or available for sale. The adoption of this
statement had no effect on the consolidated financial statements. At
February 3, 1996 and January 28, 1995, all of the Company's cash
equivalents are classified as held to maturity and their carrying
amounts approximate fair value.
Inventories - Inventories are valued at the lower of cost or market.
Cost is determined by the last-in, first-out ("LIFO") method for
substantially all domestic inventories. Inventories of international
operations are valued using the first-in, first-out ("FIFO") method. At
February 3, 1996 and January 28, 1995, approximately 92% and 93% of
total inventories were valued under the LIFO method.
Prepublication Costs - Prepublication costs (comprised principally of
externally developed art, manuscript and editorial costs and internally
or externally developed plate costs) are deferred. Such costs are
amortized from the date of initial product sale, generally over a
period of one year.
Properties and Depreciation - Property, plant and equipment are stated
at cost and depreciated on the straight-line method over the following
estimated useful lives for financial statement purposes:
Buildings and improvements 10-40 years
Machinery and equipment 3-10 years
Expenditures which significantly increase value or extend useful lives
are capitalized, while maintenance and repairs are expensed as
incurred. The cost and related accumulated depreciation of assets
replaced, retired or disposed of are eliminated from the property
accounts, and any gain or loss is reflected in operations.
Costs related to the development of information systems that are
expected to benefit future periods are capitalized and amortized over
the estimated useful lives of the systems.
During Fiscal 1996, the Financial Accounting Standards Board ("FASB")
issued FAS No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to be Disposed Of". The adoption of this
statement in the first quarter of Fiscal 1997 will not have a material
effect on the Company's financial statements.
F-7
<PAGE>
Identified Intangibles - Identified intangibles arising from the
acquisition of Penn Corporation in Fiscal 1987 are being amortized
generally by accelerated methods over 15 years.
Cost in Excess of Net Assets Acquired - The cost in excess of net
assets acquired ("goodwill") arising from the acquisition of Penn
Corporation is being amortized on the straight-line method over a
40-year period.
Foreign Currency Translation - Foreign currency assets and liabilities
are translated into United States dollars at end of period rates of
exchange, and income and expense accounts are translated at the
weighted average rates of exchange for the period. The gains and losses
resulting from the translation adjustments have been accumulated as a
separate component of common stockholders' equity.
2. PROPOSED EQUITY INVESTMENT
On January 31, 1996, the Company entered into a Securities Purchase
Agreement with Golden Press Holding, L.L.C. ("Golden Press"), a
newly-formed Delaware limited liability company owned by Richard E.
Snyder, Barry Diller and Warburg, Pincus Ventures, L.P., pursuant to
which Golden Press will acquire a significant equity interest in the
Company. The transaction is subject to customary conditions, including
stockholder approval.
Under the terms of the equity investment transaction, Golden Press will
invest $65 million of cash in the Company in exchange for $65 million
of newly-issued Series B Convertible Preferred Stock and a warrant to
purchase 3,250,000 shares of Common Stock (the "Warrant"). The Company
will utilize the investment proceeds to redeem its existing Series A
Convertible Preferred Stock which matured on March 31, 1996 (see Note
9), for expenses associated with the transaction and for general
working capital purposes.
The Series B Convertible Preferred Stock will have a dividend rate of
12% per annum, will be convertible at $10 per share, and will not have
a mandatory redemption date. The preferred stock dividend will be
payable quarterly in 195,000 shares of Common Stock for the first four
years, subject to certain adjustments based on the market price of the
Common Stock at that time. Thereafter, preferred stock dividends will
be paid in cash.
The Warrant, which will not be exercisable for the first two years,
will have a seven year term and an exercise price of $10 per share.
3. RESTRUCTURING AND ASSET DISPOSITIONS
Provision for Restructuring and Closure of Operations
During the quarter ended October 28, 1995, the Company recorded an
$8,701,000 provision for restructuring and closure of operations in a
further effort to reduce its operating cost structure and improve
future operating results, and to reflect the costs incurred in
connection with the termination of a previously announced transaction
to sell a significant interest in the Company. The provision includes a
non-cash charge of $2,000,000 and consists of the following components:
o Severance costs of $3,660,000 associated with the Company's
previously announced workforce reductions of salaried and
hourly personnel. These reductions were completed in the
fourth quarter of Fiscal 1996.
o Unrecoverable assets and costs of $3,171,000 to be incurred
in connection with the Company's decision to close certain of
its retail store locations.
F-8
<PAGE>
o Transaction costs of $1,870,000 resulting from the
Company's October 17, 1995 announcement of the
termination of its initial agreement in principle to
sell a significant interest in the Company to Warburg,
Pincus Ventures, L.P. and Richard E. Snyder.
Sale and Phase Out of Operations
On April 7, 1994, the Company adopted a plan (the "Plan") designed to
improve its competitive position and reduce its cost structure through
the sale, divestiture, consolidation or phase out of certain
operations, properties and products, and a workforce reduction.
The Plan included the following major components:
o An agreement to sell the game and puzzle operation
(including certain inventories) to Hasbro, Inc.
("Hasbro"). This transaction was completed on
August 4, 1994 for cash proceeds of approximately
$101,400,000.
o The decision to exit the Direct Marketing Continuity Clubs
and School Book Club businesses. The sale of the School Book
Club business was consummated on July 1, 1994 for cash
proceeds of approximately $4,300,000 and the sale of the
Direct Marketing Continuity Club business was completed on
October 7, 1994 for cash proceeds of approximately
$10,200,000.
o The closedown and sale of the Company's Fayetteville, North
Carolina manufacturing and distribution facility, which was
primarily dedicated to the game and puzzle operation but was
not included in the sale to Hasbro. This facility is closed
and is for sale.
o The decision to streamline the Company's publishing business
so as to focus on its core competencies. This included a
reduction in the management, administrative and direct labor
workforces.
Revenues of the game, puzzle, direct marketing and school book club
operations were approximately $125,000,000 for Fiscal 1994. As of
February 3, 1996, net assets held for sale primarily relates to the
Company's Fayetteville facility.
The Company recorded a net gain from the Plan of $20,352,000
($12,396,000, net of income taxes), inclusive of operating losses of
the game, puzzle, direct marketing and school book club operations from
January 30, 1994 through their respective disposition dates in the
third quarter of Fiscal 1995. During the second quarter ended July 29,
1995, an additional gain of $2,000,000 was recorded as certain costs
and expenses of implementing the Plan were less than originally
anticipated.
Provision for Write-Down of Division
During Fiscal 1994, the Company established a provision, including
operating losses through the expected disposition date, of $28,180,000
($19,280,000, net of income taxes) to write-down the assets of the
Advertising Specialty Division of its Penn Corporation subsidiary to
net realizable value.
On August 5, 1994, the sale of the Ritepoint and Adtrend businesses of
the Division was completed for cash proceeds of approximately
$5,650,000. The sale of the Vitronic and K-Studio businesses of the
Division was completed on November 7, 1994 for cash proceeds of
approximately $8,350,000. As the proceeds from the sale of this
Division exceeded management's estimate, the Company adjusted its
previously recorded provision for write-down of Division by recognizing
a gain of $1,100,000 ($753,000, net of income taxes) in the fourth
quarter of Fiscal 1995.
F-9
<PAGE>
Revenues of $7,202,000 and losses before interest expense and income
taxes, exclusive of the provision for write-down, of $2,083,000 for the
Division, are included in the accompanying consolidated statements of
operations for Fiscal 1994. Subsequent to May 1, 1993, the consolidated
statements of operations do not include the results of the Division.
Net Assets Held for Sale
Net assets held for sale consisted of the following:
1996 1995
(In thousands)
Current assets $ 802 $ 2,181
Property, plant and equipment, net 14,500 17,500
------- -------
15,302 19,681
Less:
Current liabilities (2,000) (2,000)
------- -------
Net assets held for sale $13,302 $17,681
======= =======
4. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
1996 1995
(In thousands)
Accounts receivable $68,037 $94,790
Allowance for doubtful accounts (2,522) (4,067)
Allowance for returns (4,482) (7,472)
------- -------
$61,033 $83,251
======= =======
On September 29, 1995, Western Publishing Company, Inc. ("WPC"), a
wholly-owned subsidiary of the Company entered into an extendable
one-year Receivables Purchasing Agreement, which includes a letter of
credit facility, with a financial institution to sell in pools, certain
trade accounts receivable on a revolving basis, up to a maximum of
$62.5 million outstanding at any one time. The pools are sold on a
non-recourse basis for credit losses and subject to a discount fee.
During Fiscal 1996, the Company sold approximately $19,000,000 of
receivables, of which approximately $1,500,000 were outstanding at
February 3, 1996. The proceeds from the sale of receivables are
reported as providing operating cash flow in the accompanying
statements of cash flows. The costs associated with this program of
$571,000 are included as a component of interest expense in the
accompanying consolidated statement of operations.
F-10
<PAGE>
5. INVENTORIES
Inventories consisted of the following:
1996 1995
(In thousands)
Raw materials $ 10,877 $ 9,780
Work-in-process 13,014 19,838
Finished goods 60,463 79,120
-------- --------
$ 84,354 $108,738
======== ========
At February 3, 1996 and January 28, 1995, the replacement cost of
inventories valued using the LIFO method exceeded the net carrying
amount of such inventories by approximately $9,800,000 and $9,200,000,
respectively.
6. IDENTIFIED INTANGIBLES AND GOODWILL
Identified intangibles and goodwill, all of which result from the
acquisition of Penn Corporation in Fiscal 1987, net of amortization,
included in the accompanying consolidated balance sheets, were as
follows:
1996 1995
(In thousands)
Goodwill $ 5,364 $ 5,928
Identified intangibles:
Customer lists 3,008 4,832
Other 691 713
-------- --------
$ 9,063 $ 11,473
======== ========
During Fiscal 1996, the Company reduced the unamortized portion of
goodwill by a tax benefit of approximately $378,000, resulting from a
carryback of certain related items.
7. LONG-TERM DEBT
Long-term debt consisted of the following:
1996 1995
(In thousands)
Notes payable to banks $ $ 32,000
7.65% Senior Notes ($150,000,000
face amount) due in 2002 149,845 149,828
-------- --------
149,845 181,828
Less current portion 32,000
-------- --------
$149,845 $149,828
======== ========
F-11
<PAGE>
The Company maintained an amended and restated revolving credit
agreement dated May 31, 1994, as amended (the "Agreement"), with a
group of commercial banks, which expired on May 31, 1995. During the
first quarter of Fiscal 1996, all outstanding notes were repaid and the
Agreement was terminated.
On September 17, 1992, the Company completed an offering of
$150,000,000 of 7.65% Senior Notes due September 15, 2002. Interest is
payable semiannually on March 15 and September 15. There is no
obligation to redeem, purchase or repay the Senior Notes prior to
maturity.
The Indenture covering the Senior Notes contains certain provisions
limiting additional indebtedness, guarantees, liens and the payment of
cash dividends on Preferred and Common Stock. At February 3, 1996,
there were no retained earnings available to pay dividends on Common
Stock.
The Company's 7.65% Senior Notes had a fair value of approximately
$125,000,000 and $111,000,000 at February 3, 1996 and January 28, 1995,
respectively, based on market interest rates. Notes payable to banks at
January 28, 1995 under the Company's Revolving Credit Agreement
approximate fair value, as the short-term interest rates on the then
outstanding balances were reset in December 1994.
8. OTHER CURRENT LIABILITIES
Other current liabilities consisted of the following:
1996 1995
(In thousands)
Royalties payable $ 5,985 $ 6,320
Accrued interest 4,339 4,151
Costs associated with restructuring
and closure of operations 5,247
Costs associated with streamlining plan 3,919 8,732
Other 11,151 20,950
------- --------
$ 30,641 $ 40,153
======== ========
9. PREFERRED STOCK
The Company has 100,000 authorized preferred shares, no par value,
including 20,000 shares of Convertible Preferred Stock, Series A. The
Series A Convertible Preferred Stock has a dividend rate of 8.5% per
annum. The conversion price is $24 per share. The stock is redeemable
at the option of the Company at any time for $500 a share plus all
dividends (whether or not earned or declared) accrued and unpaid to the
date fixed for redemption.
The Series A Convertible Preferred Stock was mandatorily redeemable by
the Company in accordance with its terms on March 31, 1996. Although
the requisite approval of the preferred stockholders was obtained and
the common stockholders of the Company approved adoption of a charter
amendment which provided for the extension of the mandatory redemption
date until March 31, 1998, such amendment was not made effective as all
outstanding Series A Convertible Preferred Stock is expected to be
redeemed pursuant to the Securities Purchase Agreement between Golden
Press and the Company (see Note 2) . If the transaction is not
consummated, the Company intends to file the charter amendment, thereby
extending the mandatory redemption date to March 31, 1998. The carrying
amount of preferred stock approximates its fair value.
F-12
<PAGE>
10. EMPLOYEE STOCK OPTIONS
In December 1995, the Company adopted a stock option plan ("the 1995
stock option plan"), which provides for the granting of options to
purchase up to 750,000 shares of Common Stock through 2005 to
employees of the Company and its subsidiaries. As of February 3,
1996, no options have been granted under the 1995 stock option plan.
In March 1986, the Company adopted a stock option plan ("the 1986
stock option plan"), which as amended, provides for the granting of
options to purchase up to 2,100,000 shares of Common Stock through
1996 to employees of the Company and its subsidiaries.
Prior to February 3, 1990, options granted become exercisable two
years after the date of grant (50%) and three years after the date of
grant (50%). Options granted between February 4, 1990 and January 29,
1994 become exercisable in their entirety five years after the date of
grant. Options granted between January 30, 1994 and February 28, 1995
generally become exercisable on the date of grant (33 1/3%), one year
after the date of grant (33 1/3%) and two years after the date of
grant (33 1/3%). Options granted subsequent to February 28, 1995
become exercisable one year after the date of grant (33 1/3%), two
years after the date of grant (33 1/3%) and three years after the
date of grant (33 1/3%).
For Fiscal 1995 and 1996, the Company granted options to purchase
366,500 shares of Common Stock which became exercisable on the date of
grant and expire during calendar 1997.
The following data is presented in connection with the stock option
plan:
<TABLE>
<CAPTION>
Shares
--------------------------------------------
Available
Option Price Reserved Outstanding For Grant
---------------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Balances, January 30, 1993 $10.00 to $20.00 1,357,950 1,038,650 319,300
Increase in authorization 600,000 600,000
Granted $12.50 70,000 (70,000)
Cancelled $10.00 to $20.00 (91,000) 91,000
Exercised $11.75 to $16.75 (18,900) (18,900)
--------- --------- -------
Balances, January 29, 1994 $10.00 to $20.00 1,939,050 998,750 940,300
Granted $11.50 to $12.75 871,650 (871,650)
Cancelled $10.00 to $20.00 (428,950) 428,950
Exercised $10.00 to $12.00 (64,750) (64,750)
--------- --------- -------
Balances, January 28, 1995 $10.00 to $20.00 1,874,300 1,376,700 497,600
Granted $ 8.25 to $13.50 771,000 (771,000)
Cancelled $ 9.50 to $20.00 (539,600) 539,600
Exercised $10.00 to $11.75 (44,000) (44,000)
--------- --------- -------
Balances, February 3, 1996 1,830,300 1,564,100 266,200
========= ========= =======
</TABLE>
<PAGE>
F-13
As of February 3, 1996, stock option grants to purchase 1,012,315
shares of the Company's Common Stock were exercisable at an average
price of $12.17. In addition to the shares reserved for the exercise of
stock options, the Company has reserved 416,042 shares of Common Stock
for the conversion of its Preferred Stock (see Note 9).
During Fiscal 1996, the FASB issued FAS No. 123, "Accounting for
Stock-Based Compensation". While the Company does not currently
anticipate that it will adopt FAS No. 123, proforma disclosures of
operating results and earnings per share will be presented beginning
with the first quarter of Fiscal 1997 in accordance with the
pronouncement.
11. STOCKHOLDER'S EQUITY
During Fiscal 1996, the Board of Directors adopted a resolution, that
was approved by the stockholders of the Company, to increase the
authorized number of shares of the Company's Common Stock, $.01 par
value from 30,000,000 shares to 40,000,000 shares.
On January 31, 1996, the Company entered into an interim employment
agreement (the "Employment Agreement") with Richard E. Snyder, in
conjunction with the execution of the Securities Purchase Agreement,
whereby Mr. Snyder became President of the Company (see Note 2).
Pursuant to the Employment Agreement, the Company issued 599,465
shares of Common Stock to Mr. Snyder at a price of $8.00 per share
in exchange for a non-recourse note in the amount of the purchase
price, secured by a pledge of the shares. The non-recourse note is
shown as a separate component of stockholder's equity. The difference
between the market price of $9.375 per share on January 31, 1996 and
the purchase price was recorded as compensation to Mr. Snyder.
Since his appointment, Mr. Snyder has not been directly involved in
the Company's business or financial decisions but has been assessing
its operations. Mr. Snyder has not yet finalized any plans regarding
future operations. Such plans will likely be finalized during Fiscal
1997 and may involve a restructuring of operations which could
result in substantial charges to operations or changes in the
classification of the Company's assets and liabilities.
In conjunction with the proposed equity investment, a stockholder
meeting will be held to consider and act upon several proposals,
including approval of the transaction; an amendment to increase the
Company's authorized number of shares of Common Stock from 40,000,000
to 60,000,000 shares; an amendment to increase the Company's
authorized number of shares of Preferred Stock from 100,000 to
200,000 shares, and an amendment to increase the number of shares of
Common Stock available under the 1995 stock option plan from 750,000
shares to 2,250,000 shares (see Note 2).
F-14
<PAGE>
12. COMMITMENTS AND CONTINGENCIES
Leases
The Company leases certain facilities, machinery and vehicles under
various noncancellable operating lease agreements over periods of one
to 10 years. Future minimum lease payments required under such leases
in effect at February 3, 1996 were as follows (by fiscal year):
(In thousands)
1997 $ 4,493
1998 3,207
1999 2,472
2000 1,920
2001 1,663
2002 through 2006 4,111
-------
$17,866
-------
Total rental expense charged to operations was $6,105,000, $6,914,000
and $8,330,000 for the years ended February 3, 1996, January 28, 1995
and January 29, 1994, respectively.
Contingencies
The Company has been named in various legal proceedings in the normal
course of its business. Additionally, the Company, along with other
parties, is involved in a number of proceedings brought under the
Comprehensive Environmental Response, Compensation and Liability Act,
commonly known as Superfund, as well as under other Federal and state
statues. Environmental expenditures that relate to current operations
are expensed or capitalized, as appropriate. Liabilities are recorded
when environmental assessments and/or remedial efforts are probable,
the cost can be reasonably estimated and the Company's responsibility
is established.
While it is not feasible to predict or determine the outcome of these
proceedings, it is the opinion of management that their outcome, to
the extent not provided for through insurance or otherwise, will not
have a materially adverse effect on the Company's financial position
or results of future operations.
13. ROYALTIES AND OTHER INCOME
Royalties and other income consisted of the following:
1996 1995 1994
(In thousands)
Royalties $1,299 $1,948 $2,043
Interest income 2,963 1,994 807
Other 423 259 361
------ ------ ------
$4,685 $4,201 $3,211
====== ====== ======
F-15
<PAGE>
14. INCOME TAXES
Income tax expense (benefit) (calculated in accordance with Statement
of Financial Accounting Standards No. 109, "Accounting for Income
Taxes") consisted of the following:
1996 1995 1994
(In thousands)
Currently (refundable)
payable:
Federal $(2,092) $(6,656) $(11,185)
State 78 380 (240)
Foreign (540) 370 (30)
------- ------- --------
(2,554) (5,906) (11,455)
------- ------- --------
Deferred:
Federal 11,281 8,239 (9,520)
State 2,615 222 (1,300)
Foreign (10) (85) (20)
------- ------- --------
13,886 8,376 (10,840)
------- ------- --------
$11,332 $ 2,470 $(22,295)
======= ======= ========
Income (loss) before income tax expense (benefit) of Western
Publishing Company, Inc.'s Canadian subsidiary was $(1,257,000),
$1,412,000 and $(106,000) for the years ended February 3, 1996,
January 28, 1995 and January 29, 1994, respectively.
A reconciliation of the statutory United States Federal income tax
rate to the Company's effective income tax rate follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
State income taxes, net of Federal benefit (.2) (2.6) 1.6
Valuation allowance, net of refundable amounts (56.8) (82.4)
Permanent differences relating to the sale of
the Advertising Specialty Division 35.9
Other - net 1.7 (2.2) (1.4)
----- ----- ----
(20.3)% (16.3)% 35.2%
===== ===== ====
</TABLE>
F-16
<PAGE>
The income tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at
February 3, 1996 and January 28, 1995 were as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
Assets Liabilities Assets Liabilities
(In thousands)
<S> <C> <C> <C> <C>
Allowances for doubtful accounts and
returns not currently deductible $ 2,098 $ 4,035
Inventories:
Excess of book basis over tax
basis due to purchase accounting $ (6,117) $ (6,108)
Other 7,395 9,803
Property, plant and equipment:
Excess of tax basis over
acquisition accounting basis 3,620 3,746
Excess of tax over book depreciation (9,107) (6,555)
Identified intangibles (1,096) (1,096)
Deferred gain on sale of plant (794) (738)
Accrued expenses not
currently deductible 7,396 9,714
Deductible pension contributions
in excess of pension expense (1,717) (1,768)
Postretirement benefits 11,028 10,758
Net operating loss carryforwards
and credits 32,811 4,026
Other - net 557 514
Valuation Allowance (46,074) (12,445)
--------- -------- --------- ---------
Total $ 18,831 $(18,831) $ 30,151 $ (16,265)
========= ======== ========= =========
</TABLE>
Deferred income taxes are classified as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
Assets Assets
Current Noncurrent Current Noncurrent
(In thousands)
<S> <C> <C> <C> <C>
Deferred income taxes $ 11,169 $ 34,905 $ 17,536 $ 8,795
Valuation allowance (11,169) (34,905) (6,860) (5,585)
--------- -------- --------- ---------
$ - $ - $ 10,676 $ 3,210
========= ======== ========= =========
</TABLE>
At February 3, 1996, the Company had available net operating loss
carryforwards of approximately $65,900,000 for Federal income tax
purposes that expire in 2011 and approximately $6,500,000 for state
income tax purposes. The Federal carryforwards primarily resulted from
operating losses generated in Fiscal 1996. The Company also has tax
credit carryforwards at February 3, 1996 of approximately $3,700,000.
The valuation allowance relates to the uncertainty of realizing
certain Federal and state deferred tax assets.
F-17
<PAGE>
15. PENSION, POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
Pension Benefits
Western Publishing Company, Inc. and its Canadian subsidiary have
noncontributory defined benefit retirement plans covering
substantially all domestic hourly and Canadian salaried and hourly
employees. The benefits are generally based on a unit amount at the
date of termination multiplied by the participant's credited service.
The Company's funding policy is to contribute amounts within the
limits which can be deducted for income tax purposes.
The following tables set forth the plans' funded status and amounts
recognized in the consolidated financial statements at February 3,
1996 and January 28, 1995, and for each of the three years ended
February 3, 1996:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
(In thousands)
Actuarial present value of benefit obligations:
Accumulated benefit obligations, including
vested benefits of $15,052,000 and $11,897,000 $ 15,222 $ 12,052
========= ========
Projected benefit obligations for service rendered $ 15,745 $ 12,472
Plan assets at fair value (primarily U.S. government
securities, corporate bonds and equity mutual funds) 16,995 15,051
-------- --------
Projected benefit obligations less than plan assets 1,250 2,579
Unrecognized net loss (gain) 978 (181)
Unrecognized prior service cost 2,205 2,272
Unamortized portion of unrecognized net asset
at January 31, 1987 (140) (249)
-------- --------
Prepaid pension costs recognized in
accompanying balance sheets $ 4,293 $ 4,421
========= ========
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
(In thousands)
Net pension (income) expense, included the following components:
Service cost - benefits earned during the period $ 441 $ 509 $ 573
Interest cost on projected benefit obligations 1,054 1,105 1,104
Actual return on plan assets (3,437) 415 (1,836)
Net amortization and deferral 2,070 (1,995) 211
Net settlement gain (3) (50)
--------- -------- ---------
Net pension expense (income) $ 125 $ (16) $ 52
========= ======== =========
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligations was 7.0% and 8.5%
in 1996 and 1995. The expected long-term rate of return on assets was
10.0%.
Pension expense charged to operations for these plans and for other
multi-employer plans in which certain union employees of the Company's
subsidiaries participate was $503,000, $376,000 and $598,000 for the
years ended February 3, 1996, January 28, 1995 and January 29, 1994,
respectively.
F-18
<PAGE>
Subsidiaries of the Company also maintain defined contribution
contributory retirement plans for substantially all domestic employee
groups. Under the plans, the subsidiaries make contributions based on
employee compensation and in certain cases based on specified levels
of voluntary employee contributions. Western Publishing Company,
Inc.'s Canadian subsidiary also maintains a profit sharing plan for
certain salaried employees. Expense for these plans was $3,123,000,
$3,723,000 and $4,157,000 for the years ended February 3, 1996,
January 28, 1995 and January 29, 1994, respectively.
Postretirement Benefits
Western Publishing Company, Inc. provides certain health care and life
insurance benefits for substantially all of its retired employees.
Effective January 31, 1993, the Company adopted FAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than
Pensions." FAS No. 106 requires the Company to accrue the estimated
cost of retiree benefit payments during the years the employee
provides services. The Company previously expensed the cost of these
benefits, which are principally health care, as claims were incurred.
FAS No. 106 allows recognition of the cumulative effect of the
liability in the year of adoption or the amortization of the
obligation over a period of up to twenty years. The Company elected
to recognize the cumulative effect of this obligation on the
immediate recognition basis. At January 31, 1993, the Company
recognized the accumulated liability for such benefits (transition
obligation). The cumulative effect of this change in accounting
principle reduced earnings by $24,300,000 ($14,800,000, net of income
taxes).
The postretirement benefit obligation recorded in the consolidated
balance sheets consisted of the following components:
</TABLE>
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
(In thousands)
Retirees currently receiving benefits $ 13,872 $ 12,594
Current employees eligible to receive benefits 6,500 5,600
Current employees not yet eligible to receive benefits 9,400 6,600
Unrecognized net (gain) loss from past experience (4,900) 1,800
Unrecognized prior service cost 2,700 300
--------- -------
$ 27,572 $ 26,894
========= ========
</TABLE>
The net postretirement benefit cost, which is not currently funded,
consisted of the following components:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
(In thousands)
Service cost - benefits earned during the year $ 500 $ 600 $ 700
Interest cost on accumulated postretirement benefit
obligation 2,000 2,000 1,900
Net amortization and deferral of unrecognized amounts (100)
Recognition of transition obligation 24,300
--------- -------- ---------
Net postretirement benefit expense $ 2,400 $ 2,600 $ 26,900
========= ======== =========
</TABLE>
The assumed health care cost trend rate used in measuring the
accumulated postretirement benefit obligation as of January 1, 1996
was 7.5% for 1996 decreasing linearly to 5% in 2010; and remaining
level thereafter.
F-19
<PAGE>
If the health care cost trend rate were increased one percentage point
in each year, the accumulated postretirement benefit obligation as of
January 1, 1996 and the net postretirement cost would have both
increased by approximately 13%. The weighted average discount rate
used in determining the accumulated postretirement benefit obligation
as of January 1, 1996 and January 1, 1995 was 7.0% and 8.5%,
respectively.
Postemployment Benefits
During November 1992, the FASB issued FAS No. 112, "Employers'
Accounting for Postemployment Benefits", which requires the cost of
such benefits be accrued over the employee service period. The
adoption of this statement in Fiscal 1995 did not have a material
effect on the Company's financial statements.
16. INDUSTRY SEGMENT INFORMATION
The Company has two industry segments, Consumer Products and
Commercial Products.
The Company is engaged in the creation, publication, manufacturing,
printing and marketing of story and picture books, interactive
electronic books and games, coloring books and other activity books
and products for children as well as multimedia "edutainment"
products. The Company is also engaged in the manufacture and sale of
decorated paper tableware, party goods, stationery and gift products.
The Company's foreign operations within the Consumer Products Segment
consist of a marketing subsidiary in Canada and a marketing branch
in the United Kingdom.
The Company's Commercial Products Segment provides printing, graphic,
creative and distribution services and prior to May 1, 1993, was
engaged in the manufacture of advertising specialties including
imprinted writing instruments, wearable and simulated leather items,
such as wallets, folders and other promotional business products (see
Note 3).
Operating profit represents income before income taxes, interest
expense and general corporate income and expense. Identifiable assets
are those assets used specifically in the operations of each industry
segment or which are allocated when used jointly. Corporate assets are
principally comprised of cash and cash equivalents, net assets held
for sale, refundable income taxes, deferred income taxes, prepaid
pension costs and certain other assets. Domestic sales to foreign
markets were less than 10% of total consolidated sales for the years
ended February 3, 1996, January 28, 1995 and January 29, 1994.
F-20
<PAGE>
Information by industry segment is set forth below:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
(In thousands)
Net sales:
Consumer Products $ 306,543 $340,970 $ 535,603
Commercial Products 63,029 57,384 77,861
--------- -------- ---------
$ 369,572 $398,354 $ 613,464
========= ======== =========
Operating (loss) profit:
Consumer Products $ (23,887) $ (7,487) $ 192
Commercial Products 805 (112) (2,558)
--------- -------- ---------
(23,082) (7,599) (2,366)
Other income 3,386 2,253 1,168
General corporate expense (16,459) (13,648) (17,672)
Provision for restructuring and closure
of operations (8,701)
Gain on streamlining plan 2,000 20,352
Provision for write-down of Division 1,100 (28,180)
Interest expense (12,859) (17,567) (16,270)
--------- -------- ---------
Loss before income taxes and
cumulative effect of change in accounting
principle $ (55,715) $(15,109) $ (63,320)
========= ======== =========
</TABLE>
<TABLE>
<CAPTION>
Consumer Commercial
Products Products Corporate Total
-------- ---------- --------- -----
<S> <C> <C> <C> <C>
(In thousands)
Identifiable assets:
1996 $ 213,792 $ 33,521 $ 74,652 $ 321,965
1995 268,517 23,201 137,088 428,806
1994 331,502 27,974 145,640 505,116
Depreciation and amortization:
1996 12,816 1,734 1,445 15,995
1995 11,263 2,293 1,609 15,165
1994 12,176 5,153 1,184 18,513
Capital expenditures:
1996 12,540 5,202 179 17,921
1995 18,805 372 130 19,307
1994 33,524 2,443 1,392 37,359
</TABLE>
F-21
<PAGE>
Other Information
For the year ended February 3, 1996, net sales from the Company's two
largest customers, Wal-Mart Stores, Inc. and Toys `R' Us, Inc. totaled
approximately $78,400,000, or 21% of net sales. For the years ended
January 28, 1995 and January 29, 1994, revenues from these customers
totaled approximately $91,700,000 or 23% of net sales and $133,400,000
or 22% of net sales, respectively. The Company's products are
primarily sold to mass market retailers throughout the United States,
Canada and the United Kingdom.
17. NET LOSS PER COMMON SHARE
Net loss per common share was computed as follows:
1996 1995 1994
(In thousands except for
per share data)
Net loss $ (67,047) $(17,579) $ (55,825)
Preferred dividend requirements (848) (848) (848)
--------- -------- ---------
Loss applicable to Common Stock $ (67,895) $(18,427) $ (56,673)
========= ======== =========
Weighted average common shares
outstanding 21,047 20,997 20,956
========= ======== =========
Net loss per common share $ (3.23) $ (.88) $ (2.70)
========= ======== =========
* * * * * *
F-22
PROXY WESTERN PUBLISHING GROUP, INC. PROXY
444 MADISON AVENUE
NEW YORK, NEW YORK 10022
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints _____________ and _____________ as Proxies,
each with the power to appoint his substitute, and hereby authorizes them, and
each of them, to represent and vote, as designated below, all the shares of
Common Stock of Western Publishing Group, Inc. (the "Company") which the
undersigned is entitled to vote at the Special Meeting of Stockholders to be
held at Chemical Bank, 270 Park Avenue, __th Floor, Room ____, New York, New
York, on __________, May __, 1996 at 10:00 A.M., local time, and any adjournment
or postponement thereof (the "Special Meeting"), with all the powers the
undersigned would possess if personally present, upon the matters noted below:
1. Approval of the Securities Purchase Agreement dated as of January 31,
1996, as amended, between Golden Press Holding, L.L.C. and the Company
and the transactions contemplated thereby.
|_| FOR |_| AGAINST |_| ABSTAIN
2. Election of Directors to hold office until the 1996 Annual Meeting of
Stockholders.
FOR all nominees listed below WITHHOLD AUTHORITY
(except as marked to the contrary below) |_| to vote for all nominees
listed below |-|
Shahara Ahmad-Llewellyn, Barry Diller, Linda L. Janklow, Marshall
Rose, Richard E. Snyder and H. Brian Thompson
(INSTRUCTION: To withhold authority to vote for any individual
nominee, write that nominee's name on the space provided below.)
(continued and to be signed and dated on the reverse side)
3. Adoption of Amendments to the 1995 Stock Option Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
4. Adoption of the Executive Officer Bonus Plan.
|_| FOR |_| AGAINST |_| ABSTAIN
5. Adoption of an amendment to the Amended and Restated Certificate of
Incorporation changing the name of the Company to "Golden Books Family
Entertainment, Inc."
|_| FOR |_| AGAINST |_| ABSTAIN
6. Adoption of an amendment to the Amended and Restated Certificate of
Incorporation increasing the authorized number of shares of Common
Stock from 40 million shares to 60 million shares.
|_| FOR |_| AGAINST |_| ABSTAIN
7. Adoption of an amendment to the Amended and Restated Certificate of
Incorporation increasing the authorized number of shares of Preferred
Stock from 100,000 shares to 200,000 shares.
|_| FOR |_| AGAINST |_| ABSTAIN
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ADOPTION OF EACH OF
THE PROPOSALS LISTED ABOVE.
This proxy, when properly executed, will be voted in the manner directed by the
undersigned stockholder. If no direction is made, this proxy will be voted FOR
the adoption of Proposals No. 1, 2, 3, 4, 5, 6 and 7 above.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE.
Please sign exactly as name appears herein.
When shares are held by joint tenants, both should
sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by the President or other authorized
officer. If a partnership, please sign in
partnership name by authorized person.
Signature
Signature if held jointly
Dated: , 1996
<PAGE>
APPENDIX I
[COMPOSITE COPY]
AMENDED SECURITIES PURCHASE AGREEMENT
<PAGE>
AMENDED SECURITIES PURCHASE AGREEMENT
BETWEEN
GOLDEN PRESS HOLDING, L.L.C.
AND
WESTERN PUBLISHING GROUP, INC.
Dated as of January 31, 1996, as Amended by Amendment No. 1 Thereto,
Dated as of April 15, 1996
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I. SALE AND PURCHASE
Section 1.1. Agreement to Sell and to Purchase............... 3
Section 1.2. Closing......................................... 3
Section 1.3. Purchase Price.................................. 3
ARTICLE II. REPRESENTATIONS AND WARRANTIES OF BUYER
Section 2.1. Organization and Qualification.................. 4
Section 2.2. Authority Relative to this Agreement............ 4
Section 2.3. Financing Arrangements.......................... 5
Section 2.4. Investment Intent............................... 5
ARTICLE III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Section 3.1. Organization and Qualification.................. 5
Section 3.2. Capitalization.................................. 6
Section 3.3. Subsidiaries and Equity Investments............. 7
Section 3.4. Authority Relative to this Agreement............ 8
Section 3.5. Reports and Financial Statements; Undisclosed
Liabilities.................................... 9
Section 3.6. Absence of Certain Changes or Events............ 11
Section 3.7. Litigation...................................... 11
Section 3.8. Disclosure...................................... 11
Section 3.9. Employee Benefit Plans.......................... 12
Section 3.10. ERISA.......................................... 13
Section 3.11. Compliance with Applicable Laws................ 15
Section 3.12. Taxes.......................................... 15
Section 3.13. Certain Agreements............................. 16
Section 3.14. Takeover Provisions Inapplicable............... 17
Section 3.15. Company Action................................. 17
Section 3.16. Fairness Opinions.............................. 17
Section 3.17. Financial Advisors; Expenses................... 18
Section 3.18. Title to Property.............................. 18
Section 3.19. Intellectual Property.......................... 18
Section 3.20. Licenses, Permits and Authorizations........... 19
Section 3.21. Insurance...................................... 20
Section 3.22. Environment.................................... 20
Section 3.23. Related Party Transactions..................... 21
Section 3.24. No Company Material Adverse Effect............. 21
ARTICLE IV. CONDUCT OF BUSINESS PENDING THE SALE AND PURCHASE
Section 4.1. Conduct of Business by the Company.............. 22
Section 4.2. Notice of Breach................................ 25
ARTICLE V. ADDITIONAL AGREEMENTS
Section 5.1. Access and Information.......................... 26
Section 5.2. Company Proxy Statement......................... 26
Section 5.3. Stockholders' Meeting........................... 27
Section 5.4. HSR Act......................................... 28
Section 5.5. Additional Agreements........................... 28
i
<PAGE>
Section 5.6. No Solicitation.................................. 28
Section 5.7. Transfer Restriction............................. 29
Section 5.8. Director and Officer Indemnification and
Insurance....................................... 30
Section 5.9. Board of Directors............................... 30
Section 5.10. Redemption of Company Preferred Stock........... 31
Section 5.11. Expenses........................................ 31
Section 5.12. Related Party Transactions...................... 31
Section 5.13. Moore Termination............................... 31
ARTICLE VI. CONDITIONS PRECEDENT
Section 6.1. Conditions to Each Party's Obligation to Effect
the Sale and Purchase............................ 32
Section 6.2. Conditions to Obligation of the Company to Effect
the Sale and Purchase........................... 32
Section 6.3. Conditions to Obligations of Buyer to Effect the
Sale and Purchase............................... 33
ARTICLE VII. TERMINATION, AMENDMENT AND WAIVER
Section 7.1. Termination..................................... 34
Section 7.2. Effect of Termination........................... 36
Section 7.3. Amendment....................................... 36
Section 7.4. Waiver.......................................... 36
ARTICLE VIII. GENERAL PROVISIONS
Section 8.1. Non-Survival of Representations, Warranties and
Agreements...................................... 37
Section 8.2. Notices.......................................... 37
Section 8.3. Expenses; Termination Fees....................... 38
Section 8.4. Publicity........................................ 39
Section 8.5. Specific Performance............................. 40
Section 8.6. Interpretation................................... 40
Section 8.7. Miscellaneous.................................... 40
Exhibit A -- Form of Series B Certificate of Designations
Exhibit B -- Form of Warrant
Exhibit C -- Form of Registration Rights Agreement
Exhibit D -- Form of Opinion of Willkie Farr & Gallagher
Exhibit E -- Form of Opinion of Milbank, Tweed, Hadley & McCloy
ii
<PAGE>
INDEX OF DEFINED TERMS
PAGE
Beneficial ownership........................................... 36
Bernstein...................................................... 5
Business Combination Proposal.................................. 26
Buyer.......................................................... 1
Buyer Disclosure Schedule...................................... 3
Buyer Material Adverse Effect.................................. 3
CERCLA......................................................... 18
Closing........................................................ 2
Closing Date................................................... 2
Code........................................................... 11
Commission..................................................... 6
Companies...................................................... 6
Company Benefit Plans.......................................... 10
Company Common Stock........................................... 1
Company Disclosure Schedule.................................... 4
Company Material Adverse Effect................................ 4
Company Meeting................................................ 24
Company Preferred Stock........................................ 5
Company Proxy Statement........................................ 10
Company SEC Reports............................................ 8
Company Voting Matters......................................... 25
Confidentiality Agreement...................................... 23
Continuing Directors........................................... 27
Environmental Laws............................................. 18
ERISA.......................................................... 10
Exchange Act................................................... 3
Excluded_Employees............................................. 20
Expenses....................................................... 34
GAAP........................................................... 8
Governmental Entity............................................ 13
HSR Act........................................................ 3
Intellectual Property.......................................... 16
Interim SEC Reports............................................ 8
Irrevocable Proxies............................................ 31
Moore.......................................................... 11
New Preferred Shares........................................... l
New Preferred Stock............................................ l
Purchase Price................................................. 2
Registration Rights Agreement.................................. 3
Securities Act................................................. 3
Series B Certificate of Designations........................... 1
Significant Agreements......................................... 14
Significant Subsidiary......................................... 6
Snyder......................................................... 19
Stock Option Plan.............................................. 5
Subsidiaries................................................... 6
Subsidiary..................................................... 6
Superior Proposal.............................................. 26
Tax_Subsidiaries............................................... 13
Third Party.................................................... 35
Third Party Business Combination............................... 35
Warrant........................................................ l
WPV............................................................ 25
iii
<PAGE>
AMENDED SECURITIES PURCHASE AGREEMENT
THIS AMENDED SECURITIES PURCHASE AGREEMENT, dated as of
January 31, 1996, as amended by Amendment No. 1 thereto, dated as of April 15,
1996, between Western Publishing Group, Inc., a Delaware corporation (the
"Company"), and Golden Press Holding, L.L.C., a Delaware limited liability
company ("Buyer").
W I T N E S S E T H:
WHEREAS, the Company desires to create a series of its
Preferred Stock, no par value, consisting of 13,000 shares ("New Preferred
Shares") designated as its "Series B Convertible Preferred Stock" (the "New
Preferred Stock"). The terms, limitations and relative rights and preferences of
the New Preferred Stock are set forth in the Certificate of Designations,
Number, Voting Powers, Preferences and Rights of Series B Convertible Preferred
Stock of the Company, substantially in the form of Exhibit A attached hereto
(the "Series B Certificate of Designations");
WHEREAS, the Company desires to issue a warrant (the
"Warrant") to purchase an aggregate of 3,250,000 shares (subject to adjustment)
of the common stock, par value $.01 per share, of the Company ("Company Common
Stock"), substantially in the form of Exhibit B attached hereto;
WHEREAS, Buyer desires to purchase the New Preferred Shares
and the Warrant from the Company, and the Company desires to sell the New
Preferred Shares and the Warrant to Buyer, in each case upon the terms and
subject to the conditions set forth in this Agreement;
WHEREAS, the members of Buyer and the Board of Directors of
the Company have approved, and deem it advisable and in the best interests of
their members and stockholders, respectively, to consummate the purchase and
sale of the New Preferred Shares and the Warrant, upon the terms and subject to
the conditions set forth herein; and
WHEREAS, the Board of Directors of the Company, subject to
Section 5.3 hereof, has resolved to recommend approval of the purchase and sale
of the New Preferred Shares and the Warrant and the other transactions
contemplated herein to the holders of all the issued and outstanding shares of
Company Common Stock;
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements contained herein,
I-1
<PAGE>
and for other good and valuable consideration, the parties hereto agree as
follows:
I-2
<PAGE>
ARTICLE I.
SALE AND PURCHASE
Section 1.1. Agreement to Sell and to Purchase. On the
Closing Date (as defined below) and upon the terms and subject to
the conditions set forth in this Agreement, the Company shall
issue, sell, and deliver the New Preferred Shares and the Warrant
to Buyer, and Buyer shall purchase and accept the New Preferred
Shares and the Warrant from the Company.
Section 1.2. Closing. The closing of such sale and
purchase (the "Closing") shall take place (i) at the offices of
Willkie Farr & Gallagher, 153 East 53rd Street, New York, New
York, at 10:00 a.m. on the day on which the last of the
conditions set forth in Article VI is satisfied or waived, or
(ii) at such other time and place as the parties hereto shall
agree in writing. The date on which the Closing is to occur is
herein referred to as the "Closing Date."
At the Closing, the Company shall deliver to Buyer or
its designees a stock certificate representing the New Preferred
Shares and the Warrant, each of which shall be duly executed on
behalf of the Company and registered in the name of Buyer (or its
nominee). In full consideration for the New Preferred Shares and
the Warrant, Buyer shall thereupon pay to the Company the
Purchase Price (as defined below) as provided in Section 1.3
hereof.
Section 1.3. Purchase Price. The aggregate purchase
price for the New Preferred Shares and the Warrant ("Purchase
Price")shall be $65,000,000. At the Closing, Buyer shall deliver
to the Company $65,000,000 by wire transfer of immediately
available funds to such account as the Company shall designate
not less than three business days prior to the Closing Date.
ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Company as follows:
I-3
<PAGE>
Section 2.1. Organization and Qualification. Buyer is
a limited liability company duly authorized and validly existing
under the laws of the state of Delaware and has the requisite
power to carry on its business as it is now being conducted and
currently proposed to be conducted. Buyer is duly qualified to
do business, and is in good standing, in each jurisdiction where
the character of its properties owned or held under lease or the
nature of its activities make such qualification necessary,
except where the failure to be so qualified would not,
individually or in the aggregate, reasonably be expected to have
a material adverse effect on its business, properties, assets,
condition (financial or otherwise), liabilities or operations (a
"Buyer Material Adverse Effect"). Complete and correct copies as
of the date hereof of the certificate of formation of Buyer have
been delivered to the Company as part of a disclosure schedule
delivered by Buyer to the Company on the date of this Agreement
(the "Buyer Disclosure Schedule").
Section 2.2. Authority Relative to this Agreement.
Buyer has the requisite power to enter into this Agreement and to
carry out its obligations hereunder. The execution and delivery
of this Agreement and the Registration Rights Agreement between
the Company and Buyer to be entered into on the Closing Date (the
"Registration Rights Agreement"), substantially in the form of
Exhibit C attached hereto, and the consummation of the
transactions contemplated hereby and thereby have been duly
authorized by all necessary actions on the part of Buyer. This
Agreement and the Registration Rights Agreement, upon its
execution, each constitute a valid and binding obligation of
Buyer, enforceable in accordance with its terms except as
enforcement may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights
generally and except that the availability of equitable remedies,
including specific performance, is subject to the discretion of
the court before which any proceeding therefor may be brought.
No other proceedings on the part of Buyer are necessary to
authorize this Agreement or the Registration Rights Agreement and
the transactions contemplated hereby and thereby. Buyer is not
subject to or obligated under (i) any operating agreement,
indenture or other loan document provision or (ii) any other
contract, license, franchise, permit, order, decree, concession,
lease, instrument, judgment, statute, law, ordinance, rule or
regulation applicable to Buyer or its properties or assets, that
would be breached or violated, or under which there would be a
default (with or without notice or lapse of time, or both), or
under which there would arise a right of termination,
cancellation or acceleration of any obligation or the loss of a
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material benefit, by its executing and carrying out this
Agreement other than, in the case of clause (ii) only, (A) any
breaches, violations, defaults, terminations, cancellations,
accelerations or losses which, either singly or in the aggregate,
will not have a Buyer Material Adverse Effect or prevent the
consummation of the transactions contemplated hereby and (B) the laws
and regulations referred to in the next sentence. Except as
disclosed in Section 2.2 of the Buyer Disclosure Schedule or, in
connection, or in compliance, with the provisions of the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), the Securities Act of 1933, as amended (the "Securities
Act"), the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the corporation, securities or blue sky laws or
regulations of the various states, no filing or registration with, or
authorization, consent or approval of, any
public body or authority is necessary for the consummation by
Buyer of the transactions contemplated by this Agreement, other
than filings, registrations, authorizations, consents or
approvals the failure of which to make or obtain would not
reasonably be expected to have a Buyer Material Adverse Effect or
prevent the consummation of the transactions contemplated hereby.
Section 2.3. Financing Arrangements. Buyer has funds
available to it sufficient to effect the transactions
contemplated by this Agreement.
Section 2.4. Investment Intent. Buyer is acquiring
the New Preferred Shares and the Warrant for investment for its
own (or an affiliate's) account, not as a nominee or agent and
not with a view to the distribution of any part thereof in
violation of law. Buyer has no present intention of selling,
granting any participation in, or otherwise distributing the
same.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Buyer as
follows:
Section 3.1. Organization and Qualification. The
Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the
corporate power to carry on its business as it is now being
conducted and currently proposed to be conducted. The Company is
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duly qualified as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of its
properties owned or held under lease or the nature of its
activities makes such qualification necessary, except where the
failure to be so qualified would not reasonably be expected to
have a material adverse effect on the business, properties,
assets, condition (financial or otherwise), liabilities or
operations of the Company and its subsidiaries taken as a whole
(a "Company Material Adverse Effect"). Complete and correct
copies as of the date hereof of the Restated Certificate of
Incorporation and By-laws of the Company and each of its
subsidiaries have been delivered to Buyer or its representatives
as part of a disclosure schedule delivered by the Company to
Buyer on the date of this Agreement (the "Company Disclosure
Schedule").
Section 3.2. Capitalization. The authorized capital
stock of the Company consists of 40,000,000 shares of Company
Common Stock and 100,000 shares of preferred stock, no par value.
As of the date hereof, 21,276,074 shares of Company Common Stock
are validly issued and outstanding, fully paid and nonassessable
(which figure does not include shares issued upon exercise of
employee stock options granted after October 28, 1995), 208,800
shares of Company Common Stock are held in the Company's
treasury, 19,970 shares of preferred stock designated as Series A
Preferred Stock ("Company Preferred Stock") are outstanding, and
no shares of Company Preferred Stock are held in the Company's
treasury. As of October 28, 1995, employee stock options to
acquire up to 1,705,300 shares of Company Common Stock were
outstanding, and employee stock options to purchase 311,500
shares of Company Common Stock were issued from such date through
the date hereof. As of the date hereof, there are no bonds,
debentures, notes or other evidences of indebtedness having the
right to vote on any matters on which the Company's stockholders
may vote issued or outstanding. As of the date hereof, except
for (i) options to acquire up to 1,725,133 shares of Company
Common Stock issued to employees of the Company pursuant to the
Amended and Restated 1986 Employee Stock Option Plan of the
Company (the "Stock Option Plan") and (ii) 416,042 shares of
Company Common Stock issuable upon conversion of the Company
Preferred Stock, there are no options, warrants, calls or other
rights, agreements or commitments outstanding obligating the
Company to issue, deliver or sell shares of its capital stock or
debt securities, or obligating the Company to grant, extend or
enter into any such option, warrant, call or other such right,
agreement or commitment. Section 3.2 of the Company Disclosure
Schedule sets forth a complete and correct list of (a) all
agreements, offering memoranda, registration statements,
prospectuses or offering circulars concerning sales or attempted
sales of the Company's
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securities (whether by the Company or by a substantial
stockholder) since January 1, 1992 and (b) all written proposals
concerning the acquisition or proposed acquisition of the
Company's securities since January 1, 1992. As of the date
hereof, the New Preferred Shares, including the Series B
Certificate of Designations, and the Warrant were duly authorized
by the Company's Board of Directors. On or prior to the Closing
Date, assuming approval of the Company Voting Matters (as defined
in Section 5.3 hereof) by holders of the Company Common Stock,
the Series B Certificate of Designations will have become
effective in accordance with the DGCL, and all of the New
Preferred Shares and all of the shares of Company Common Stock
issuable in payment of dividends in respect of or upon conversion
of the New Preferred Shares and upon exercise of the Warrant will
be, when so issued, duly authorized, validly issued, fully paid
and nonassessable and shall be delivered free and clear of all
liens, claims, charges and encumbrances of any kind or nature
whatsoever. The Company has duly reserved 3,250,000 shares of
Company Common Stock for issuance upon exercise of the Warrant
and 9,620,000 shares of Company Common Stock for issuance upon
conversion of the New Preferred Stock and upon payment of stock
dividends in respect thereof. The Company has not agreed to
register any securities under the Securities Act (other than
pursuant to the Registration Rights Agreement and the
Registration Rights Agreement, dated as of even date herewith,
between Richard A. Bernstein ("Bernstein") and certain of his
affiliates and the Company).
Section 3.3. Subsidiaries and Equity Investments.
(a) Section 3.3 of the Company Disclosure Schedule
sets forth (i) the name of each corporation that is a
"Significant Subsidiary" (as such term is defined in Rule 1-02 of
Regulation S-X of the Securities and Exchange Commission (the
"Commission") (such subsidiaries hereinafter referred to
collectively as "Subsidiaries" and individually as a
"Subsidiary", and collectively with the Company, the
"Companies")), (ii) the name of each corporation, partnership,
joint venture or other entity (other than the Subsidiaries) in
which any of the Companies has, or pursuant to any agreement has
the right or obligation to acquire at any time by any means,
directly or indirectly, an equity interest or investment; (iii)
in the case of each of such corporations described in clauses (i)
and (ii) above, (A) the jurisdiction of incorporation, (B) the
capitalization thereof and the percentage of each class of voting
capital stock owned by any of the Companies, (C) a description of
any contractual limitations on the holder's ability to vote or
alienate such securities, (D) a
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<PAGE>
description of any outstanding options or other rights to acquire
securities of such corporation, and (E) a description of any
other contractual charge or impediment which would materially
limit or impair any of the Companies' ownership of such entity or
interest or its ability effectively to exercise the full rights
of ownership of such entity or interest; and (iv) in the case of
each of such unincorporated entities, information substantially
equivalent to that provided pursuant to clause (iii) above with
regard to corporate entities.
(b) Each Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of its
jurisdiction of incorporation and has all requisite corporate
power and authority to own its properties and assets and to
conduct its business as now conducted. Each Subsidiary is duly
qualified to do business as a foreign corporation in every
jurisdiction in which the character of the properties owned or
leased by it or the nature of the business conducted by it makes
such qualification necessary, except where the failure to be so
qualified would not reasonably be expected to have a Company
Material Adverse Effect. All the outstanding shares of capital
stock of each Subsidiary have been duly authorized and validly
issued, are fully paid and non-assessable, and (except as
specified in Section 3.3 of the Company Disclosure Schedule) are
owned of record and beneficially, directly or indirectly, by the
Company, free and clear of any liens, claims, charges, security
interests or other legal or equitable encumbrances, limitations
or restrictions. There are no outstanding options, warrants,
agreements, conversion rights, preemptive rights or other rights
to subscribe for, purchase or otherwise acquire any issued or
unissued shares of capital stock of any Subsidiary. Except as
set forth in the Company's Annual Report on Form 10-K for the
fiscal year ended January 28, 1995 or as disclosed in Section 3.3
of the Company Disclosure Schedule, the Company does not own,
directly or indirectly, any interest in any other corporation,
partnership, joint venture or other business association or
entity.
Section 3.4. Authority Relative to this Agreement.
The Company has the corporate power to enter into this Agreement
and the Registration Rights Agreement and to issue the Warrant
and, subject to approval of the Company Voting Matters by holders
of the Company Common Stock, to carry out its obligations
hereunder and thereunder. The execution and delivery of this
Agreement, the Registration Rights Agreement and the Warrant and
the consummation of the transactions contemplated hereby and
thereby have been duly authorized by the Company's Board of
Directors. Each of this Agreement, the Registration Rights
Agreement (when executed) and the Warrant (when issued)
constitutes a valid and binding obligation of the Company
enforceable in accordance with its terms except as enforcement
may be limited by bankruptcy, insolvency or other similar laws
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affecting the enforcement of creditors' rights generally and
except that the availability of equitable remedies, including
specific performance, is subject to the discretion of the court
before which any proceeding therefor may be brought. Except for
the approval of the holders of Company Common Stock described in
Section 5.3, no other proceedings on the part of the Company are
necessary to authorize this Agreement, the Registration Rights
Agreement and the Warrant and the transactions contemplated
hereby and thereby.
Except as set forth in Section 3.4 of the Company Disclosure
Schedule, neither the Company nor any subsidiary is subject to or
obligated under (i) any charter, by-law, indenture or other loan
document provision or (ii) any other contract, license,
franchise, permit, order, decree, concession, lease, instrument,
judgment, statute, law, ordinance, rule or regulation applicable
to the Company or any of its subsidiaries or their respective
properties or assets, that would be breached or violated, or
under which there would be a default (with or without notice or
lapse of time, or both), or under which there would arise a right
of termination, cancellation or acceleration of any obligation or
the loss of a material benefit, or a right to receive a severance
or other similar payment, by its executing and carrying out this
Agreement and the transactions contemplated herein, except, in
the case of clause (ii), where such breach, violation or default
would not reasonably be expected to have a Company Material
Adverse Effect. Except as disclosed in Section 3.4 of the
Company Disclosure Schedule or, in connection, or in compliance,
with the provisions of the HSR Act, the Securities Act, the
Exchange Act, and the corporation, securities or blue sky laws or
regulations of the various states, no filing or registration
with, or authorization, consent or approval of, any public body
or authority is necessary for the consummation by the Company of
the transactions contemplated hereby, except where the failure to
so file or register or to receive an authorization, consent or
approval would not reasonably be expected to have a Company
Material Adverse Effect.
Section 3.5. Reports and Financial Statements;
Undisclosed Liabilities.
(a) The Company has furnished Buyer with true and
complete copies of its (i) Annual Reports on Form 10-K for the
fiscal years ended January 29, 1994 and January 28, 1995, as
filed with the Commission, (ii) Quarterly Reports on Form 10-Q
for the quarters ended April 29, 1995, July 29, 1995 and October
28, 1995, as filed with the Commission, (iii) proxy statements
related to all meetings of its stockholders (whether annual or
special) held since January 1, 1993 and (iv) all other reports
filed with, or registration statements declared effective by, the
Commission since December 31, 1992, except registration
statements on Form S-8 relating to employee benefit plans, which
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are all the documents (other than preliminary material) that the
Company filed or was required to file with the Commission from
that date through the date hereof (clauses (i) through (iv) being
referred to herein collectively as the "Company SEC Reports").
From the date hereof through the Closing Date, the Company will
furnish to Buyer copies of any reports and registration
statements to be filed with the Commission (the "Interim SEC
Reports") within a reasonable amount of time prior to filing
thereof. As of the their respective dates, the Company SEC
Reports (or the Interim SEC Reports, as the case may be) complied
in all material respects with the requirements of the Securities
Act or the Exchange Act, as the case may be, and the rules and
regulations of the Commission thereunder applicable to such
reports and registration statements. As of their respective
dates, the Company SEC Reports (or the Interim SEC Reports, as
the case may be) did not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in
light of the circumstances under which they were, or will be,
made, not misleading. The audited consolidated financial
statements and unaudited interim financial statements of the
Company included in the Company SEC Reports (or the Interim SEC
Reports, as the case may be) comply as to form in all material
respects with applicable accounting requirements of the
Securities Act or the Exchange Act, as applicable, and with the
published rules and regulations of the Commission with respect
thereto. The financial statements and the condensed financial
statements, as applicable, included in the Company SEC Reports
(or in the Interim SEC Reports, as the case may be) (i) have been
prepared in accordance with generally accepted accounting
principles ("GAAP") applied on a consistent basis (except as may
be indicated therein or in the notes thereto), (ii) present
fairly, in all material respects, the financial position of the
Company and its subsidiaries as at the dates thereof and the
results of their operations and cash flows for the periods then
ended subject, in the case of the unaudited interim financial
statements, to normal year-end audit adjustments and any other
adjustments described therein and the fact that certain
information and notes have been condensed or omitted in
accordance with the Exchange Act and the rules promulgated
thereunder, and (iii) are in all material respects in accordance
with the books and records of the Company.
(b) Except as set forth in Section 3.5(b) or Section
3.17 of the Company Disclosure Schedule and except for
indebtedness or liabilities that are reflected or reserved
against in the most recent financial statements included in the
Company SEC Reports or that have been incurred since October 28,
1995 in the ordinary course of business, the Company does not
have any liabilities, whether absolute, accrued, contingent or
otherwise.
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<PAGE>
Section 3.6. Absence of Certain Changes or Events.
Except as disclosed in the Company SEC Reports or as disclosed in
Section 3.6 of the Company Disclosure Schedule and except for the
transactions contemplated by this Agreement, since October 28,
1995, there has not been (i) any transaction, commitment, dispute
or other event or condition (financial or otherwise) of any
character (whether or not in the ordinary course of business)
individually or in the aggregate having, or which could
reasonably be expected to have, a Company Material Adverse Effect
(other than as a result of changes in laws or regulations of
general applicability), (ii) any damage, destruction or loss,
whether or not covered by insurance, which, individually or in
the aggregate, has had or, insofar as reasonably can be foreseen,
in the future would reasonably be expected to have, a Company
Material Adverse Effect, or (iii) any entry into any commitment
or transaction material to the Company and its subsidiaries taken
as a whole (including, without limitation, any borrowing or sale
or purchase of assets) except in the ordinary course of business
consistent with past practice.
Section 3.7. Litigation. Except as disclosed in the
Company's Annual Report on Form 10-K for the year ended January
28, 1995, or the Company's Quarterly Reports on Form 10-Q for the
quarters ended April 29, 1995, July 29, 1995 and October 28,
1995, or as disclosed in Section 3.7 of the Company Disclosure
Schedule, there is no claim, suit, action or proceeding pending
or, to the knowledge of the Company, threatened against or
affecting the Company or any subsidiary which, either alone or in
the aggregate, would reasonably be expected to have a Company
Material Adverse Effect, nor is there any judgment, decree,
injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or arbitrator outstanding
against the Company or any subsidiary having, or which in the
future could reasonably be expected to have, either alone or in
the aggregate, any such Company Material Adverse Effect.
Section 3.8. Disclosure. None of the information with
respect to the Company or its subsidiaries to be included or
incorporated by reference in the proxy statement of the Company,
including any amendments or supplements thereto (collectively,
the "Company Proxy Statement"), to be mailed to the stockholders
of the Company in connection with the transactions contemplated
herein will, at the time of the mailing of the Company Proxy
Statement and at the time of the Company Meeting (as defined in
Section 5.3), contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading;
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<PAGE>
provided, however, that this provision shall not apply to
statements or omissions in the Company Proxy Statement based upon
information expressly furnished by or on behalf of Buyer for use
therein. The Company Proxy Statement will comply as to form in
all material respects with the provisions of the Exchange Act and
the rules and regulations thereunder. No representation or
warranty made by the Company contained in this Agreement and no
statement contained in any certificate, list, exhibit or other
instrument specified in this Agreement, including without
limitation the Company Disclosure Schedule, contains any untrue
statement of a material fact or omits or will omit to state a
material fact necessary to make the statements contained therein,
in light of the circumstances under which they were made,
not misleading, and no fact or circumstance exists or has
occurred which has, or in the future can reasonably be expected
to have, a Company Material Adverse Effect which has not been
disclosed in this Agreement, the Company Disclosure Schedule or
the Company SEC Reports. Prior to the date hereof, the Company
has provided or made available to Buyer or its representatives
complete and accurate copies of (i) all unredacted minutes of
meetings and written consents of the Board of Directors of the
Company and committees thereof since January 1, 1993 and (ii) all
documents and agreements, including any amendments, renewals or
modifications thereof, referenced in the Company Disclosure
Schedule.
Section 3.9. Employee Benefit Plans. (a) Except as
disclosed in the Company SEC Reports or as disclosed in Section
3.9(a) of the Company Disclosure Schedule, there are no material
employee benefit or compensation plans, agreements or
arrangements, including, but not limited to, "employee benefit
plans," as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and including,
but not limited to, plans, agreements or arrangements relating to
former employees, including, but not limited to, retiree medical
plans, maintained by the Company or any of its subsidiaries or to
which the Company or any of its subsidiaries has an obligation to
make contributions or material collective bargaining agreements
to which the Company or any of its subsidiaries is a party
(together, "Company Benefit Plans"). No default exists with
respect to the obligations of the Company or any of its
subsidiaries under any such Company Benefit Plan, which default,
either alone or in the aggregate, would reasonably be expected to
have a Company Material Adverse Effect. Since January 1, 1993,
there have been no disputes or grievances subject to any
grievance procedure, unfair labor practice proceedings,
arbitration or litigation under such Company Benefit Plans, that
have not been finally resolved, settled or otherwise disposed of,
nor is there any default, or any condition which, with notice or
lapse of time or both, would constitute such a default, under any
such Company
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<PAGE>
Benefit Plans, by the Company or its subsidiaries or, to the best
knowledge of the Company, any other party thereto, which failure
to resolve, settle or otherwise dispose of or default, either
alone or in the aggregate, would reasonably be expected have a
Company Material Adverse Effect. Since January 1, 1993 there
have been no strikes, lockouts or work stoppages or slowdowns, or
to the best knowledge of the Company and its subsidiaries,
jurisdictional disputes or organizing activity occurring or
threatened with respect to the business or operations of the
Company or its subsidiaries that, individually or in the
aggregate, have had or would reasonably be expected to have a
Company Material Adverse Effect.
(b) All of the approximately 175 employees of the
Company or its subsidiaries who, pursuant to letters distributed
in December 1993, were made beneficiaries of certain benefits
payable upon a "change of control" of the Company have
subsequently received letters in July 1994 effectively
terminating such benefits, and no such person has or will, or
could in the future, under any circumstances, become eligible for
such benefits. Section 3.9(b) of the Company Disclosure Schedule
sets forth in reasonable detail the amount of benefits that would
have been payable to such beneficiaries who are employed by the
Company or any of its subsidiaries on the date hereof pursuant to
such letters had all the requisite conditions therefor been
subsequently satisfied in December 1993 and assuming that such
benefits had never been revoked.
(c) The employment of John F. Moore ("Moore") with the
Company and its subsidiaries was terminated as of January 26,
1996. The terms of such termination are set forth in Section
3.9(c) of the Company Disclosure Schedule.
Section 3.10. ERISA. All Company Benefit Plans have
been administered in accordance with, and are in compliance with,
the applicable provisions of ERISA, the Internal Revenue Code of
1986, as amended (the "Code") and all other Laws, domestic or
foreign, except where such failures to administer or comply would
not reasonably be expected to have a Company Material Adverse
Effect. Except as disclosed in Section 3.10 of the Company
Disclosure Schedule, each of the Company Benefit Plans which is
intended to meet the requirements of Section 401(a) of the Code
has been determined, or, as described in Section 3.10 of the
Company Disclosure Schedule, is in the process of being
determined by the Internal Revenue Service to be "qualified,"
within the meaning of such section of the Code, and the Company
knows of no fact which is likely to have an adverse effect on the
qualified status of such plans, including any failure to request
a determination letter from the Internal Revenue Service
regarding any such plan's compliance with the applicable
requirements of the Tax Reform Act of 1986 within the Code
Section 401(b) remedial amendment period.
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None of the Company Benefit Plans which are defined
benefit pension plans have incurred any "accumulated funding
deficiency" (whether or not waived) as that term is defined in
Section 412 of the Code and, as disclosed in the Coopers &
Lybrand actuarial report dated April 7, 1995 delivered by the
Company to the Buyer prior to the date hereof, the fair market
value of the assets of each such plan equal or exceed the accrued
liabilities of such plan. To the best knowledge of the Company,
there are not now nor have there been any non-exempt "prohibited
transactions," as such term is defined in Section 4975 of the
Code or Section 406 of ERISA, involving the Company's Benefit
Plans which could subject the Company, its subsidiaries or Buyer
to the penalty or tax imposed under Section 502(i) of ERISA or
Section 4975 of the Code and which would reasonably be expected
to have a Company Material Adverse Effect. Except as set forth
in Section 3.10 of the Company Disclosure Schedule, no Company
Benefit Plan which is subject to Title IV of ERISA has been
completely or partially terminated; no proceedings to completely
or partially terminate any Company Benefit Plan have been
instituted by the Pension Benefit Guaranty Corporation under
Title IV of ERISA; and no reportable event within the meaning of
Section 4043(c) of ERISA has occurred with respect to any Company
Benefit Plan. Neither the Company nor any of its subsidiaries
has any outstanding liability under Section 4062, 4063 or 4064 of
ERISA with respect to any "single-employer plan", as defined in
Section 4001(a)(15) of ERISA, and, to the best knowledge of the
Company, no event has occurred which could reasonably be expected
to result in any such liability except for any such liability
which would not reasonably be expected to have a Company Material
Adverse Effect. Neither the Company nor any of its subsidiaries
has made a complete or partial withdrawal, within the meaning of
Section 4201 of ERISA, from any "multiemployer plan", as defined
in Section 4001(a)(3) of ERISA, which has resulted in, or is
reasonably expected to result in, any withdrawal liability to the
Company or any of its subsidiaries except for any such liability
which would not reasonably be expected to have a Company Material
Adverse Effect. Neither the Company nor any of its subsidiaries
has engaged in any transaction described in Section 4069 of ERISA
within the last five years except for any such transaction which
would not reasonably be expected to have a Company Material
Adverse Effect. The Company and its subsidiaries have complied
with all requirements of the Worker Adjustment and Retraining
Notification Act and any similar state or local "plant closing"
law with respect to the employees of the Company and its
subsidiaries, except for such failures to comply as would not
reasonably be expected to have a Company Material Adverse Effect.
Except as disclosed in Section 3.10 of the Company Disclosure
Schedule, neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will
(i) result in any payment becoming due to any current, former or
retired employee of the Company and its subsidiaries, (ii)
increase any benefits otherwise payable under any Company Benefit
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Plan or (iii) result in the acceleration of the time for payment
or vesting of any benefits under any Company Benefit Plan.
Section 3.11. Compliance with Applicable Laws. Except
as disclosed in the Company SEC Reports filed prior to the date
of this Agreement or in Section 3.11 of the Company Disclosure
Schedule, the businesses of the Company and its subsidiaries are
not being conducted in violation of any law, ordinance,
regulation, order or writ of any governmental or regulatory
authority, domestic or foreign ("Governmental Entity"), except
for possible violations that individually or in the aggregate do
not and would not reasonably be expected to have a Company
Material Adverse Effect. Neither the Company nor any of its
subsidiaries has received notice of violation of any law,
ordinance, regulation, order or writ, or is in default with
respect to any order, writ, judgment, award, injunction or decree
of any Governmental Entity, that would affect any of their
respective assets, properties or operations, except for such
violations or defaults as would not, individually or in the
aggregate, reasonably be expected to have a Company Material
Adverse Effect. Except as disclosed in Section 3.11 of the
Company Disclosure Schedule, no investigation or review by any
Governmental Entity with respect to the Company or any of its
subsidiaries (a) is pending, nor (b) to the knowledge of the
Company, (i) is threatened nor (ii) has any Governmental Entity
indicated an intention to conduct the same, other than those the
outcome of which would not reasonably be expected to have a
Company Material Adverse Effect. Section 3.11 of the Company
Disclosure Schedule sets forth a complete and correct list as of
the date hereof of all material filings and correspondence with,
reports to, and transcripts of any significant proceedings
(including dates thereof) before, any Governmental Entity since
January 1, 1993.
Section 3.12. Taxes.
(a) Each of the Company and the subsidiaries of which
it owns 50% or more of the capital stock (the "Tax Subsidiaries")
has filed all tax returns required to be filed by any of them and
has paid (or the Company has paid on its behalf), or has set up
an adequate reserve for the payment of, all taxes required to be
paid in respect of the periods covered by such returns, except
where the failure to pay would not reasonably be expected to have
a Company Material Adverse Effect. The information contained in
such tax returns is true, complete and accurate in all material
respects, except where a failure to be so would not reasonably be
expected to have a Company Material Adverse Effect. Except as
disclosed in Section 3.12 of the Company Disclosure Schedule,
neither the Company nor any Tax Subsidiary is delinquent in the
payment of
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any assessed tax or other assessed governmental charge, except
where such delinquency would not reasonably be expected to have a
Company Material Adverse Effect. Except as disclosed in Section
3.12 of the Company Disclosure Schedule, no deficiencies for any
taxes have been proposed, asserted or assessed against the
Company or any of its Tax Subsidiaries that have not been finally
settled or paid in full, which would reasonably be expected to
have a Company Material Adverse Effect, and no requests for
waivers of the time to assess any such tax are pending.
(b) Neither the Company nor any of its subsidiaries is
a party to any contract or arrangement which would result in an
"excess parachute payment" within the meaning of Section 280G of
the Code as a consequence of the transactions contemplated
hereby, assuming for this purpose satisfaction of the
requirements of Section 280(G)(b)(2)(A)(i) of the Code.
Section 3.13. Certain Agreements. Neither the Company
nor any of its subsidiaries is in default (or would be in default
with notice or lapse of time, or both) under, is in violation (or
would be in violation with notice or lapse of time, or both) of,
or has otherwise breached, any indenture, note, credit agreement,
loan document, lease, license or other agreement, including,
without limitation, any Significant Agreement (as defined below),
whether or not such default has been waived, which default, alone
or in the aggregate with all other such defaults, would
reasonably be expected to have a Company Material Adverse Effect.
Section 3.13(a) of the Company Disclosure Schedule contains a
complete and correct list as of the date hereof of each
agreement, contract and commitment of the following types,
written or oral, to which the Company or its subsidiaries is a
party or by which they or any of their assets are bound: (a)
mortgages, indentures, security agreements, guarantees, pledges
and other agreements and instruments relating to the borrowing of
money or extension of credit; (b) employment, severance and
material consulting agreements; (c) licenses of patent, trademark
and other rights relating to any Intellectual Property (as
defined below) and any other licenses, permits and authorizations
relating to the businesses of the Company and its subsidiaries
(whether as licensor or licensee) that involve by their terms a
per annum payment in excess of $100,000 or resulted in a payment
obligation in excess of $100,000 in the calendar year ended
December 31, 1995; (d) joint venture or partnership contract or
agreement; and (e) consignment sales contracts and franchise
agreements (whether as franchisor or franchisee) granting the
franchisee the privilege to sell the franchisor's products or
services in a specified geographic area ((a) through (e)
collectively, "Significant Agreements"). Prior to the date
hereof, the Company has delivered or made available to Buyer or
its representatives complete and correct copies of all written
Significant Agreements together will all amendments thereto, and
accurate descriptions
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of all oral Significant Agreements. Each Significant Agreement
is in full force and effect and is binding upon the Company and,
to the Company's knowledge, is binding upon such other parties,
in each case in accordance with its terms. There are no material
unresolved disputes involving the Company or any of its
subsidiaries under any Significant Agreement.
Section 3.14. Takeover Provisions Inapplicable. As of
the date hereof and at all times on or prior to the Closing Date,
Section 203 of the DGCL is, and shall be, inapplicable to the
transactions contemplated by this Agreement (including the
granting of an irrevocable proxy by Bernstein to Buyer). Section
3.14 of the Company Disclosure Schedule sets forth a complete and
correct copy of the resolutions of the Board of Directors of the
Company to the effect that such section of the DGCL is, and shall
be, inapplicable to the transactions contemplated by this
Agreement.
Section 3.15. Company Action. The Board of Directors
of the Company (at a meeting duly called and held) has by
unanimous vote of the directors (i) determined that the
transactions that are the subject of the Company Voting Matters
(as defined in Section 5.3 hereof) are advisable and in the best
interests of the Company and its stockholders, (ii) recommended
the approval of this Agreement, the transactions that are the
subject of the Company Voting Matters and the other matters to be
voted upon at the Company Meeting as contemplated hereby by the
holders of the Company Common Stock and directed that the
transactions that are the subject of the Company Voting Matters
and the other matters to be voted upon at the Company Meeting as
contemplated hereby be submitted for consideration by the
Company's stockholders at the Company Meeting, and (iii) adopted
a resolution having the effect of causing the Company not to be
subject, to the extent permitted by applicable law, to any state
takeover law that may purport to be applicable to the
transactions contemplated by this Agreement.
Section 3.16. Fairness Opinions. The Company has
received, and has furnished the Buyer with a complete and correct
copy of, the written opinion of each of Bear, Stearns & Co. Inc.
("Bear Stearns") and Jefferies & Company, Inc. ("Jefferies"), the
financial advisors to the Company, dated the date hereof, to the
effect that the consideration to be received by the Company for
the New Preferred Shares and the Warrant is fair to the Company
from a financial point of view, and such opinions have not been
withdrawn or otherwise modified.
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Section 3.17. Financial Advisors; Expenses.
(a) Except for Bear Stearns and Jefferies, a complete
and correct copy of the engagement letter between each of whom
and the Company has been furnished to Buyer, no broker, finder or
investment banker is entitled to any brokerage, finder's or other
fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or
on behalf of the Company.
(b) The fees, costs and expenses (including without
limitation, all attorneys' and accountants' fees and expenses but
excluding the fees, costs and expenses incurred by Buyer and its
affiliates) incurred through the date hereof by each of the
Company and its subsidiaries, any committees of the Company's
Board of Directors and Bernstein in connection with the
transactions contemplated hereby, including, without limitation,
all severance and related costs, consulting fees, payments made
for non-compete agreements and all fees and commissions
(including expenses) payable to Bear Stearns and Jefferies, as
well as a good faith projection of all such fees, costs and
expenses that will be incurred by each such party from the date
hereof through the Closing Date, are set forth in reasonable
detail on Section 3.17 of the Company Disclosure Schedule.
Section 3.18. Title to Property. Except as set forth
on Section 3.18 of the Company Disclosure Schedule, the Company
and its subsidiaries have good, marketable and unencumbered
title, or valid leasehold rights in the case of leased property,
to all real property and all personal property purported to be
owned or leased by them or that is required for the conduct of
the businesses of the Company or its subsidiaries as presently
conducted, free and clear of all liens, security interests,
claims, encumbrances and charges, excluding (i) liens for fees,
taxes, levies, duties or governmental charges of any kind that
are not yet delinquent or are being contested in good faith by
appropriate proceedings which suspend the collection thereof,
(ii) liens for mechanics, materialmen, laborers, employees,
suppliers or other liens arising by operation of law for sums
which are not yet delinquent or are being contested in good faith
by appropriate proceedings, (iii) easements and similar
encumbrances ordinarily created for fuller utilization and
enjoyment of property, and (iv) liens or defects in title or
leasehold rights that, in the aggregate, do not and would not
reasonably be expected to have a Company Material Adverse Effect.
Section 3.19. Intellectual Property. The Companies
own or possess adequate licenses or other valid rights to use all
patents, patent rights, copyrights, service marks, service mark
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rights, trademarks, trademark rights, trade names, trade name
rights, proprietary characters and products (or any likeness or
other attribute thereof) and proprietary information used or held
for use in connection with the businesses of the Company and its
subsidiaries (collectively, the "Intellectual Property") as
currently being conducted and are unaware of any assertions or
claims challenging the validity of any of the foregoing that,
individually or in the aggregate, would reasonably be expected to
have a Company Material Adverse Effect; and the conduct of the
businesses of the Company and its subsidiaries as now conducted
or now proposed to be conducted by the Company does not and will
not conflict with any patents, patent rights, copyrights, service
marks, service mark rights, licenses, trademarks, trademark
rights, trade names, trade name rights or copyrights of others in
any way that would reasonably be expected to have a Company
Material Adverse Effect. No known existing infringement of any
proprietary right owned by or licensed by or to the Company and
its subsidiaries would reasonably be expected to have a Company
Material Adverse Effect. Other than as set forth in the Company
SEC Reports or Section 3.19 of the Company Disclosure Schedule,
neither the Company nor any of its subsidiaries, since January 1,
1993, has transferred, assigned, hypothecated or otherwise
disposed of any rights to use, produce, market or in any way
exploit through any electronic medium (including computer
software) any Intellectual Property. Except as set forth in
Section 3.19 of the Company Disclosure Schedule, neither the
Company nor any of its subsidiaries, orally or in writing, has
assigned, transferred, hypothecated or otherwise disposed of (or
agreed to do any of the foregoing) any of its rights with respect
to any Intellectual Property to any affiliates of the Company, or
any officers, directors or affiliates of any officers or
directors of the Company, except to wholly owned subsidiaries of
the Company or the Company.
Section 3.20. Licenses, Permits and Authorizations.
No license, permit or authorization that is currently held by the
Company or any of its subsidiaries with respect to the businesses
of the Company and its subsidiaries, or which is required for the
conduct of the businesses of the Company or its subsidiaries as
presently conducted, is subject to any restriction or condition
that limits in any material respect the businesses of the Company
and its subsidiaries as presently conducted, and there are no
applications by the Company or any of its subsidiaries with
respect to any material aspect of the businesses of the Company
or its subsidiaries, or complaints by other persons or entities
pending or threatened as of the date hereof before any
Governmental Entity relating to any material licenses, permits or
authorizations applicable to the businesses of the Company or its
subsidiaries, where such complaints have or would reasonably be
expected to have a Company Material Adverse Effect. The Company
has provided the Buyer or its representatives with copies of all
material licenses, permits, and authorizations
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that are currently held by the Company or any of its
subsidiaries. Except as set forth on Section 3.20 of the Company
Disclosure Schedule, no consents or approvals of a Governmental
Entity are necessary for the material licenses, permits and
authorizations of the Companies to continue in full force and
effect following consummation of the transactions contemplated by
this Agreement.
Section 3.21. Insurance. The insurance policies in
force at the date hereof, with respect to the assets, properties
or operations of each of the Company and its subsidiaries are in
full force and effect with reputable insurers in such amounts and
insure against such losses and risks (including product
liability) as are consistent with historical practices and
customary to protect the properties and businesses of the Company
and its subsidiaries.
Section 3.22. Environment.
(a) As used herein, the term "Environmental Laws"
means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water,
groundwater, land surface or subsurface strata), including,
without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants,
contaminants, or industrial, toxic or hazardous substances or
wastes into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of chemicals, pollutants,
contaminants, or industrial, toxic or hazardous substances or
wastes, as well as all authorizations, codes, decrees, demands or
demand letters, injunctions, judgments, licenses, notices or
notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.
(b) Except as disclosed on Section 3.22 of the Company
Disclosure Schedule or in the Company SEC Reports, there are,
with respect to the Company and its subsidiaries, and all real
property currently or formerly owned, leased, or otherwise used
by the Company or its subsidiaries, no past or present violations
of Environmental Laws, releases of any material into the
environment, actions, activities, circumstances, conditions,
events, incidents, or contractual obligations which may give rise
to any common law or other legal liability, including, without
limitation, liability under the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980 ("CERCLA") or
similar state or local laws, which liabilities, either
individually or in the aggregate, would have a Company Material
Adverse Effect. Except as disclosed on Schedule 3.22 hereto or
in the Company SEC Reports, to the
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knowledge of the Company, there have been and are no (i)
polychlorinated biphenyls, (ii) underground storage tanks, or
(iii) asbestos-containing materials located on, under, or in any
portion of real property currently or formerly owned, leased, or
otherwise used by the Company or its subsidiaries.
(c) The Company has provided to Buyer all
environmental studies and reports pertaining to the previous and
current real property and the improvements thereon of the Company
and its subsidiaries that they are aware of, have commissioned or
have in their possession. To the knowledge of the Company and
its subsidiaries, the information furnished by the Company to
Willkie Farr & Gallagher under cover of a letter dated December
14, 1995 is true and correct in all material respects, and there
is no environmental condition or noncompliance that has resulted
in, or would reasonably be expected to result in, a Company
Material Adverse Effect.
Section 3.23. Related Party Transactions. Section
3.23(a) of the Company Disclosure Schedule and the Company SEC
Reports together set forth the transactions and agreements
(whether oral or written) during the past five years between the
Company and its subsidiaries on the one hand, and (i) any
employee, officer or director of the Companies, (ii) a record or
beneficial owner of five percent (5%) or more of Company Common
Stock, or (iii) any affiliate of any such employee, officer,
director or beneficial owner, on the other hand, other than
payment of employee compensation. Except as disclosed in the
Company SEC Reports or in Section 3.23(a) of the Company
Disclosure Schedule, during the past three years no employee,
officer or director of the Companies, or any spouse or relative
of any of such persons, has been a director or officer of, or has
had any direct or indirect interest in, any firm, corporation,
association or business enterprise which during such period has
been a supplier, customer, sales agent, or licensor or licensee
of real or personal property or Intellectual Property, of the
Company or any of its subsidiaries or has competed with or been
engaged in any business of the kind being conducted by the
businesses of the Company and its subsidiaries.
Section 3.24. No Company Material Adverse Effect.
Except as disclosed in the Company SEC Reports filed prior to the
date hereof or in Section 3.24 or any other Section of the
Company Disclosure Schedule, there does not exist any fact or
circumstance which, alone or together with another fact or
circumstance, would reasonably be expected to result in a Company
Material Adverse Effect.
ARTICLE IV.
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CONDUCT OF BUSINESS PENDING THE SALE AND PURCHASE
Section 4.1. Conduct of Business by the Company. From
the date hereof through the Closing Date, unless either Buyer or
Richard E. Snyder ("Snyder") shall otherwise agree in writing:
(i) the Company shall, and shall cause its subsidiaries to,
carry on their respective businesses in the usual, regular and
ordinary course in substantially the same manner as heretofore
conducted, and shall, and shall cause its subsidiaries to, use
their best efforts to preserve intact their present business
organizations, keep available the services of their present
officers and employees and preserve their relationships with
customers, suppliers and others having business dealings with
them to the end that their goodwill and on-going businesses shall
be unimpaired on the Closing Date, except such impairment as
would not reasonably be expected to have a Company Material
Adverse Effect. The Company shall, and shall cause its
subsidiaries to, (A) maintain insurance coverages and its books
and records in a manner consistent with prior practices, (B)
comply in all material respects with all laws, ordinances and
regulations of Governmental Entities applicable to the Company
and its subsidiaries, (C) maintain and keep its properties and
equipment in good repair, working order and condition, ordinary
wear and tear excepted, and (D) perform in all material respects
its obligations under all contracts and commitments to which it
is a party or by which it is bound, except in each case where the
failure to so maintain, comply or perform, either individually or
in the aggregate, would not reasonably be expected to result in a
Company Material Adverse Effect;
(ii) the Company shall not, nor shall it propose to,
except as required by this Agreement, (A) sell or pledge or
agree to sell or pledge any capital stock owned by it in any
of its subsidiaries, (B) amend its Certificate of
Incorporation or By-laws, (C) split, combine or reclassify
its outstanding capital stock or issue or authorize or
propose the issuance of any other securities in respect of,
in lieu of or in substitution for shares of the capital
stock, or, except as contemplated by this Agreement,
declare, set aside or pay any dividend or other distribution
payable in cash, stock or property (other than dividends
payable on the Company Preferred Stock, to the extent
otherwise permitted), or (D) directly or indirectly redeem,
purchase or otherwise acquire or agree to redeem, purchase
or otherwise acquire any shares of its capital stock, except
as contemplated by this Agreement or except pursuant to (x)
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<PAGE>
the exercise of rights granted to such party to repurchase
shares of its capital stock from employees upon termination
of employment or (y) contractual obligations arising under
agreements existing on the date hereof and disclosed in the
Company Disclosure Schedule;
(iii) the Company shall not, nor shall it permit any
of its subsidiaries to, (A) except as required by this
Agreement, issue, deliver or sell or agree to issue, deliver
or sell any additional shares of, or stock appreciation
rights or rights of any kind to acquire any shares of, its
capital stock of any class, or any option, rights or
warrants to acquire, or securities convertible into, shares
of capital stock other than (x) issuances of Company Common
Stock pursuant to the exercise of warrants or stock options
outstanding on the date hereof and disclosed on Section
4.1(iii) of the Company Disclosure Schedule, or (y) the
grant of employee stock options and the issuance of Company
Common Stock upon exercise thereof, at fair market value at
the time of grant of the options, in each case in the
ordinary course of business and consistent with past
practice, to employees (other than Richard A. Bernstein,
James A. Cohen, Ilan K. Reich, Steven M. Grossman and Ira A.
Gomberg (collectively, the "Excluded Employees")), provided
that such employees are not affiliates or immediate family
members of Excluded Employees, and provided further that the
sum of the number of shares of Company Common Stock issuable
upon exercise of all employee stock options outstanding on
the date hereof and the aggregate number of such options
granted pursuant to this clause (y) shall not exceed the sum
of 1,874,300 and such number of options outstanding on the
date hereof that expire or are canceled (but not exercised)
after the date hereof, (B) except for the sale of the
facility located in Fayetteville, North Carolina, acquire,
lease or dispose or agree to acquire, lease or dispose of
any capital assets or any other assets other than in the
ordinary course of business, (C) incur additional
indebtedness or encumber or grant a security interest in any
asset or enter into any transaction other than in the
ordinary course of business, (D) incur any liability or
obligation, or contribute any asset, to a subsidiary of the
Company other than in the ordinary course of business, (E)
acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial equity interest in, or
by any other manner, any business or any corporation,
partnership, association or other business organization or
division thereof, in each case in this clause (E) which are
material, individually or in the aggregate, to the Company
and its subsidiaries taken as a whole, or (F) adopt, enter
into, amend or terminate any contract, agreement, commitment
or arrangement with respect to any of the foregoing that is
not otherwise permitted by the exceptions applicable to the
foregoing;
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<PAGE>
(iv) the Company shall not, nor shall it permit any of
its subsidiaries to, except as required to comply with
applicable law, (A) except as set forth in Section 4.1(iv)
of the Company Disclosure Schedule, adopt, enter into,
terminate or amend any bonus, profit sharing, compensation,
severance, termination, stock option, pension, retirement,
deferred compensation, employment or other Company Benefit
Plan agreement, trust, fund or other arrangement for the
benefit or welfare of any director, officer or current or
former employee, (B) increase in any manner the compensation
or fringe benefits of any director, officer or employee
(except for normal increases in the ordinary course of
business that are consistent with past practice and that, in
the aggregate, do not result in a material increase in
benefits or compensation expense to such party and its
subsidiaries relative to the level in effect prior to such
increase), (C) pay any benefit not provided under any
Company Benefit Plan disclosed to Buyer in Section 3.9(a) of
the Company Disclosure Schedule or any employee benefit or
compensation plan or agreement of the Company or any of its
subsidiaries which, by its terms, is not required to be
disclosed therein, in each case, that is in existence on the
date hereof, provided that the aggregate amount of bonuses
under the Company's Management Incentive Plan, which is the
only bonus plan for the Excluded Employees, paid pursuant to
this clause (C) to Excluded Employees shall not exceed
$375,000, (D) except for benefits that have already been
earned or vested without acceleration, grant any awards or
make any payments under any bonus, incentive, performance or
other compensation plan or arrangement or Company Benefit
Plan (including, without limitation, the grant of stock
options, stock appreciation rights, stock based or stock
related awards, performance units or restricted stock, or
the removal of existing restrictions in any benefit plans or
agreements or awards made thereunder), except for (x) making
of matching and annual contributions to 401(k) plans and (y)
the grant of employee stock options (and the issuance of
Company Common Stock upon exercise thereof), at fair market
value at the time of grant of the options, to employees
(other than Excluded Employees), provided that such
employees are not affiliates or immediate family members of
Excluded Employees, and provided further that the sum of the
number of shares of Company Common Stock issuable upon
exercise of all employee stock options outstanding on the
date hereof and the aggregate number of such options granted
pursuant to this clause (y) shall not exceed the sum of
1,874,300 and such number of options outstanding on the date
hereof that expire or are canceled (but not exercised) after
the date hereof, in the case of each of clause (x) and (y),
in the ordinary course of business and consistent with past
practice, (E) take any action to fund or in any other way
secure the payment of compensation or benefits under any
employee plan, agreement, contract or arrangement or Company
Benefit Plan, other than in the ordinary course of business
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consistent with past practice, or (F) adopt, enter into,
amend or terminate any contract, agreement, commitment or
arrangement to do any of the foregoing that is not otherwise
permitted by the exceptions applicable to the foregoing;
(v) the Company shall not, nor shall it permit any of
its subsidiaries to, make any investments in non-investment
grade securities;
(vi) the Company shall not, nor shall it permit its
subsidiaries to make any change in its accounting policies
or procedures except as required under statutory accounting
practices or GAAP, as applicable;
(vii) the Company shall use its best reasonable efforts
to refrain from taking, nor shall it permit any of its
subsidiaries to take, any action that would, or reasonably
might be expected to, result in any of its representations
and warranties set forth in this Agreement being or becoming
untrue in any material respect, or in any of the conditions
set forth in Article VI not being satisfied, or (unless such
action is required by applicable law) which would adversely
affect the ability of the Company to obtain any of the
regulatory approvals required to consummate the transactions
contemplated hereby;
(viii) the Company shall use its best efforts to
maintain in full force and effect each of the Significant
Agreements;
(ix) the Company shall not terminate or materially
modify the employment arrangements of Snyder, including the
employment agreement, dated as of even date herewith,
between the Company and Snyder, other than for cause (as
defined in the 1/31/96 draft of the employment agreement to
be entered into between the Company and Snyder on the
Closing Date); and
(x) the Company shall not enter into any agreement to
perform any of the actions prohibited under this Section 4.1
and not otherwise permitted by the exceptions contained
therein.
Section 4.2. Notice of Breach. Each party shall
promptly give written notice to the other party upon becoming
aware of the occurrence or, to its knowledge, impending or
threatened occurrence, of any event which would cause any of its
representations or warranties to be untrue on the Closing Date or
cause a material breach of any covenant contained or referenced
in this Agreement and will use its best reasonable efforts to
prevent or promptly remedy the same. Any such notification shall
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not be deemed an amendment of the Company Disclosure Schedule or
the Buyer Disclosure Schedule.
ARTICLE V.
ADDITIONAL AGREEMENTS
Section 5.1. Access and Information. The Company and
its subsidiaries shall afford to Buyer and to Buyer's
accountants, counsel and other representatives full access during
normal business hours (and at such other times as the parties may
mutually agree) throughout the period prior to the Closing to all
of its properties, books, contracts, commitments, records and
personnel and, during such period, the Company shall furnish
promptly to Buyer a copy of (i) each report, schedule and other
document filed or received by it pursuant to the requirements of
federal or state securities laws, and (ii) monthly financial
statements and all other information concerning its business,
properties and personnel as the Buyer or its representatives may
reasonably request. Buyer shall hold, and shall cause its
employees and agents to hold, in confidence all such information
in accordance with the terms of the Confidentiality Agreement,
dated May 19, 1995, between Buyer, Snyder and the Company (the
"Confidentiality Agreement").
Section 5.2. Company Proxy Statement.
(a) As promptly as practicable after the execution of
this Agreement, the Company shall prepare and file with the
Commission preliminary proxy materials which shall constitute the
preliminary Company Proxy Statement. Buyer shall furnish to the
Company such information regarding Buyer as the Company may
reasonably request in writing and as shall be reasonably required
in connection with preparation of the Company Proxy Statement.
As promptly as practicable after comments are received from the
Commission with respect to such preliminary materials and after
the furnishing by the Company of all information required to be
contained therein, the Company shall file with the Commission the
definitive Company Proxy Statement.
The Company shall mail the foregoing to its stockholders as
promptly as practicable after clearance by the Commission. The
Company shall provide Buyer for its review a copy of the
preliminary and the final Company Proxy Statement at least such
amount of time prior to its filing and mailing as is customary in
transactions of the type contemplated hereby and shall not file
or mail such Company Proxy Statement without the
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prior written consent of Buyer, which consent shall not be
unreasonably withheld or delayed.
(b) The Company shall retain the services of a proxy
soliciting firm mutually acceptable to Buyer and the Company for
the purpose of communicating to the Company's stockholders the
recommendation of the Company's Board of Directors in favor of
the transactions contemplated hereby and of seeking to obtain
sufficient votes to satisfy the requirements of Section 5.3 and
of applicable law for the completion of the transactions
contemplated hereby.
(c) Buyer and the Company shall make all necessary
filings applicable to it with respect to the transactions
contemplated hereby under the Securities Act and the Exchange Act
and the rules and regulations thereunder and under applicable
Blue Sky or similar securities laws and shall use its best
reasonable efforts to obtain required approvals and clearances
with respect thereto.
Section 5.3. Stockholders' Meeting. The Company shall
take all action necessary, in accordance with applicable law,
including the rules and regulations of the National Association
of Securities Dealers, Inc., and the Company's Certificate of
Incorporation and By-laws, to convene a meeting of the holders of
Company Common Stock (the "Company Meeting") as promptly as
practicable for the purpose of considering and taking action to
authorize this Agreement and the transactions contemplated
hereby, including the transactions contemplated by Section 6.1(d)
hereof and (subject to the consummation of the transactions
contemplated hereby) the election as directors of the Company of
the individuals set forth on Schedule 5.9 hereof (collectively,
the "Company Voting Matters"), as well as amendments to the
Restated Certificate of Incorporation of the Company changing the
name of the Company to "Golden Books Family Entertainment Inc." and
increasing the authorized number of shares of Company Common Stock from
40,000,000 to 60,000,000 and the authorized number of shares of
preferred stock from 100,000 to 200,000. Subject to its
fiduciary duties as advised by outside counsel in connection with
the receipt by the Company of a Business Combination Proposal (as
defined in Section 5.6) that the Board of Directors of the
Company reasonably believes is likely to result in a Superior
Proposal (as defined in Section 5.6), the Board of Directors of
the Company will recommend that holders of Company Common Stock
vote in favor of and approve the Company Voting Matters and the
other matters described above at the Company Meeting. At the
Company Meeting, all of the shares of Company Common Stock then
owned by Buyer, each member thereof, any affiliates of any member
(other than of Warburg, Pincus Ventures, L.P. ("WPV")) and the
general partnership that acts as a general partner
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of WPV, or with respect to which such persons or entities hold
the power to direct the voting, will be voted in favor of the
Company Voting Matters and the other matters described above.
Prior to Closing, the Company shall take all actions necessary to
permit the change of the name of the Company as contemplated
above, including changing the name of any subsidiary of the
Company that presently has the desired name and reserving the
desired name with the Secretary of State of the State of
Delaware.
Section 5.4. HSR Act. The Company and Buyer shall use
their reasonable best efforts to file as soon as practicable
notifications under the HSR Act in connection with the
transactions contemplated hereby, and to respond as promptly as
practicable to any inquiries received from the Federal Trade
Commission and the Antitrust Division of the Department of
Justice for additional information or documentation and to
respond as promptly as practicable to all inquiries and requests
received from any State Attorney General or other governmental
authority in connection with antitrust matters relating to the
transactions contemplated by this Agreement.
Section 5.5. Additional Agreements.
(a) Subject to the terms and conditions herein
provided, each of the parties hereto agrees to cooperate with
each other and use its best reasonable efforts to take, or cause
to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions
contemplated by this Agreement, including using its best
reasonable efforts to obtain all necessary waivers, consents and
approvals, and to effect all necessary registrations and filings
(including, but not limited to, filings under the HSR Act and
with all applicable Governmental Entities).
(b) In case at any time after the Closing any further
action is necessary or desirable to carry out the purposes of
this Agreement, Buyer and the Company shall take all such
necessary action.
Section 5.6. No Solicitation.
(a) Except as contemplated by this Agreement, the
Company shall not, nor shall any of its subsidiaries, directly or
indirectly, take (nor shall the Company authorize or permit its
subsidiaries, officers, directors, employees, representatives,
investment bankers, attorneys, accountants or other agents or
affiliates, to take) any action to (i) solicit or initiate the
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submission of any Business Combination Proposal (as defined
below), (ii) enter into any agreement with respect to any
Business Combination Proposal or (iii) participate in any way in
discussions or negotiations with, or furnish any information to,
any person or entity in connection with, or take any other action
to facilitate any inquiries or the making of any proposal that
constitutes, or may reasonably be expected to lead to, any
Business Combination Proposal; provided, however, that (A) the
Company may participate in discussions or negotiations with or
furnish information to any Third Party (as defined in Section
8.3(b)) which makes an unsolicited proposal of a transaction
which the Board of Directors of the Company reasonably believes
is likely to result in a Superior Proposal (as defined below) and
(B) the Company may recommend to its shareholders a Business
Combination Proposal which it has reasonably determined is likely
to result in a Superior Proposal. For purposes of this
Agreement, "Business Combination Proposal" shall mean, with
respect to the Company, any tender or exchange offer, proposal
for a merger, consolidation or other series of related
transactions in a business combination involving the Company or
any Subsidiary of the Company or any other proposal or offer to
enter into a Third Party Business Combination (as defined in
Section 8.3(b)), and "Superior Proposal" shall mean, with respect
to the Company, any Business Combination Proposal pursuant to
which a Third Party would, or would have the right to, acquire
more than 25% of the outstanding voting capital stock of the
Company and which the Board of Directors of the Company
reasonably determines, based upon advice of its financial
advisors, is financially superior than the transactions
contemplated hereby and is likely to be consummated.
(b) In addition to the obligations of the Company set
forth in Section 5.6(a), the Company shall promptly advise Buyer
of any request for information or of any Business Combination
Proposal, or any inquiry with respect to or which appears to be
intended to or could reasonably be expected to lead to any
Business Combination Proposal, the material terms and conditions
of such request, Business Combination Proposal or inquiry, and
the identity of the person or entity making any such request,
Business Combination Proposal or inquiry. The Company shall keep
Buyer fully informed of the status and details of any such
request, Business Combination Proposal or inquiry and shall
promptly furnish Buyer a copy of any written proposal in
connection therewith.
Section 5.7. Transfer Restriction. Until the earlier
to occur of (i) the second anniversary of the issuance of the
Warrant and (ii) the date on which a bona fide Business
Combination Proposal is publicly announced or a proxy
solicitation for control of the Company's Board of Directors is
initiated by any person or entity (other than Buyer, each member
thereof, any affiliates of such
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members (other than of WPV) and the general partnership that acts
as a general partner of WPV), Buyer shall not sell, transfer or
assign the Warrant other than to any members of Buyer or to any
affiliate of Buyer or such members.
Section 5.8. Director and Officer Indemnification and
Insurance. From the date hereof through the third anniversary of
the Closing Date and for so long as any claim asserted prior to
such date has not been fully adjudicated by a court of competent
jurisdiction, the Company (i) shall at all times maintain
liability insurance coverage with respect to each of the
Company's and its subsidiaries' respective current and former
directors and officers and persons serving in a fiduciary
capacity at the direction of the board of directors or of any
officer of the Company or any of its subsidiaries (at least to
the extent covered by the current Company liability insurance
policies), insuring each such individual against liability for
their actions in such capacities occurring prior to the Closing
and in scope of coverage and in amounts and having deductibles at
least equivalent to that maintained by the Company on the date
hereof and otherwise reasonably comparable to the coverage
maintained by the Company on the date hereof and (ii) shall not
amend or modify any of the provisions of Article Eight of the
Company's Restated Certificate of Incorporation or Article 6 of
the Company's By-laws in any manner that would adversely affect
such individuals, unless required by law.
Section 5.9. Board of Directors. The individuals set
forth on Schedule 5.9 hereto (the "Continuing Directors"),
subject to their election at the Company Meeting by the holders
of Company Common Stock as contemplated by Section 5.3 and to the
applicable provisions of the Restated Certificate of
Incorporation and By-laws of the Company, shall be the directors
of the Company until their respective successors shall be duly
elected or appointed and qualified. A majority of the Continuing
Directors set forth on Schedule 5.9 shall be designated by Buyer
(the "Designated Directors"). Schedule 5.9 will be provided
subsequent to the date hereof but prior to the filing of the
preliminary Company Proxy Statement, and the Designated Directors
set forth thereon shall be approved by the Company's Board of
Directors, subject only to their fiduciary duties.
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Section 5.10. Redemption of Company Preferred Stock.
Effective upon the Closing, the Company shall duly cause all of
the shares of the Company Preferred Stock then outstanding to be
redeemed for cash, including payment of all accumulated and
unpaid dividends thereon, pursuant to the terms of the Company's
Restated Certificate of Incorporation.
Section 5.11. Expenses. The expenses incurred (or to
be incurred) by the Company or its subsidiaries at any time from
the commencement of discussions among the parties hereto and
their representatives in connection with the transactions
contemplated hereby (including, without limitation, the proposed
transactions that ultimately evolved into the transactions
contemplated hereby) through the Closing Date relating to (i)
severance and related costs in respect of employees located at
444 Madison Avenue and payments made for non-compete agreements
and all fees and commissions (including expenses) payable to Bear
Stearns and Jefferies and (ii) any independent committees of the
Company's Board of Directors, shall not exceed $3,925,000 in the
aggregate.
Section 5.12. Related Party Transactions. Except as
set forth in Section 5.12 of the Company Disclosure Schedule, any
and all transactions set forth in Section 3.23 of the Company
Disclosure Schedule between the Company or any of its
subsidiaries and any of the persons or entities described in
clauses (i), (ii) and (iii) of Section 3.23 shall be canceled by
the Closing Date such that the Company and its subsidiaries will
have no rights to any assets or properties of such persons or
entities or obligations whatsoever with respect to such
transactions, and such other persons or entities will have no
rights to any assets or property (including Intellectual
Property) of the Company or any of its subsidiaries or
obligations whatsoever with respect to such transactions.
Section 5.13. Moore Termination. The Company shall
deliver to Buyer prior to the Closing Date copies of written
agreements duly executed by the Company (or the appropriate
subsidiary of the Company) and Moore, in form and substance
reasonably satisfactory to Buyer, implementing the terms of the
termination of Moore as described in Section 3.9(c) of the
Company Disclosure Schedule.
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ARTICLE VI.
CONDITIONS PRECEDENT
Section 6.1. Conditions to Each Party's Obligation to
Effect the Sale and Purchase. The respective obligations of each
party to effect the transactions contemplated by this Agreement
shall be subject to the satisfaction on or prior to the Closing
Date of the following conditions, any one or more of which may be
waived in a writing executed by Buyer and the Company subject to
and in accordance with Section 7.4 hereof:
(a) This Agreement and the other Company Voting
Matters shall have been approved and adopted by the requisite
vote of the holders of the Company Common Stock.
(b) The waiting period applicable to the consummation
of the sale and purchase of the New Preferred Shares under the
HSR Act shall have expired or been terminated.
(c) No preliminary or permanent injunction or other
order by any federal or state court in the United States which
prevents the consummation of the transactions contemplated hereby
shall have been issued and remain in effect, and no other legal
proceedings, challenge or litigation challenging the legality of
or threatening the consummation of, or otherwise arising out of,
the transactions contemplated hereby or seeking an injunction in
order to prevent the consummation of the transactions
contemplated hereby shall be pending.
(d) The amendments to the Stock Option Plan adopted by
the Company's Board of Directors on the date hereof and the
Company's Incentive Bonus Plan in the form delivered to Buyer on
the date hereof shall have been approved by the Company's Board
of Directors (and such approval shall not have been modified or
rescinded) and by the requisite vote of the holders of Company
Common Stock in a manner that complies with the requirements of
Rule 16b-3 of the Exchange Act and Section 162(m) of the Code.
Section 6.2. Conditions to Obligation of the Company
to Effect the Sale and Purchase. The obligation of the Company
to effect the transactions contemplated by this Agreement shall
be subject to the satisfaction on or prior to the Closing Date of
the additional following conditions, unless waived in writing by
the Company in accordance with Section 7.4 hereof:
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(a) Buyer shall have performed in all material
respects its agreements contained in this Agreement required to
be performed on or prior to the Closing Date, and the
representations and warranties of Buyer contained in this
Agreement shall be true in all respects when made and on and as
of the Closing Date as if made on and as of such date (except to
the extent they are expressly made as of another specific date
and except if any breaches of such representations and warranties
have not, in the aggregate, resulted in, and would not reasonably
be expected to result in, a Buyer Material Adverse Effect), and
the Company shall have received, on behalf of Buyer, a
certificate executed by an authorized member of Buyer to that
effect. For purposes of this Section 6.2(a), all representation
and warranties qualified by materiality shall not be deemed to be
so qualified.
(b) All permits, consents, authorizations, approvals,
registrations, qualifications, designations and declarations set
forth in Section 2.2 of the Buyer Disclosure Schedule shall have
been obtained, and, to the extent required to be submitted prior
to the Closing, all filings and notices set forth in Section 2.2
of the Buyer Disclosure Schedule shall have been submitted by
Buyer.
(c) The Company shall have received an opinion of
Willkie Farr & Gallagher relating to certain matters set forth in
Article II, substantially in the form of Exhibit D attached
hereto.
Section 6.3. Conditions to Obligations of Buyer to
Effect the Sale and Purchase. The obligations of Buyer to effect
the transactions contemplated by this Agreement shall be subject
to the satisfaction on or prior to the Closing Date of the
additional following conditions, unless waived in writing by
Buyer in accordance with Section 7.4 hereof:
(a) The Company shall have performed in all material
respects its agreements contained in this Agreement required to
be performed on or prior to the Closing Date, and the
representations and warranties of the Company contained in this
Agreement shall be true in all respects when made and on and as
of the Closing Date as if made on and as of such date (except to
the extent they are expressly made as of another specific date
and except if any breaches of such representations and warranties
have not, in the aggregate, resulted in, and would not reasonably
be expected to result in, a Company Material Adverse Effect) and
Buyer shall have received a certificate executed by the Chief
Executive Officer and the Chief Financial Officer of the Company
on behalf of the Company to that effect. For purposes of this
Section 6.3(a), all representation and warranties qualified by
materiality shall not be deemed to be so qualified.
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(b) All permits, consents, authorizations, approvals,
registrations, qualifications, designations and declarations set
forth in Sections 3.4 and 6.3(b) of the Company Disclosure
Schedule shall have been obtained and, to the extent required to
be submitted prior to the Closing, all filings and notices set
forth in Sections 3.4 and 6.3(b) of the Company Disclosure
Schedule shall have been submitted by the Company.
(c) Neither the Board of Directors of the Company nor
any committee thereof shall have amended, modified, rescinded or
repealed the recommendation of the Company's Board of Directors
to the stockholders of the Company to approve the adoption of
this Agreement, and neither the Board of Directors of the Company
nor any committee thereof shall have adopted any other
resolutions in connection with this Agreement and the
transactions contemplated hereby inconsistent with such
recommendation of the consummation of the transactions
contemplated hereby.
(d) The Registration Rights Agreement shall have been
entered into by the Company.
(e) Buyer shall have received opinions from Milbank,
Tweed, Hadley & McCloy, substantially in the form of Exhibit E
attached hereto.
(f) The Irrevocable Proxies, dated as of even date
herewith, between Buyer and each of Bernstein and certain of his
affiliates (the "Irrevocable Proxies") shall be in full force and
effect and no representation, warranty, covenant or agreement set
forth therein shall have been breached in any material respect on
the part of Bernstein or any of his affiliates, as the case may
be.
ARTICLE VII.
TERMINATION, AMENDMENT AND WAIVER
Section 7.1. Termination. This Agreement may be
terminated at any time prior to the Closing, whether before or
after approval of the Company Voting Matters by the stockholders
of the Company:
(a) by mutual consent of the members of Buyer and the
Board of Directors of the Company;
(b) by either Buyer or the Company if the transactions
contemplated by this Agreement shall not have been consummated on
or before May 22, 1996 (provided the terminating party is not
otherwise (i) in material breach of its covenants or agreements
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<PAGE>
under this Agreement or (ii) in breach (determined without regard
to any materiality qualifier therein) of its representations and
warranties contained in this Agreement such that such breaches of
representations and warranties, in the aggregate, have resulted,
or would reasonably be expected to result in (A) if Buyer is the
terminating party, a Buyer Material Adverse Effect or (B) if the
Company is the terminating party, a Company Material Adverse
Effect);
(c) by the Company if any of the conditions specified
in Sections 6.1 or 6.2 have not been met or waived by the Company
at such time as such condition is no longer capable of
satisfaction, including the failure to obtain any required
approval of the Company Voting Matters at a duly held meeting of
stockholders or at an adjournment thereof (provided the Company
is not otherwise (i) in material breach of its covenants or
agreements under this Agreement or (ii) in breach (determined
without regard to any materiality qualifier therein) of its
representations and warranties contained in this Agreement such
that such breaches of representations and warranties, in the
aggregate, have resulted, or would reasonably be expected to
result in, a Company Material Adverse Effect, and provided
further that the failure to obtain such approval is not due to a
breach by Bernstein or any of his affiliates of their respective
obligations under the Irrevocable Proxies);
(d) by Buyer if any of the conditions specified in
Sections 6.1 or 6.3 have not been met or waived by Buyer at such
time as such condition is no longer capable of satisfaction,
including the failure to obtain any required approval of the
Company's stockholders at the Company Meeting or at an
adjournment thereof (provided Buyer is not otherwise (i) in
material breach of its covenants or agreements under this
Agreement or (ii) in breach (determined without regard to any
materiality qualifier therein) of its representations and
warranties contained in this Agreement such that such breaches of
representations and warranties, in the aggregate, have resulted,
or would reasonably be expected to result in, a Buyer Material
Adverse Effect);
(e) by either Buyer or the Company if there has been a
breach on the part of the other of any of (i) its covenants or
agreements under this Agreement in a material respect or (ii) its
representations and warranties contained in this Agreement
(determined without regard to any materiality qualifier therein)
such that such breaches of representations and warranties, in the
aggregate, have resulted, or would reasonably be expected to
result in, (A) if Buyer is the terminating party, a Company
Material Adverse Effect or (B) if the Company is the terminating
party, a Buyer Material Adverse Effect), or by Buyer if there has
been a material breach on the part of Bernstein or any of his
affiliates of any representation, warranty, covenant or agreement
set forth in any of the Irrevocable Proxies, which breach has not
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<PAGE>
been cured within fifteen business days following receipt by the
breaching party of written notice of such breach;
(f) by either Buyer or the Company upon written notice
to the other party if any Governmental Entity of competent
jurisdiction shall have issued a final permanent order enjoining
or otherwise prohibiting the consummation of the transactions
contemplated by this Agreement, and in any such case the time for
appeal or petition for reconsideration of such order shall have
expired without such appeal or petition being granted; or
(g) by either Buyer or the Company if the Board of
Directors of the Company reasonably determines that a Business
Combination Proposal is likely to result in a Superior Proposal;
provided, however, that termination of this Agreement under this
Section 7.1(g) by the Company shall not be effective unless and
until (i) simultaneously with such termination the Company enters
into a definitive agreement to effect the Business Combination
Proposal and (ii) the Company has made payment in full of the fee
required in Section 8.3(b) hereof.
Section 7.2. Effect of Termination. In the event of
termination of this Agreement by either Buyer or the Company as
provided above, this Agreement shall forthwith become void and
(except for termination of this Agreement pursuant to Section
7.1(e) resulting from a breach of a covenant set forth in this
Agreement) there shall be no liability on the part of either the
Company or Buyer or their respective officers or directors;
provided that Section 3.17, the last sentence of Section 5.1,
this Section 7.2 and Sections 8.3, 8.6 and 8.7 shall survive the
termination.
Section 7.3. Amendment. This Agreement may be amended
by the parties hereto, by or pursuant to action taken by Buyer's
members and the Company's Board of Directors, at any time before
or after approval hereof by the stockholders of the Company, but,
after such approval, no amendment shall be made which in any way
materially adversely affects the rights of such stockholders,
without the further approval of such stockholders. This
Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
Section 7.4. Waiver. At any time prior to the
Closing, the parties hereto, by or pursuant to action taken by
Buyer's members and the Company's Board of Directors, may (i)
extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties of any other
party contained herein or in any documents delivered pursuant
hereto by any other party and (iii)
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<PAGE>
waive compliance with any of the agreements or conditions
contained herein; provided, however, that no such waiver shall
materially adversely affect the rights of the stockholders of the
Company or Buyer, as the case may be. Any agreement on the part
of a party hereto to any such extension or waiver shall be valid
if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE VIII.
GENERAL PROVISIONS
Section 8.1. Non-Survival of Representations,
Warranties and Agreements. All representations and warranties
set forth in this Agreement shall terminate at the earlier of (x)
the Closing and (y) termination of this Agreement in accordance
with Article VII hereof. All covenants and agreements set forth
in this Agreement shall survive in accordance with their terms.
Section 8.2. Notices. All notices or other
communications under this Agreement shall be in writing and shall
be given (and shall be deemed to have been duly given upon
receipt) by delivery in person, by cable, telegram, telex or
other standard form of telecommunications, or by registered or
certified mail, postage prepaid, return receipt requested,
addressed as follows:
If to the Company:
Western Publishing Group, Inc.
444 Madison Avenue
Suite 601
New York, New York 10022
Attention: Richard A. Bernstein
Telecopy No.: (212) 888-5025
With a copy to:
James A. Cohen, Esq.
Senior Vice President -
Legal Affairs
Western Publishing Group, Inc.
444 Madison Avenue
New York, New York 10022
Telecopy No.: (212) 888-5025
and a copy to:
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<PAGE>
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10005
Attention: Lawrence Lederman, Esq.
Telecopy No.: (212) 530-5219
If to Buyer:
Golden Press Holding, L.L.C.
c/o Warburg, Pincus Ventures, L.P.
466 Lexington Avenue
New York, New York 10017
Attention: Joanne R. Wenig
Telecopy No.: (212) 878-9351
With a copy to:
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
Attention: Jack H. Nusbaum, Esq.
Telecopy No.: (212) 821-8111
or to such other address as any party may have furnished to the
other parties in writing in accordance with this Section 8.2.
Section 8.3. Expenses; Termination Fees.
(a) Except in cases in which a fee is paid pursuant to
Section 8.3(b), all costs, fees and expenses incurred in
connection with this Agreement and the transactions contemplated
hereby (collectively, "Expenses") shall be paid by the party
incurring such costs and expenses, provided that (i) if the
transactions contemplated by this Agreement are consummated or if
they are not consummated as a result of a breach (determined
without regard to any materiality qualifier therein) by the
Company of any representation or warranty made as of the date
hereof in this Agreement (such that such breach, in the
aggregate, has resulted, or would reasonably be expected to
result in, a Company Material Adverse Effect), all Expenses
incurred by Buyer shall be paid by the Company and (ii) if the
transactions contemplated by this Agreement are not consummated
for any other reason, all Expenses incurred by Buyer from and
after December 14, 1995 shall be paid by the Company, in each
case not to exceed an aggregate amount of $4,000,000.
(b) If (i) the transactions contemplated by this
Agreement are not consummated as a result of a material breach by
the Company of Section 5.6 hereof, (ii) the Agreement is
terminated pursuant to Section 7.1(g) hereof, or (iii) a Third
Party Business Combination (as defined below) shall occur either
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<PAGE>
prior to the termination of this Agreement pursuant to Section
7.1(a), 7.1(b), 7.1(c) (other than by the Company as a result of
the failure of a condition specified in Section 6.2 to be
satisfied), 7.1(d) or 7.1(g) hereof or within nine months
following the date this Agreement is terminated pursuant to
Section 7.1(e) hereof (unless properly terminated by the Company
pursuant to Section 7.1(e)), then the Company shall pay to Buyer,
within five business days after receipt of a written request
therefor in the case of clause (i) and immediately after the
termination of this Agreement pursuant to Section 7.1(g) or the
occurrence of a Third Party Business Combination in the case of
clauses (ii) and (iii), respectively, an amount in same day funds
equal to $2,000,000. For purposes of this Agreement, the term
"Third Party Business Combination" of the Company hereto means
the occurrence of any of the following events: (A) the Company
or any Subsidiary of the Company is acquired by merger or
otherwise by any person, entity or group, other than the other
party hereto or any affiliate thereof (a "Third Party"); (B) the
Company or any subsidiary of the Company enters into an agreement
with a Third Party which contemplates the acquisition of 25% or
more of the total assets of the Company and its subsidiaries
taken as a whole; (C) the Company enters into a merger or other
agreement with a Third Party which contemplates the acquisition
of beneficial ownership of more than 25% of the outstanding
shares of the Company Common Stock (or securities convertible
thereinto or exercisable therefor); (D) a Third Party acquires
more than 25% of the total assets of the Company and its
subsidiaries taken as a whole; (E) a Third Party who, as of the
date 10 days preceding the date hereof, beneficially owns less
than 10% of the outstanding shares of the Company Common Stock
obtains beneficial ownership of such number of shares of Company
Common Stock such that it beneficially owns more than 25% of the
outstanding shares of the Company Common Stock, or any person,
entity or group which beneficially owns (or has the right to
acquire) 10% or more of the outstanding shares of the Company
Common Stock increases its beneficial ownership of the
outstanding shares of Company Common Stock by 10% or more; (F)
the Company adopts a plan of liquidation relating to more than
25% of the total assets of the Company and its subsidiaries taken
as a whole; (G) the Company repurchases more than 25% of the
outstanding shares of the Company's capital stock; or (H) there
is a public announcement or written proposal with respect to a
plan or intention by the Company or a Third Party to effect any
of the foregoing transactions (provided such transaction is
consummated during the nine month period following such public
announcement or written proposal). For purposes of this
Agreement, the term "beneficial ownership" shall have the meaning
set forth in Rule 13d-3 of the Exchange Act.
Section 8.4. Publicity. So long as this Agreement is
in effect, Buyer and
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the Company agree to consult with each other in issuing any press
release or otherwise making any public statement with respect to
the transactions contemplated by this Agreement, and none of them
shall issue any press release or make any public statement prior
to such consultation. The commencement of litigation relating to
this Agreement or the transactions contemplated hereby or any
proceedings in connection therewith shall not be deemed a
violation of this Section 8.4.
Section 8.5. Specific Performance. The parties hereto
agree that irreparable damage would occur in the event that any
of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached.
It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction,
this being in addition to any other remedy to which they are
entitled at law or in equity.
Section 8.6. Interpretation. The headings contained
in this Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this
Agreement.
Section 8.7. Miscellaneous. This Agreement (including
the documents, exhibits, schedules and instruments referred to
herein), together with the Confidentiality Agreement,
(i) constitutes the entire agreement and supersedes all other
prior agreements and understandings, both written and oral, among
the parties, or any of them, with respect to the subject matter
hereof, (ii) except for certain persons under Section 5.8 hereof,
is not intended to confer upon any other person or entity any
rights or remedies hereunder and shall be binding upon and inure
to the benefit solely of each party hereto, and their respective
successors and assigns, (iii) shall not be assigned by operation
of law or otherwise, and (iv) shall be governed in all respects,
including validity, interpretation and effect, by the laws of the
State of New York (without giving effect to the provisions
thereof relating to conflicts of law); provided, however, that
the law of the State of Delaware shall govern as to internal
corporate matters. This Agreement may be executed in any number
of counterparts which together shall constitute a single
agreement.
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<PAGE>
IN WITNESS WHEREOF, each of Buyer and the Company has
caused this Agreement to be duly signed on its behalf all as of
the date first written above.
GOLDEN PRESS HOLDING, L.L.C.
By: WARBURG, PINCUS VENTURES, L.P.
Member
By:
----------------------------
Name:
Title: General Partner
WESTERN PUBLISHING GROUP, INC.
By:
----------------------------
Name:
Title:
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APPENDIX II
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of January 31,
1996, is entered into by and among Western Publishing Group, Inc., a Delaware
corporation (the "Company"), Richard A. Bernstein ("Bernstein"), the Trust, fbo
Richard A. Bernstein u/a March 16, 1978, Richard A. Bernstein and Stuart Turner,
as trustees (the "Bernstein Trust"), The Richard A. and Amelia Bernstein
Foundation, Inc., a New York not-for-profit corporation (the "Bernstein
Foundation"), and the Trust fbo Richard A. Bernstein u/a Barry S. Bernstein
dated April 5, 1986, Fleet National Bank of Connecticut, as trustee (the "Fleet
National Trust").
WHEREAS, Bernstein is the owner of 3,501,000 shares of common
stock, par value $.01 per share, of the Company ("Common Stock"), the Bernstein
Trust is the owner of 400,000 shares of Common Stock, the Bernstein Foundation
is the owner of 60,000 shares of Common Stock and the Fleet National Trust is
the owner of 95,771 shares of Common Stock (collectively, the "Registrable
Securities" (subject to Section 1(e) below));
WHEREAS, the Company has agreed to grant to each Holder
certain rights to have the shares of Common Stock owned by such Holder
registered under the Securities Act of 1933, as amended (the "Act");
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises and covenants herein contained, the parties hereto hereby agree
as follows:
SECTION 1. Definitions.
As used in this Agreement:
(a) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Act;
(b) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended;
(c) the term "Holders" shall mean Bernstein, the Bernstein
Trust, the Bernstein Foundation, the Fleet National Trust and permitted
transferees of Registrable Securities pursuant to Section 10 hereof;
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<PAGE>
(d) the term "Initiating Holder" shall mean any Holder or
Holders who in the aggregate are Holders of more than 50% of the then
outstanding Registrable Securities;
(e) the terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Act (and any post-effective amendments filed or
required to be filed) and the declaration or ordering of effectiveness of such
registration statement;
(f) "Registrable Securities" is defined in the first recital
hereof and shall also include any capital stock of the Company issued as a
dividend or other distribution with respect to, or in exchange for or in
replacement of, any such securities, provided, however, that any shares
transferred to a person other than a Holder shall cease to be Registrable
Securities;
(g) "Registration Expenses" shall mean all expenses incurred
by the Company in compliance with Sections 2, 3, 4, 5 and 6 hereof, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, blue sky fees and expenses, the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company, which shall
be paid in any event by the Company);
(h) "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for each of the Holders.
SECTION 2. Demand Registration.
(a) Request for Registration. If the Company shall receive
from an Initiating Holder, at any time after the Company's publicly announcing
(which may include disclosure in the proxy statement mailed to the holders of
Company Common Stock in connection with the transaction contemplated by the
Securities Purchase Agreement (as defined in Section 7(a) hereof)) the
consolidated financial results of the Company and its consolidated subsidiaries
for the fiscal year ending February 3, 1996 in the same detail as the Company's
public announcement of such results for the fiscal year ended January 29, 1995
(containing at least the consolidated revenues, operating income and net income
of the Company and its consolidated subsidiaries),
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a written request that the
Company effect any registration with respect to all or a part of the Registrable
Securities, the Company will:
(i) within five (5) days of receipt of such
request, give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its diligent best
efforts to effect such registration (including, without
limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under
applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued
under the Act) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of
such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as
are specified in a written request received by the Company
within ten (10) days after written notice from the Company is
given under Section 2(a)(i) above; provided further that the
Company shall not be obligated to effect, or take any action
to effect, any such registration pursuant to this Section 2:
(A) In any particular jurisdiction in
which the Company would be required to execute a
general consent to service of process in effecting
such registration, qualification or compliance,
unless the Company is already subject to service in
such jurisdiction and except as may be required by
the Act or applicable rules or regulations
thereunder;
(B) After the Company has effected two
(2) such registrations pursuant to this Section 2,
provided that the Company shall be deemed to have
effected such a registration if a registration
statement is filed at the request of the Holders and
(x) is subsequently withdrawn other than at the
initiative of the Company or (y) is declared
effective;
(C) If, after the first anniversary of
the date hereof, in the good faith judgment of the
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Board of Directors of the Company, it would not be in
the best interests of the Company and its
stockholders generally for such registration
statement to be filed, provided that such deferral
does not last longer than 90 days and will not occur
more than once in any 12-month period.
The registration statement filed pursuant to the request of
the Initiating Holders may, subject to the provisions of Section 2(b) below,
include other securities of the Company which are held by officers or directors
of the Company, or which are held by persons who, by virtue of agreements with
the Company, are entitled to include their securities in any such registration,
but the Company shall have no absolute right to include any of its securities in
any such registration.
(b) Underwriting. Any distribution of Registrable Securities
pursuant to this Section 2 shall be accomplished by means of a firm commitment
underwriting.
If officers or directors of the Company holding other
securities of the Company shall request inclusion in any registration pursuant
to Section 2, or if holders of securities of the Company other than Registrable
Securities who are entitled, by contract with the Company or otherwise, to have
securities included in such a registration (the "Other Stockholders") request
such inclusion, the Holders shall offer to include the securities of such
officers, directors and Other Stockholders in the underwriting and may condition
such offer on their acceptance of the further applicable provisions of this
Section 2. The Holders whose shares are to be included in such registration and
the Company shall (together with all officers, directors and Other Stockholders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by the Company, which
selection shall be reasonably acceptable to the Initiating Holders.
Notwithstanding any other provision of this Section 2, if the representative
advises the Holders in writing that marketing factors require a limitation on
the number of shares to be underwritten, the securities of the Company held by
officers or directors (other than Registrable Securities) of the Company and the
securities held by Other Stockholders shall be excluded from such registration
to the extent so required by such limitation. If, after the exclusion of such
shares, further reductions are still required, the number of shares included in
the registration by each Holder shall be reduced on a pro rata basis (based on
the number of shares originally proposed to be registered by such Holder) by
such minimum number of shares as is
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<PAGE>
necessary to comply with such request. No
Registrable Securities or any other securities excluded from the underwriting by
reason of the underwriter's marketing limitation shall be included in such
registration. If any of the Holders or any officer, director or Other
Stockholder who has requested inclusion in such registration as provided above
disapproves of the terms of the underwriting, such person may elect to withdraw
therefrom by written notice to the Company, the underwriter and the Initiating
Holders. The securities so withdrawn shall also be withdrawn from registration.
If the underwriter has not limited the number of Registrable Securities or other
securities to be underwritten, the Company may include its securities for its
own account in such registration if the representative so agrees and if the
number of Registrable Securities and other securities which would otherwise have
been included in such registration and underwriting will not thereby be limited.
(c) Conditions. Any offering of Registrable Securities
registered pursuant to this Section 2 shall be subject to the following
conditions:
(i) No purchaser shall be an
Entrepreneurial Investor (as defined in the Irrevocable Proxy,
dated as of even date herewith, between Golden Press Holding,
L.L.C. ("GP Holding") and the Shareholder); and
(ii) Such offering shall not be made for
reasonable periods before and, as determined by the managing
underwriter in respect of such offering, after the effective
date of a registration statement for any primary or secondary
public offering of the Company's securities.
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<PAGE>
SECTION 3. Company Registration.
(a) Request For Registration. If the Company shall determine
to register any of its equity securities either for its own account or for the
account of a security holder or holders exercising their respective demand
registration rights (other than a registration relating solely to employee
benefit plans, or a registration relating solely to a Commission Rule 145
transaction, or a registration on any registration form which does not permit
secondary sales or does not include substantially the same information as would
be required to be included in a registration statement covering the sale of
Registrable Securities), the Company will:
(i) promptly give to each of the Holders a written
notice thereof which shall describe in reasonable detail the
proposed registration and distribution (including those
jurisdictions in which the Company intends to attempt to
qualify such securities under the applicable blue sky or other
state securities laws); and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in
any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made by
the Holders within fifteen (15) days after receipt of the
written notice from the Company described in clause (i) above,
except as set forth in Section 3(b) below. Such written
request may specify all or a part of the Holders' Registrable
Securities.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise each of the Holders as a part of the written notice
given pursuant to Section 3(a)(i). In such event, the right of each of the
Holders to registration pursuant to this Section 3 shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. The Holders whose shares are to be included in such registration shall
(together with the Company and the Other Stockholders distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the representative of the underwriter or underwriters
selected for underwriting by the Company. Notwithstanding any other provision of
this Section 3, if the representative determines that marketing factors require
a
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<PAGE>
limitation on the number of shares to be underwritten, the representative may
(subject to the allocation priority set forth below) limit the number of
Registrable Securities to be included in the registration and underwriting as
the representative deems necessary and appropriate. The Company shall so advise
all holders of securities requesting registration, and the number of shares of
securities that are entitled to be included in the registration and underwriting
shall be allocated in the following manner: The securities of the Company held
by officers, directors and Other Stockholders of the Company (other than
Registrable Securities, securities held by holders who by contractual right
demanded such registration ("Demanding Holders") and securities held by
"Holders" under the Registration Rights Agreement, dated as of the effective
date of this Agreement, between the Company and GP Holding (the "GP Holding
Holders")) shall be excluded from such registration and underwriting to the
extent required by such limitation, and, if a limitation on the number of shares
is still required, the number of shares that may be included in the registration
and underwriting by each of the Holders and the GP Holding Holders (if the GP
Holding Holders are not Demanding Holders) shall be reduced, on a pro rata basis
(based on the number of shares originally proposed to be registered by each such
person), by such minimum number of shares as is necessary to comply with such
limitation. If any of the Holders disapprove of the terms of any such
underwriting, such Holder may elect to withdraw therefrom by written notice to
the Company and the underwriter. Any Registrable Securities or other securities
excluded or withdrawn from such underwriting shall be withdrawn from such
registration. The Company shall have the right to withdraw such registration at
any time in its sole discretion.
(c) Number. Each of the Holders shall be entitled to have
its shares included in an unlimited number of registrations pursuant to this
Section 3.
SECTION 4. Shelf Registration. If the Company shall receive
from an Initiating Holder, at any time prior to two (2) months after the
effective date hereof set forth in Section 19 hereof, a written request that the
Company effect a registration pursuant to Rule 415, or any successor rule under
the Act, that would permit the sale of all or a part of the Registrable
Securities from time to time:
(a) The Company shall use its best efforts to file
with the Commission and thereafter to cause to be declared
effective as promptly as practicable a registration statement
on an appropriate form under the
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<PAGE>
Act as reasonably determined by the Company relating to the
offer and sale of the Registrable Securities by the Holders
from time to time pursuant to Rule 415, or any successor rule
under the Act, in accordance with the methods of distribution
set forth in such registration statement (a "Shelf
Registration Statement").
(b) The Company shall use its best efforts to keep
the Shelf Registration Statement continuously effective in
order to permit the prospectus forming part thereof to be
usable by Holders for the period ending three (3) months after
the effective date hereof or such shorter period that will
terminate when all the Registrable Securities covered by the
Shelf Registration Statement have been sold. Notwithstanding
any other provision hereof, the Company may postpone or
suspend the filing or the effectiveness of the Shelf
Registration Statement (or any amendments or supplements
thereto) if (i) such action is required by applicable law, or
(ii) such action is taken by the Company in good faith and for
valid business reasons (not including avoidance of the
Company's obligations hereunder), including the acquisition or
divestiture of assets, other pending corporate developments,
public filings with the Commission or other similar events, so
long as the Company promptly thereafter complies with the
requirements of Section 6(a)(v) hereof, if applicable. The
Company shall be deemed not to have used its best efforts to
keep the Shelf Registration Statement effective during the
requisite period if it intentionally takes any action not
contemplated by clause (i) or (ii) above that would result in
holders of Registrable Securities covered thereby not being
able to offer and sell such Registrable Securities during the
period.
SECTION 5. Expenses of Registration. With respect to a
registration pursuant to Section 2 and 4 hereof, all Registration Expenses and
all Selling Expenses shall be borne by the Holders of the securities so
registered, together with any other party whose shares are included in such
registration (including the Company, either because shares are included in such
registration for its own account or because it agreed to pay the expenses of
other registering holders), pro rata, on the basis of the number of their shares
so registered. With respect to a registration pursuant to Section 3(a) hereof,
all Registration Expenses shall be borne by the Company and all
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<PAGE>
Selling Expenses shall be borne by the Holders of the securities so registered,
together with any other party whose shares are included in such registration
(including the Company, either because shares are included in such registration
for its own account or because it agreed to pay the expenses of another
registering holder), pro rata on the basis of the number of their shares so
registered. In addition to the Company's other rights in respect of expenses in
this Agreement, the Company shall have the right, in order to cover such
expenses, to deduct the amount of such expenses from the offering proceeds to
which the Bernstein Trust, the Bernstein Foundation and the Fleet National Trust
would otherwise have been entitled.
SECTION 6. Registration Procedure.
(a) In the case of each registration effected by the Company
pursuant to this Agreement, the Company will:
(i) provide the Holders of Registrable Securities to
be registered under the registration statement, their
underwriters, if any, and their respective counsel and
accountants, a reasonable opportunity to participate in the
preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each
amendment thereof or supplement thereto;
(ii) notify each Holder as to the filing of the
registration statement and of all amendments or supplements
thereto filed prior to the effective date of such registration
statement;
(iii) notify each Holder, promptly after it shall
receive notice thereof, of the time when such registration
statement becomes effective or when any amendment or
supplement to any prospectus forming a part of such
registration statement has been filed;
(iv) notify each Holder promptly of any request by
the Commission for the amending or supplementing of such
registration statement or prospectus or for additional
information;
(v) prepare and promptly file with the Commission,
and promptly notify each Holder of the filing of, any
amendments or supplements to such registration statement or
prospectus as may be necessary to correct any statements or
omissions if, at
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<PAGE>
any time when a prospectus relating to the Registrable
Securities is required to be delivered under the Act, any
event with respect to the Company shall have occurred as a
result of which any such prospectus or any other prospectus as
then in effect would include an untrue statement of a material
fact or omit to state any material fact necessary in order to
make the statements made, in the light of the circumstances
under which they were made, not misleading, and, in addition,
prepare and file with the Commission, promptly upon the
written request of any Holder, any amendments or supplements
to such registration statement or prospectus which may be
reasonably necessary or advisable in connection with the
distribution of the Registrable Securities;
(vi) prepare promptly upon request of the Holders or
any underwriters for the Holders such amendment or amendments
to such registration statement and such prospectus or
prospectuses as may be reasonably necessary to permit
compliance with the requirements of Section 10(a)(3) of the
Act, unless, in the good faith judgment of the Board of
Directors of the Company, it would not be in the best
interests of the Company and its stockholders generally for
such amendment or amendments to be filed, provided that such
deferral does not last longer than 90 days and will not occur
more than once in any 12-month period;
(vii) advise each Holder promptly after the Company
shall receive notice or obtain knowledge of the issuance of
any stop order by the Commission suspending the effectiveness
of any such registration statement or amendment thereto or of
the initiation or threatening of any proceeding for that
purpose, and promptly use its best efforts to prevent the
issuance of any stop order or obtain its withdrawal promptly
if such stop order should be issued;
(viii) use its best efforts to qualify as soon as
reasonably practicable the Registrable Securities included in
the registration statement for sale under the blue sky or
other state securities laws of such states and jurisdictions
within the United States as shall be reasonably requested by
any Holder, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to
do business, to become subject to taxation or to file a
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<PAGE>
consent to service of process generally in any of the
aforesaid states or jurisdictions;
(ix) furnish each Holder, as soon as available,
copies of any registration statement and each preliminary or
final prospectus, or supplement or amendment required to be
prepared pursuant hereto, all in such quantities as any Holder
may from time to time reasonably request;
(x) furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to
this Agreement, on the date that such Registrable Securities
are delivered to the underwriters for sale in connection with
a registration pursuant to this Agreement, if such securities
are being sold through underwriters or, if such securities are
not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes
effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such
registration, in form and substance as is customarily given by
company counsel to the underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the
holders requesting registration of Registrable Securities, and
(ii) a letter, dated such date, from the independent certified
public accountant of the Company, in form and substance as is
customarily given by independent certified public accountants
to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and, if customarily given to
holders of securities to be sold in a registration, to the
Holders requesting registration of Registrable Securities;
(xi) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and
make available to its security holders as soon as reasonably
practicable, but not later than 16 months after the effective
date of the registration statement, an earnings statement
covering a period of at least twelve (12) months beginning
after the effective date of the registration statement, which
earnings statement shall satisfy the provision of Section
11(a) of the Act; and
(xii) enter into and perform an underwriting
agreement with the managing underwriter, if any,
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<PAGE>
selected as provided in Section 2(b) and 3(b), containing
customary (y) terms of offer and sale of the securities,
payment provisions, underwriting discounts and commissions,
and (z) representations, warranties, covenants, indemnities,
terms and conditions provided that the Holders may, at their
option, require that any or all agreements on the part of the
Company to and for the benefit of such underwriters shall also
be made to and for the benefit of such Holders, any or all of
the conditions precedent to the obligations of the Company
shall also be conditions precedent to the obligations of such
Holders, and all representations and warranties by the Company
to and for the benefit of such underwriters shall also be made
to and for the benefit of such Holders, and provided further
that such Holders shall not be required to make any
representations or warranties to or agreements with the
Company or the underwriters other than representations,
warranties or agreements reasonably requested by the managing
underwriter or otherwise required by law.
(b) At the expense of the Company, the Company will keep each
registration effected by the Company pursuant to Section 3(a) effective for a
period of nine (9) months or until the Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs. At the expense of the Holders, together with any other party whose
shares are included in such registration (including the Company, either because
shares are included in such registration for its own account or because it
agreed to pay the expenses of other registering holders), pro rata, on the basis
of the number of their shares so registered, the Company will keep each
registration effected by the Company pursuant to Section 2 effective for a
period of nine (9) months or until the Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs, unless, in the good faith judgment of the Board of Directors of the
Company, it would not be in the best interests of the Company and its
stockholders generally for such registration to be kept effective for such
period, provided that such deferral does not last longer than 90 days and will
not occur more than once in any 12-month period. In addition to the Company's
other rights in respect of expenses in this Agreement, the Company shall have
the right, in order to cover such expenses, to deduct the amount of such
expenses from the offering proceeds to which the Bernstein Trust, the Bernstein
Foundation and the Fleet National Trust would otherwise have been entitled.
SECTION 7. Indemnification.
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<PAGE>
(a) To the extent permitted by law, the Company will
indemnify each of the Holders, each of its officers, directors, agents,
trustees, representatives and affiliates of the foregoing, each underwriter (as
defined in the Act), if any, and each person controlling each of the Holders or
such underwriter within the meaning of the Act and the rules and regulations
thereunder, with respect to each registration which has been effected pursuant
to this Agreement, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of the
Act or any rule or regulation thereunder applicable to the Company and relating
to action or inaction required of the Company in connection with any such
registration, qualification or compliance, and will reimburse each of the
Holders, each of its officers, directors, partners, members, managers, agents,
representatives and their affiliates, each such underwriter and each person
controlling any such Holder or underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating and defending any such
claim, loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission based upon (i) written information furnished to the Company by the
Holders or underwriter and stated to be specifically for use therein or (ii)
until the date of issuance of the Company's audited consolidated financial
statements for the fiscal year ended on or about January 31, 1997, any
representation or warranty made by the Company in that certain Securities
Purchase Agreement, dated as of even date herewith, between the Company and GP
Holding (the "Securities Purchase Agreement").
(b) To the extent permitted by law, each of the Holders will,
if Registrable Securities held by it are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify the
Company, each of its directors, officers, agents and representatives and each
underwriter, if any, and each person controlling the Company or such underwriter
within the meaning of the Act and the rules and regulations thereunder, against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or
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<PAGE>
based on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other document made by such Holder, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements by such Holder therein not misleading, and will reimburse the
Company and such directors, officers, agents, representatives, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder and stated to be specifically for use
therein; provided, however, that the indemnity agreement contained in this
Section 7(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Holders, and provided further that the obligations of each of the
Holders hereunder shall be limited to an amount equal to the proceeds to such
Holder of securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section
7 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld) and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have
reasonably concluded that there may be a conflict of interest between the
Indemnifying Party and the Indemnified Party in such action, in which case the
fees and expenses of counsel shall be at the expense of the Indemnifying Party),
and provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 7 unless the Indemnifying Party is materially prejudiced
thereby. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any
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<PAGE>
settlement which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Indemnified Party of a release from all
liability in respect to such claim or litigation. Each Indemnified Party shall
furnish such information regarding itself or the claim in question as an
Indemnifying Party may reasonably request in writing and as shall be reasonably
required in connection with the defense of such claim and litigation resulting
therefrom.
(d) If the indemnification provided for in this Section 7 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations, provided, however, that the obligations of each Holder shall be
limited to an amount equal to the proceeds to such Holder from the sale of
Registrable Securities as contemplated herein. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act), shall be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with any underwritten public offering
contemplated by this Agreement are in conflict with the foregoing provisions,
the provisions in such underwriting agreement shall be controlling.
(f) The foregoing indemnity agreements are subject to the
condition that, insofar as they relate to any loss, claim, liability or damage
made in a preliminary prospectus but eliminated or remedied in the amended
prospectus on file with the Commission at the time the registration statement in
question
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<PAGE>
becomes effective or the amended prospectus filed with the Commission
pursuant to Commission Rule 424(b) (the "Final Prospectus"), such indemnity
agreement shall not inure to the benefit of any underwriter if a copy of the
Final Prospectus was furnished to the underwriter and was not furnished to the
person asserting the loss, liability, claim or damage at or prior to the time
such action is required by the Act.
(g) The obligations of the Company and the Holders under this
Section 7 shall survive the completion of any offering of Registrable Securities
in a registration statement under this Agreement and otherwise.
(h) The foregoing indemnity agreements shall include
reasonable fees and expenses of counsel incurred by the Indemnified Party in any
action or proceeding between the Indemnifying Party and the Indemnified Party or
between the Indemnified Party and any third party or otherwise.
SECTION 8. Information by the Holders. Each of the Holders
shall furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement.
SECTION 9. Rule 144 Reporting. With a view to making
available the benefits of certain rules and regulations of the Commission which
may permit the sale of restricted securities to the public without registration,
the Company agrees to use its reasonable best efforts to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144 under the Act;
(b) file with the Commission in a timely manner all reports
and other documents required of the Company under the Act and the Exchange Act;
and
(c) furnish to any Holder upon request, (i) a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144, the Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company filed with the Commission and such other reports
and documents so filed by the Company and (iii) such other information as a
Holder may reasonably request in availing itself
II-16
<PAGE>
of any rule or regulation of the Commission allowing such Holder to sell any
such securities without registration.
SECTION 10. Assignability. No party may assign or transfer
its rights or obligations hereunder without the prior written consent of the
other, except that Bernstein's rights hereunder may be transferred by will or
the laws of descent and distribution to a charitable organization, an immediate
family member or a trust (25% or more of the beneficial interests of which are
owned by affiliates of Bernstein or one or more members of his immediate
family), in each case to which Bernstein has transferred Registrable Securities
to the extent permitted by Section 5(d)(i) or (iv) of the Irrevocable Proxy,
dated as of even date herewith, between GP Holding and Bernstein.
SECTION 11. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York.
SECTION 12. Amendment. Any modification, amendment or waiver
of this Agreement or any provision hereof shall be in writing and executed by
the Company, GP Holding and the Holders of not less than 50% of the Registrable
Securities, provided, however, that no such modification, amendment or waiver
shall reduce the aforesaid percentage of Registrable Securities without the
consent of all of the Holders of the Registrable Securities.
SECTION 13. Notices. All notices, requests, consents and
demands shall be in writing and shall be personally delivered, mailed, postage
prepaid, telecopied or telegraphed or delivered by any nationally recognized
overnight delivery service to the Company at:
to the Company:
Western Publishing Group, Inc.
444 Madison Avenue
New York, New York 10022
Telecopy: (212) 888-5025
Attn: Chief Executive Officer
II-17
<PAGE>
with a copy to:
General Counsel
Western Publishing Group, Inc.
444 Madison Avenue
New York, New York 10022
Telecopy: (212) 888-5025
and, until the effective date hereof, a copy to:
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10028
Telecopy: (212) 530-5219
Attn: Lawrence Lederman, Esq.
and to GP Holding and each Holder at such address set forth on the signature
page hereof or as shall be furnished in writing to the Company. All such
notices, requests, demands and other communication shall, when mailed
(registered or certified mail, return receipt requested, postage prepared),
personally delivered, or telegraphed, be effective four (4) days after deposit
in the mails, when personally delivered, or when delivered to the telegraph
company, respectively, addressed as aforesaid, unless otherwise provided herein
and, when telecopied or delivered by any nationally recognized overnight
delivery service, shall be effective upon actual receipt.
SECTION 14. Specific Performance. The parties hereto agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
SECTION 15. Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
SECTION 16. Severability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Agreement
or
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<PAGE>
affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 17. Headings. The various headings of this Agreement
are inserted for convenience only and shall not affect the meaning or
interpretation of this Agreement or any provisions hereof or thereof.
SECTION 18. Entire Agreement. This Agreement constitutes the
entire understanding among the parties hereto with respect to the subject matter
hereof and supersedes any prior agreements, written or oral, with respect
thereto.
SECTION 19. Effective Date. This Agreement shall become
effective as of the date of consummation of the transactions contemplated by the
Securities Purchase Agreement, and this Agreement shall have no effect for any
purpose unless and until such transactions have been consummated.
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<PAGE>
IN WITNESS WHEREOF, the Company and each of the undersigned
parties has executed this Agreement effective for all purposes as of the date
first above written.
WESTERN PUBLISHING GROUP, INC.
By: _________________________
Name:
Title:
______________________________
Richard A. Bernstein
RICHARD A. BERNSTEIN AND STUART TURNER,
trustees u/a March 16, 1978 fbo Richard
A. Bernstein
By: ___________________________
Richard A. Bernstein
Trustee
By: ___________________________
Stuart Turner
Trustee
THE RICHARD A. AND AMELIA BERNSTEIN
FOUNDATION, INC.
_______________________________
Richard A. Bernstein
President
Address for notices for all
Holders named above:
_______________________________
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<PAGE>
FLEET NATIONAL BANK OF CONNECTICUT
trustee u/a Barry S. Bernstein dated
April 5, 1986 fbo Richard A. Bernstein
By: ________________________________
Name:
Title:
Address for notices:
Fleet National Bank of Connecticut
P.O. Box 1454
One Landmark Square
Stamford, Connecticut 06904
Telecopy: _______________
Attn: Ms. Catherine Clark
Section 12 is hereby
acknowledged and agreed to:
GOLDEN PRESS HOLDING, L.L.C.
By: WARBURG, PINCUS VENTURES, L.P.
Member
By: __________________________
Name:
Title: General Partner
Address for notices:
Golden Press Holding, L.L.C.
c/o Warburg, Pincus Ventures, L.P.
466 Lexington Avenue
New York, New York 10017
Telecopy: (212) 878-9351
Attn: Joanne R. Wenig
with a copy to:
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
Telecopy: (212) 821-8111
Attn: Jack H. Nusbaum, Esq.
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<PAGE>
Index of Defined Terms
Bernstein............................. 1
Bernstein Foundation.................. 1
Bernstein Trust....................... 1
Commission............................ 1
Common Stock.......................... 1
Company............................... 1
Demanding Holders..................... 7
Exchange Act.......................... 1
Fleet National Trust.................. 1
Final Prospectus...................... 16
GP Holding............................ 5
Holders............................... 1
Indemnified Party..................... 14
Indemnifying Party.................... 14
Initiating Holder..................... 2
Registrable Securities................ 2
Registration Expenses................. 2
Selling Expenses...................... 2
Shelf Registration Statement.......... 8
Act................................... 1
GP Holding Holders.................... 7
Securities Purchase Agreement......... 13
<PAGE>
APPENDIX III
IRREVOCABLE PROXY
THIS AGREEMENT, dated as of January 31, 1996, between Golden
Press Holding, L.L.C., a Delaware limited liability company (the "Buyer"), and
Richard A. Bernstein (the "Shareholder"), a shareholder of Western Publishing
Group, Inc., a Delaware corporation (the "Company").
W I T N E S S E T H:
WHEREAS, contemporaneously with the execution of this
Agreement, the Company and the Buyer are entering into a Securities Purchase
Agreement (the "Securities Purchase Agreement") pursuant to which the Buyer will
purchase (the "Securities Purchase") 13,000 shares of the Company's Series B
Convertible Preferred Stock, no par value ("Series B Preferred Stock"), and a
warrant (the "Warrant") to purchase 3,250,000 shares (subject to adjustment) of
the Company's common stock, par value $.01 per share ("Company Common Stock");
WHEREAS, contemporaneously with the execution of this
Agreement, Buyer is entering into an agreement substantially similar to this
Agreement with each of (i) the Trust, fbo Richard A. Bernstein u/a March 16,
1978, Richard A. Bernstein and Stuart Turner, as trustees, and (ii) the Trust
fbo Richard A. Bernstein u/a Barry S. Bernstein dated April 5, 1986, Fleet
National Bank of Connecticut, as trustee (collectively, the "Other
Shareholders"), which own 400,000 and 95,771 shares of Company Common Stock,
respectively; and
WHEREAS, the Buyer, as a condition to its willingness to enter
into the Securities Purchase Agreement, has required the Shareholder to grant
the Buyer an irrevocable proxy with respect to all of the shares of Company
Common Stock owned by the Shareholder, together with any additional shares of
Company Common Stock hereafter acquired by the Shareholder (such specified
number of shares, and any additional shares when and if they are acquired by
Shareholder or any "Affiliate" (as defined in Rule 405 under the Securities Act
of 1933, as amended (the "Securities Act"), and including, without limitation,
immediate family members and trusts, 25% or more of the beneficial interests of
which are owned by such person or one or more members of his immediate family
members; provided that the Company shall not be deemed an "Affiliate" of the
Shareholder for purposes of this Agreement), being referred to as the "Shares")
on the terms and conditions hereinafter set forth;
III-1
<PAGE>
NOW, THEREFORE, the parties hereto agree as follows:
1. Irrevocable Proxy. By entering into this Agreement, the
Shareholder hereby grants a proxy (the "Proxy") appointing the Buyer (or any
designee of the Buyer) as the Shareholder's lawful agent, attorney-in-fact and
proxy, with full power of substitution, for and in the Shareholder's name, to
vote, express consent or dissent, or otherwise to utilize such voting power in
such manner and upon such matters as the Buyer or its proxy or substitute shall,
in the Buyer's sole discretion, deem proper with respect to the Shares,
including without limitation, to vote any or all the Shares at any meeting, or
in connection with any written consent, of the Company's shareholders (i) in
favor of the Securities Purchase (or any similar transaction involving the
Company and the Buyer (or an Affiliate thereof)), (ii) in favor of the
Securities Purchase Agreement or other agreement evidencing any such transaction
and in favor of any other related transactions or matters presented in
connection with any such transaction, including the Company Voting Matters (as
defined in the Securities Purchase Agreement), and (iii) against any other
proposal which provides for any merger, sale of assets or other Third Party
Business Combination (as defined in the Securities Purchase Agreement) between
the Company (or any subsidiary of the Company) and any other person or entity or
which would make it impractical for the Buyer to effect the Securities Purchase
or other similar transaction involving the Company and the Buyer (or an
Affiliate thereof); provided, however, that, until the consummation of the
Securities Purchase, the Proxy shall not allow Buyer to vote against, or for the
removal of, existing members of the Company's Board of Directors, except that
the Proxy will be voted for the Company Voting Matters as contemplated by
Section 5.3 of the Securities Purchase Agreement. The Proxy is irrevocable, is
coupled with an interest, and is granted in consideration of the Buyer's
entering into this Agreement and the Securities Purchase Agreement; provided,
however, that the Proxy shall be revoked upon the earlier to occur of (x) the
termination of the Securities Purchase Agreement in accordance with its terms
prior to the consummation of the Securities Purchase and (y) the failure of the
aggregate "beneficial ownership" (as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) of Buyer, each member thereof, any affiliates
of such members (other than of Warburg, Pincus Ventures, L.P. ("WPV")) and the
general partnership that acts as a general partner of WPV, at any time following
the consummation of the Securities Purchase, to constitute 15% or more of the
outstanding Company Common Stock (after taking into account the
III-2
<PAGE>
conversion or exercise of all outstanding securities of the Company that are
convertible into or exercisable for shares of Company Common Stock, provided,
however, that the shares of Company Common Stock issuable upon exercise of the
Warrant shall be taken into account only in the amount of the excess, if any, of
the number of such shares over the number of shares of Company Common Stock
issued to such parties as dividends on the Series B Preferred Stock). If the
proxy granted in this Section 1 shall be determined to be invalid for any
reason, the Shareholder hereby agrees to vote the Shares, in any circumstances
set forth in this Section 1, in accordance with the written instructions of
Buyer. Notwithstanding any implication to the contrary in this Agreement, the
proxy granted in this Section 1 shall be revoked, and the agreement set forth in
the immediately preceding sentence shall be terminated, with respect to any
Shares upon the sale or transfer of such Shares to a third party (other than an
Affiliate of the Shareholder), provided that such sale or transfer is otherwise
permitted under the terms of this Agreement.
2. Legending of Certificates; Nominee Shares. The Shareholder
agrees to submit to the Buyer contemporaneously with or promptly following
execution of this Agreement (or promptly following receipt of any additional
certificates representing any additional Shares) all certificates representing
the Shares so that the Buyer may note thereon a legend referring to the transfer
restrictions in this Agreement. If any of the Shares beneficially owned by the
Shareholder are held of record by a brokerage firm in "street name" or in the
name of any other nominee (a "Nominee," and, as to the Shares, "Nominee
Shares"), the Shareholder agrees that, upon written notice by the Buyer
requesting it, the Shareholder will within five days of the giving of such
notice execute and deliver to the Buyer a limited power of attorney in such form
as shall be reasonably satisfactory to the Buyer enabling the Buyer to require
the Nominee to grant to the Buyer an irrevocable proxy to the same effect as
Section 1 hereof with respect to the Nominee Shares held by such Nominee and to
submit to the Buyer the certificates representing such Nominee Shares for
notation of the foregoing legend thereon.
3. [Intentionally omitted.]
4. Representations and Warranties of the Shareholder.
The Shareholder represents and warrants to the Buyer that:
(a) On the date hereof, the Shareholder is the sole,
true, lawful, record and beneficial owner of 3,501,000 shares of Company Common
Stock. All of the Shares are validly
III-3
<PAGE>
issued, fully paid and nonassessable, with no personal liability attaching to
the ownership thereof; and the Shareholder has good and valid title to the
Shares, free and clear of any agreements, liens, adverse claims or encumbrances
whatsoever with respect to the ownership of or the right to vote the Shares. The
Shareholder has not granted any proxies with respect to the Shares except as
contemplated by this Agreement.
(b) The Shareholder has the full right, power and
authority to enter into this Agreement, and this Agreement has been duly and
validly executed and delivered by the Shareholder.
(c) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby do not
and will not, with or without the giving of notice or the passage of time, (i)
violate any judgment, injunction or order of any court, arbitrator or
governmental agency applicable to the Shareholder, or (ii) conflict with, result
in the breach of any provision of, constitute a default under, or give rise to a
right of termination, cancellation or acceleration of any right or obligation of
the Shareholder under, or require the consent of any third party under, any
agreement, instrument, judgment, order or decree to which the Shareholder is a
party or by which the Shareholder may be bound.
(d) This Agreement is the valid and binding Agreement
of the Shareholder, enforceable against the Shareholder in accordance with its
terms, except as enforcement may be limited by bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights generally.
(e) The Shares and the shares of Company Common Stock
owned of record by the Other Shareholders (in the case of Fleet National Bank of
Connecticut, in its capacity as trustee under the trust referred to above) and
the 60,000 shares of Company Common Stock owned of record by The Richard A. and
Amelia Bernstein Foundation, Inc., a New York not-for-profit corporation (the
"Bernstein Foundation"), are the only shares of Company Common Stock
beneficially owned or owned of record by the Shareholder, the Other Shareholders
and the Bernstein Foundation and, except for the 9,200 shares of Series A
Preferred Stock, no par value, of the Company owned by the Shareholder and the
67,500 shares of Company Common Stock issuable to the Shareholder upon the
exercise of options granted to him pursuant to the Company's Amended and
Restated 1986 Employee Stock Option Plan, the Shareholder does not own any
options to purchase or rights to subscribe for or otherwise
III-4
<PAGE>
acquire any securities of the Company and has no other interest in or voting
rights with respect to any securities of the Company. The Shareholder shall not
permit the Bernstein Foundation to acquire, directly or indirectly, any
additional shares of Company Common Stock during the term of this Agreement.
(f) No investment banker, broker or finder is
entitled to a commission or fee from the Shareholder or the Company in respect
of this Agreement based upon any arrangement or agreement made by or on behalf
of the Shareholder.
5. Additional Covenants of the Shareholder. The Shareholder
hereby covenants and agrees
that:
(a) Neither the Shareholder nor any Affiliate will
enter into any transaction, take any action, or by inaction permit any event to
occur, that would result in any of the representations or warranties of the
Shareholder herein contained not being true and correct at and as of the time
immediately after the occurrence of such transaction, action or event.
(b) Until the termination of this Agreement,
neither the Shareholder nor any Affiliate, whether directly, indirectly, or
through any employee, agent or otherwise shall: (i) solicit or initiate any
inquiry or submission of a proposal or an offer from any person or entity
relating to any acquisition or purchase of (A) the assets, business or property
of the Company or any subsidiary thereof, or (B) any equity interest in, or any
merger, consolidation or business combination with, the Company or any of its
subsidiaries (an "acquisition proposal"), or (ii) participate in any discussions
or negotiations regarding, or furnish to any other person or entity any
information with respect to, or otherwise cooperate in any way or assist or
facilitate any acquisition proposal by any other person or entity; provided,
however, that the Shareholder, in his capacity as the Chairman of the Company's
Board of Directors and the Company's Chief Executive Officer, may participate in
discussions or negotiations with or furnish information to any other person or
entity if the Company's Board of Directors, on advice of counsel, determines
that the Shareholder, in his capacity as Chairman of the Company's Board of
Directors and the Company's Chief Executive Officer, should so participate or
furnish such information. Subject to his fiduciary duties to the Company, the
Shareholder shall promptly advise the Buyer of any communication (including the
identity of the person or entity making such communication and the terms
thereof) that the Shareholder may receive relating to any of the foregoing.
III-5
<PAGE>
(c) Until the termination of this Agreement, subject
to his fiduciary duties to the Company, the Shareholder will at all times use
his best efforts to prevent the Company from taking any action in violation of
the Securities Purchase Agreement, including, but not limited to, any such
action that would (i) amend or otherwise change its Certificate of Incorporation
or Bylaws, (ii) issue or sell or authorize for issuance or sale any stock
appreciation rights, stock options (other than pursuant to stock option plans in
effect on the date hereof), warrants or additional shares of any class of
capital stock, including the Company Common Stock, or any securities convertible
into or exchangeable for shares of any class of capital stock, (iii) declare,
set aside, make, pay or accelerate the time for declaration or payment of, any
dividend or other distribution with respect to its capital stock, or (iv)
redeem, purchase, or otherwise acquire, directly or indirectly, any of its
capital stock.
(d) Until the termination of this Agreement, neither
the Shareholder nor any Affiliate shall, directly or indirectly, (i) grant any
proxies or enter into any voting trust or other agreement or arrangement with
respect to the voting of any Shares or (ii) acquire, sell, assign, transfer,
encumber or otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to the direct or indirect acquisition
or sale, assignment, transfer, encumbrance or other disposition of, any shares
of capital stock of the Company during the term of this Agreement other than
with the Other Shareholders. Neither the Shareholder nor any Affiliate shall
seek or solicit any such acquisition or sale, assignment, transfer, encumbrance
or other disposition or any such contract, option or other arrangement or
assignment or understanding and the Shareholder agrees to notify the Buyer
promptly and to provide all details requested by the Buyer if the Shareholder
shall be approached or solicited, directly or indirectly, by any person or
entity with respect to any of the foregoing. Notwithstanding the foregoing, the
Shareholder (and any Affiliate) shall be entitled, (i) so long as the
Shareholder at all times, until the earlier to occur of the consummation of the
Securities Purchase and the termination of this Agreement, retains the right to
vote (and give consent in respect of) such Shares (subject to the terms of this
Agreement), to transfer for no consideration up to 400,000 Shares in the
aggregate to an organization that is described in Section 501(c)(3) of the
Internal Revenue Code of 1986, as amended, and (x) that is not an Affiliate of
the Shareholder and (y) that is not a person or entity in respect of which the
Shareholder or any Affiliate serves as trustee or in any other fiduciary
capacity, (ii) at any
III-6
<PAGE>
time beginning three business days after the financial results of the Company
for the fiscal year ending February 3, 1996 have been Publicly Disclosed (as
defined below) by the Company, but not before consummation of the Securities
Purchase, to sell all or a portion of the Shares to any purchaser, (x) in the
case of non-negotiated, public, open-market transactions, in amounts not to
exceed the limitations set forth in Rule 144(e) under the Securities Act
(provided that the Shareholder and his Affiliates shall be considered one person
for purposes of such limitations) and (y) in all other cases, other than to an
Entrepreneurial Investor (as defined below), (iii) to pledge Shares in order to
secure a loan from a bona fide lending institution, provided that (x) prior to
such pledge such institution agrees in writing to enter into an agreement with
the Buyer substantially identical to this Agreement and reasonably satisfactory
in all respects to the Buyer, such agreement to take effect immediately prior to
such institution's foreclosing or receiving any rights (other than a security
interest therein) in respect of such Shares, and (y) prior to such foreclosure,
the rights of such institution in respect of such Shares shall be limited to a
security interest therein and be subject to this Agreement and (iv) to transfer
Shares by will or pursuant to the laws of descent and distribution to an
Affiliate of the Shareholder, provided that, at the time of such transfer, such
transferee enters into an agreement with the Buyer substantially identical to
this Agreement and reasonably satisfactory in all respects to the Buyer. The
Shareholder shall provide the Buyer with prior written notice of any proposed
transfer of Shares pursuant to this Section 5(d) and evidence of compliance
therewith. For purposes of this Agreement, "Publicly Disclosed" means the
Company's publicly announcing (which may include disclosure in the Proxy
Statement mailed to the holders of Company Common Stock in connection with the
Securities Purchase) the consolidated financial results of the Company and its
consolidated subsidiaries for the fiscal year ending February 3, 1996 in the
same detail as the Company's public announcement of such results for the fiscal
year ended January 28, 1995 (containing at least the consolidated revenues,
operating income and net income of the Company and its consolidated
subsidiaries), and an "Entrepreneurial Investor" means any investor that (or any
investor, any of whose Affiliates) (x) is listed on Schedule I hereto or (y) is
unacceptable to John Vogelstein, in his sole discretion, provided that no
individual or entity listed on Schedule II hereto shall be deemed an
Entrepreneurial Investor.
(e) The Shareholder shall execute and deliver any
additional documents reasonably necessary or desirable, in the reasonable
opinions of both the Buyer's counsel and the
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<PAGE>
Shareholder's counsel, to evidence the Proxy granted in Section 1 with respect
to the Shares or otherwise implement and effect the provisions of this
Agreement.
(f) Effective upon consummation of the Securities
Purchase, the Shareholder shall resign from all of the positions then held by
him with the Company and its subsidiaries, including, without limitation, from
the offices of Chairman and Chief Executive Officer and from the Board of
Directors of the Company, from the office of Chairman and from the Board of
Directors of Western Publishing Company, Inc. and from the offices of Chairman,
President and Chief Executive Officer and from the Board of Directors of Penn
Corporation.
(g) The Shareholder hereby agrees promptly to cause
the amendment, in a manner reasonably acceptable to the Buyer, of the trademark
license agreement, dated September 11, 1995, between P&E Properties, Inc.
("P&E") and Western Publishing Company, Inc. relating to the right to display
"The Poky Little Puppy" trademark on a corporate jet owned by P&E, provided that
no royalties shall be payable for such right and that such right shall be not be
assignable and shall terminate when such jet is no longer owned by P&E or an
Affiliate thereof.
6. Representations and Warranties of the Buyer.
The Buyer represents and warrants to the Shareholder that:
(a) The Buyer has all requisite power and authority
to enter into and perform all of its obligations under this Agreement. The
execution, delivery and performance of this Agreement and all of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of the Buyer. This Agreement has been duly executed and
delivered by the Buyer.
(b) Neither the execution, delivery or performance of
this Agreement by the Buyer nor the consummation of the transactions
contemplated herein will violate the organizational documents of the Buyer or
will conflict with or result in the breach of any material term, condition or
provision of any instrument, indenture, contract, lease or other document or
understanding, oral or written, to which the Buyer is a party or is otherwise
bound or affected in such a manner as to materially and adversely affect the
business of the Buyer.
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<PAGE>
7. Termination. This Agreement may be terminated by any party
hereto on or after the day of termination of the Securities Purchase Agreement
in accordance with its terms, prior to the consummation of the Securities
Purchase, and thereafter (i) by mutual written consent of both parties hereto,
provided that Section 10 hereof shall survive termination of this Agreement or
(ii) at such time as the Shareholder and the Other Shareholders shall have
disposed of direct and indirect "beneficial ownership" of all shares of Company
Common Stock (excluding the 60,000 share of Company Common Stock owned by the
Bernstein Foundation) in bona fide transactions that do not violate this
Agreement.
8. Binding Effect; Assignment. This Agreement shall inure to
the benefit of and be binding upon the parties and their respective successors
and permitted assigns. Except as contemplated by Section 5(d), the Shareholder
shall not assign its rights or obligations hereunder without the Buyer's
consent. The Buyer may assign its rights and obligations hereunder to an
Affiliate.
9. Notices. All notices and communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered personally
or by Federal Express or other courier service or sent by express mail, postage
prepaid, return receipt requested, addressed to the respective party at the
applicable address below, on the date of such personal delivery or on the date
received:
If to the Buyer: Golden Press Holding, L.L.C.
c/o Warburg, Pincus Ventures, L.P.
466 Lexington Avenue
New York, New York 10017
Attention: Joanne R. Wenig
Telecopy No.: (212) 878-9351
with a copy to: Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
Attention: Jack H. Nusbaum, Esq.
Telecopy No.: (212) 821-8111
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<PAGE>
If to the Shareholder: Richard A. Bernstein
444 Madison Avenue
Suite 601
New York, New York 10022
Telecopy No.: (212) 888-5025
with a copy to: James A. Cohen, Esq.
444 Madison Avenue
New York, New York 10022
Telecopy No.: (212) 888-5025
with a copy to: Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10005
Attention: Lawrence Lederman, Esq.
Telecopy No.: (212) 530-5219
Any party may change the foregoing address from time to time by giving the other
party notice thereof.
10. Injunctive Relief; Remedies Cumulative.
(a) Each party hereto acknowledges that the other
party will be irreparably harmed and that there will be no adequate remedy at
law for a violation of any of the covenants or agreements of such party that are
contained in this Agreement. It is accordingly agreed that, in addition to any
other remedies that may be available to the non-breaching party upon the breach
by any other party of such covenants and agreements, the non-breaching party
shall have the right to obtain injunctive relief to restrain any breach or
threatened breach of such covenants or agreements or otherwise to obtain
specific performance of any of such covenants or agreements.
(b) No remedy conferred upon or reserved to any party
herein is intended to be exclusive of any other remedy, and every remedy shall
be cumulative and in addition to every other remedy herein or now or hereafter
existing at law, in equity or by statute.
11. Applicable Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the principles of conflicts of laws thereof; provided, however, that the laws
of the State of Delaware shall govern as to internal corporate matters.
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<PAGE>
12. Counterparts. This Agreement may be executed in any
number of counterparts, all of which together shall constitute a single
agreement.
13. Effect of Partial Invalidity. Whenever possible, each
provision of this Agreement shall be construed in such a manner as to be
effective and valid under applicable law. If any provision of this Agreement or
the application thereof to any party or circumstance shall be prohibited by or
invalid under applicable law, such provisions shall be ineffective to the extent
of such prohibition without invalidating the remainder of such provision or any
other provisions of this Agreement or the application of such provision to the
other party or other circumstances.
14. Entire Agreement. This Agreement constitutes the entire
understanding among the parties hereto with respect to the subject matter hereof
and supersedes any prior agreements, written or oral, with respect thereto.
15. Jurisdiction and Process. Each party hereto irrevocably
submits to the non-exclusive jurisdiction of the United States District Court
for the Southern District of New York and of any New York state court sitting in
New York City for the purposes of all legal proceedings arising out of or
relating to this Agreement or the transactions contemplated hereby. Each party
hereto irrevocably waives, to the fullest extent permitted by law, any objection
which it may now or hereafter have to the laying of the venue of any such
proceeding brought in such a court and any claim that any such proceeding
brought in such a court has been brought in an inconvenient forum. Each party
hereto agrees that a final judgment in any such proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on the judgment or in any
other manner provided by law. Each party hereto consents to process being served
in any such proceeding by mailing a copy thereof by registered or certified
mail, postage prepaid, return receipt requested to such party at its address
specified in Section 9 or at such other address of which such party shall then
have been notified pursuant to said Section. Each party hereto agrees that such
service upon receipt (i) shall be deemed in every respect effective service of
process upon it in any such proceeding and (ii) shall, to the fullest extent
permitted by applicable law, be taken and held be valid personal service upon
and personal delivery to such party. Such service shall be conclusively presumed
received as evidenced by a delivery receipt furnished by the United States
Postal Service or any reputable commercial delivery service.
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<PAGE>
IN WITNESS WHEREOF, this Agreement has been executed by the
parties as of the date first above written.
GOLDEN PRESS HOLDING, L.L.C.
By: WARBURG, PINCUS VENTURES, L.P.
Member
By: ________________________________
Name:
Title: General Partner
-----------------------------------
Richard A. Bernstein
III-12
<PAGE>
Index of Defined Terms
Affiliate 1
beneficial ownership 2
Bernstein Foundation 4
Buyer 1
Company 1
Company Common Stock 1
Nominee 3
Nominee Shares 3
Other Shareholders 1
P&E 8
Proxy 2
Publicly Disclosed 7
Securities Act 1
Securities Purchase 1
Securities Purchase Agreement 1
Series B Preferred Stock 1
Shareholder 1
Shares 1
Warrant 1
WPV 2
<PAGE>
APPENDIX IV
CERTIFICATE OF DESIGNATIONS, NUMBER, VOTING POWERS,
PREFERENCES AND RIGHTS OF SERIES B CONVERTIBLE
PREFERRED STOCK
OF
[WESTERN PUBLISHING GROUP, INC.]
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
The undersigned DOES HEREBY CERTIFY that the following
resolution was duly adopted by the Board of Directors of [Western Publishing
Group, Inc.], a Delaware corporation (hereinafter called the "Corporation"),
with the preferences and rights set forth therein relating to dividends,
conversion, redemption, dissolution and distribution of assets of the
Corporation having been fixed by the Board of Directors pursuant to authority
granted to it under Article FOURTH of the Corporation's Certificate of
Incorporation and in accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware:
RESOLVED: That, pursuant to authority conferred upon the Board
of Directors by the Certificate of Incorporation of the Corporation, the Board
of Directors hereby authorizes the issuance of 13,000 shares of Series B
Convertible Preferred Stock of the Corporation, and hereby fixes the
designations, powers, preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions thereof, of
such shares, in addition to those set forth in the Certificate of Incorporation
of the Corporation, as follows:
1. DESIGNATION AND AMOUNT. The shares of such series shall
be designated "Series B Convertible Preferred Stock" (the "Series B Preferred
Stock") and the number of shares constituting such series shall be 13,000.
2. DIVIDENDS.
(a) The holders of Series B Preferred Stock (i) shall receive
on the first day of February, May, August and November (each a "Dividend Date")
of each twelve-month period following the date of initial issuance of the Series
B Preferred Stock (the "Initial Issuance Date") through the fourth anniversary
of the Initial Issuance Date, a stock dividend per share of Series B Preferred
Stock equal to a number of shares of Common Stock of the
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Corporation ("Common Stock") determined by multiplying the Conversion Rate (as
determined pursuant to Sections 5 and 6 below) by .03 (such that at the initial
Conversion Rate the holders of the Series B Preferred Stock shall receive in the
aggregate 195,000 shares of Common Stock on a quarterly basis, resulting in the
receipt of an aggregate of 780,000 shares of Common Stock in each of the first
four years after the Initial Issuance Date, subject to adjustment in the event
of any dividend, stock split, stock distribution or combination with respect to
any such shares), provided, however, that (x) in the event that the product of
the number of shares of Common Stock per share of Series B Preferred Stock to be
distributed in any quarter and the Market Price (as defined below) (the
"Dividend Value") is less than $93.75, then, in addition to such shares of
Common Stock, the holders shall receive on such date, out of legally available
funds of the Corporation, cash per share of Series B Preferred Stock in an
amount equal to the excess of $93.75 over the Dividend Value, compounded
quarterly, and (y) in the event that the Dividend Value exceeds $187.50, then
the number of shares of Common Stock to be so distributed shall be reduced by an
amount sufficient to cause the Dividend Value to equal $187.50 (subject in each
case to adjustment in the event of any dividend, stock split, stock distribution
or combination with respect to any such shares), and (ii) shall be entitled to
receive thereafter, beginning on the first to occur of the first day of
February, May, August or November after the fourth anniversary of the Initial
Issuance Date, when and as declared, out of legally available funds of the
Corporation, cash dividends (computed on the basis of a 360-day year of twelve
30-day months) at the rate of $150 per share (subject to adjustment in the event
of any dividend, stock split, stock distribution or combination with respect to
any such shares), compounded quarterly, payable quarterly on the first day of
February, May, August and November of each twelve-month period after the fourth
anniversary of the Initial Issuance Date, on a pari passu basis with the Series
A Preferred Stock of the Corporation (the "Series A Preferred Stock") (such
stock and any other class or series of the preferred stock of the Corporation
which shall rank with respect to the payment of dividends on a parity with the
Series B Preferred Stock being referred to hereinafter, collectively, as "Parity
Stock") and before any dividends shall be set apart for or paid upon the Common
Stock or any other stock ranking with respect to the payment of dividends junior
to the Series B Preferred Stock (such stock being referred to hereinafter
collectively as "Junior Stock") in any year. All dividends declared upon Series
B Preferred Stock shall be declared pro rata per share.
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<PAGE>
For purposes of this Section 2, the term "Market Price" shall
mean the average closing price of a share of Common Stock for the ten
consecutive trading days immediately preceding the Dividend Date or the
conversion date, as the case may be, as reported on the principal national
securities exchange on which the shares of Common Stock or securities are listed
or admitted to trading or, if not listed or admitted to trading on any national
securities exchange, the average of the closing bid and asked prices during such
ten trading day period in the over-the-counter market as reported by the Nasdaq
National Market or any comparable system, or, if no such firm is then engaged in
the business of reporting such prices, as reported by The Wall Street Journal,
or, if not so reported, as furnished by any member of the National Association
of Securities Dealers, Inc. selected by the Corporation or, if the shares of
Common Stock or securities are not publicly traded, the Market Price for such
date shall be the fair market value thereof determined jointly by the
Corporation and the holders of record of a majority of the Series B Preferred
Stock then outstanding; provided, however, that if such parties are unable to
reach agreement within a reasonable period of time, the Market Price shall be
determined in good faith by an independent investment banking firm selected
jointly by the Corporation and the holders of record of a majority of the Series
B Preferred Stock then outstanding or, if that selection cannot be made within
ten days, by an independent investment banking firm selected by the American
Arbitration Association in accordance with its rules, and provided further, that
the Corporation shall pay all of the fees and expenses of any third parties
incurred in connection with determining the Market Price.
(b) Dividends on the Series B Preferred Stock shall be
cumulative, whether or not in any fiscal year there shall be net profits or
surplus available for the payment of dividends in such fiscal year, so that if
in any fiscal year or years, dividends in whole or in part are not paid upon the
Series B Preferred Stock, (i) unpaid dividends shall accumulate and no sums in
any years shall be paid to the holders of the Junior Stock until all dividends
payable on the Series B Preferred Stock have been paid in full, and (ii) no full
dividends shall be declared or paid or set apart for payment on any Parity Stock
for any period unless full cumulative dividends have been or contemporaneously
are declared and paid or declared and a sum sufficient for the payment thereof
set apart for such payment on the Series B Preferred Stock for all dividend
payment periods terminating on or prior to the date of payment of such full
cumulative dividends. If at any time the Corporation shall have failed to pay
full dividends which have accrued (whether or not earned or declared) on the
shares of the Series B Preferred Stock and any other Parity Stock, all dividends
(other than Series B Preferred
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<PAGE>
Stock dividends paid in shares of Common Stock) declared upon shares of the
Series B Preferred Stock and any other Parity Stock shall be declared pro rata
so that the amount of dividends declared per share on the Series B Preferred
Stock and such other Parity Stock shall in all cases bear to each other the same
ratio that accrued dividends per share on the Series B Preferred Stock and other
such Parity Stock bear to each other.
3. LIQUIDATION, DISSOLUTION OR WINDING UP.
(a) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, the holders of shares of Series B
Preferred Stock then outstanding shall be entitled to be paid out of the assets
of the Corporation available for distribution to its stockholders, after and
subject to the payment in full of all amounts required to be distributed to the
holders of any other Preferred Stock of the Corporation ranking on liquidation
prior and in preference to the Series B Preferred Stock (such Preferred Stock
being referred to hereinafter as "Senior Preferred Stock") upon such
liquidation, dissolution or winding up, but before any payment shall be made to
the holders of Junior Stock, an amount equal to $5,000 per share plus any
dividends thereon cumulated or accrued but unpaid, whether or not declared
(subject to adjustment in the event of any stock dividend, stock split, stock
distribution or combination with respect to such shares). If upon any such
liquidation, dissolution or winding up of the Corporation the remaining assets
of the Corporation available for the distribution to its stockholders after
payment in full of amounts required to be paid or distributed to holders of
Senior Preferred Stock shall be insufficient to pay the holders of shares of
Series B Preferred Stock the full amount to which they shall be entitled, the
holders of shares of Series B Preferred Stock and shares of Parity Stock shall
share ratably in any distribution of the remaining assets and funds of the
Corporation in proportion to the respective amounts which would otherwise be
payable in respect to the shares held by them upon such distribution if all
amounts payable on or with respect to said shares were paid in full.
(b) After the payment of all preferential amounts required to
be paid to the holders of Senior Preferred Stock, Series B Preferred Stock and
Parity Stock and any other series of Preferred Stock upon the dissolution,
liquidation or winding up of the Corporation, the holders of shares of Common
Stock then outstanding shall be entitled to receive the remaining assets and
funds of the Corporation available for distribution to its stockholders.
IV-4
<PAGE>
(c) The merger or consolidation of the Corporation into or
with another corporation, the merger or consolidation of any other corporation
into or with the Corporation, or the sale, conveyance, mortgage, pledge or lease
of all or substantially all the assets of the Corporation shall not be deemed to
be a liquidation, dissolution or winding up of the Corporation for purposes of
this Section 3.
4. VOTING.
(a) Each issued and outstanding share of Series B Preferred
Stock shall be entitled to the number of votes equal to the number of shares of
Common Stock into which each such share of Series B Preferred Stock is
convertible (as adjusted from time to time pursuant to Section 5 thereof), at
each meeting of stockholders of the Corporation with respect to any and all
matters presented to the stockholders of the Corporation for their action or
consideration, including, without limitation, the election of all directors (the
"Non-Series B Directors") other than those as to which the Series B Preferred
Stock has rights voting separately as a class as set out in paragraphs (b) and
(c) below. Except as provided by law, by the provisions of paragraphs (b), (c)
and (d) below or by the provisions establishing any other series of Preferred
Stock, holders of Series B Preferred Stock, and of any other outstanding
Preferred Stock that is entitled to vote together with the holders of Common
Stock as a single class, shall vote together with the holders of Common Stock as
a single class.
(b) In addition to the right of the holders of Series B
Preferred Stock to vote together with the holders of Common Stock as a single
class with respect to the election of the Non-Series B Directors, for as long as
at least (i) 40% of the shares of Series B Preferred Stock issued on the Initial
Issuance Date (after taking into account any adjustments provided for
hereunder)(the "Initial Series B Shares") are owned by Golden Press Holding,
L.L.C. ("GP Holding"), any of its members, any Affiliates (as defined below) of
such members (other than of Warburg, Pincus Ventures, L.P. ("WPV")) and the
general partnership that acts as a general partner of WPV (GP Holding, its
members, such Affiliates, WPV and such general partnership being herein
collectively referred to as the "GP Holding Parties"), the holders of Series B
Preferred Stock shall have the exclusive right, voting separately
IV-5
<PAGE>
as a class, to elect one-third of the members of the Corporation's Board of
Directors (herein referred to as the "Series B Directors"), (ii) 30% of the
Initial Series B Shares are owned by GP Holding Parties, the holders of Series B
Preferred Stock shall have the exclusive right, voting separately as a class, to
elect two Series B Directors, and (iii) 20% of the Initial Series B Shares are
owned by GP Holding Parties, the holders of Series B Preferred Stock shall have
the exclusive right, voting separately as a class, to elect one Series B
Director. In case such number of members calculated pursuant to clause (i) of
the immediately preceding sentence is not an integer, the number of Series B
Directors shall be rounded up to the next integer. All such Series B Directors
shall be elected by the affirmative vote of the holders of record of a majority
of the outstanding shares of Series B Preferred Stock either at meetings of
stockholders at which directors are elected, a special meeting of holders of
Series B Preferred Stock or by written consent without a meeting in accordance
with the General Corporation Law of Delaware. Each Series B Director so elected
shall serve for a term of one year and until his successor is elected and
qualified, provided, however, that promptly upon any decrease in the number of
Series B Directors that the holders of the Series B Preferred Stock are entitled
to elect pursuant to the first sentence of this paragraph (b), the appropriate
number of Series B Directors shall resign from the Corporation's Board of
Directors. Any vacancy in the position of a Series B Director, other than
pursuant to the proviso in the immediately preceding sentence, may be filled
only by the holders of the Series B Preferred Stock. Each Series B Director may,
during his term of office, be removed at any time, with or without cause, by and
only by the affirmative vote, at a special meeting of holders of Series B
Preferred Stock called for such purpose, or the written consent, of the holders
of record of a majority of the outstanding shares of Series B Preferred Stock.
Any vacancy created by such removal may also be filled at such meeting or by
such consent. On the Initial Issuance Date, the Board of Directors of the
Corporation shall consist of nine members. For purposes hereof, "Affiliates"
shall include persons included under the definition thereof in Rule 405 under
the Securities Act of 1933, as amended, immediate family members and trusts, 25%
or more of the beneficial interests of which are owned by such persons or one or
more of their immediate family members.
(c) In addition to any other rights provided by law, for as
long as at least one-half (1/2) of the Initial Series B Shares are owned by GP
Holding Parties, the Corporation shall not (nor shall it, in the case of clauses
(ii), (iii), (iv) and (v), permit any of its subsidiaries to), without first
obtaining the affirmative vote or written consent of the holders of record of a
majority of the shares of the Series B Preferred Stock, voting as a separate
class:
(i) amend or repeal any provision of the Corporation's
Certificate of Incorporation or By-Laws, including without
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<PAGE>
limitation a change in the number of members of the Board of Directors
of the Corporation;
(ii) authorize or effect the incurrence or issuance of any
Indebtedness (as defined below) (other than pursuant to an agreement to
incur the same which has been approved in writing by holders of a
majority of outstanding shares of Series B Preferred Stock, and other
than pursuant to that certain Credit Agreement, dated September 29,
1995, between Western Publishing Company, Inc. and Heller Financial,
Inc.) or shares of capital stock or rights to acquire capital stock
other than, in the case of shares of Common Stock, (x) options to
acquire up to 1,874,300 shares of Common Stock issued to employees of
the Corporation pursuant to the Amended and Restated 1986 Employee
Stock Option Plan of the Corporation (the "Stock Option Plan") or (y)
thereafter approved with the consent of the holders of record of a
majority of the then outstanding shares of Series B Preferred Stock;
provided, however, that the incurrence of Indebtedness among the
Corporation and its subsidiaries shall not require such consent;
(iii) authorize or effect (A) in one or in a series of two or
more related transactions, any sale, lease, license, transfer or other
disposition of assets for consideration in excess of $5,000,000 (other
than in the ordinary course of business or among the Corporation and
its subsidiaries); (B) any merger or consolidation or other
reorganization involving the Corporation or any of its subsidiaries
(other than with one another or in respect of which the aggregate
consideration paid to or received by the Corporation or its
subsidiaries is less than $5,000,000) or (C) a liquidation, winding up,
dissolution or adoption of any plan for the same other than the
liquidation, winding up, dissolution or adoption of any plan for the
same of a subsidiary into the Corporation or another subsidiary
thereof;
(iv) authorize or effect, in one or in a series of two or more
related transactions, (A) any acquisition or lease of assets or (B) any
license of patent, trademark or other rights relating to any
intellectual property, in each case, that involves by its terms a per
annum payment in excess of $5,000,000 as determined in good faith by
the Corporation's Board of Directors, other than among the Corporation
and its subsidiaries or in the ordinary course of business; or
(v) terminate the employment of the chief executive officer
of the Corporation.
IV-7
<PAGE>
For purposes of this Section 4(c), "Indebtedness" means liability for borrowed
money or the deferred purchase price of property or services (except payables
arising in the ordinary course of business) and including any guaranties
thereof.
Notwithstanding anything in paragraphs (b) or (c) to the
contrary, in the event that the shares of Series B Preferred Stock are held by
more than 10 holders, then (i) the right of the holders of Series B Preferred
Stock to vote separately as a class to elect the Series B Directors shall
terminate, and the holders of the Series B Preferred Stock shall have the right
to vote together with the holders of Common Stock with respect to the election
of all directors as set forth in paragraph (a) above and (ii) the restrictions
on the Corporation set forth in this paragraph (c) shall terminate, provided
that for purposes of this sentence, each member of GP Holding (other than WPV)
together with the Affiliates of such member shall be deemed to be one holder (if
such member or Affiliate directly owns shares of Series B Preferred Stock) and
WPV and the general partnership that acts as a general partner of WPV together
shall be deemed to be one holder (if any such entity directly owns shares of
Series B Preferred Stock).
(d) The Corporation shall not amend, alter or repeal the
preferences, special rights or other powers of the Series B Preferred Stock so
as to affect adversely the Series B Preferred Stock, without the written consent
or affirmative vote of the holders of record of at least a majority of the then
outstanding aggregate number of shares of such adversely affected Series B
Preferred Stock, given in writing or by vote at a meeting, consenting or voting
(as the case may be) separately as a class. For this purpose, without limiting
the generality of the foregoing, the authorization or issuance of any series of
Preferred Stock with preference or priority over, or being on a parity with, the
Series B Preferred Stock as to the right to receive either dividends or amounts
distributable upon liquidation, dissolution or winding up of the Corporation
shall be deemed so to affect adversely the Series B Preferred Stock.
5. OPTIONAL CONVERSION. Each share of Series B Preferred Stock
may be converted at any time from and after the Initial Issuance Date, at the
option of the holder thereof, in the manner hereinafter provided, into
fully-paid and nonassessable shares of Common Stock, provided, however, that on
any redemption of any Series B Preferred Stock or any liquidation of the
Corporation, the right of conversion shall terminate at the close of business on
the date fixed for such redemption or for the payment of any amounts
distributable on liquidation to the holders of Series B Preferred Stock, as the
case may be
IV-8
<PAGE>
(unless the Corporation defaults upon the payment due upon such redemption or
liquidation).
(a) The applicable conversion rate ("Conversion Rate") and
conversion price ("Conversion Price") of the Series B Preferred Stock from time
to time in effect is subject to adjustment as hereinafter provided. The initial
Conversion Rate shall be 500 shares of Common Stock for each one share of Series
B Preferred Stock surrendered for conversion representing an initial Conversion
Price (for purposes of Section 6) of $10.00 per share of Common Stock. Exercise
of the conversion right set forth herein by the exercising holder shall not
extinguish such holder's right to receive, and of the Corporation's obligation
to pay, any and all accrued but unpaid dividends, whether or not declared, up to
and including the time of conversion in respect of any shares of Series B
Preferred Stock then being converted. In the event any such accrued but unpaid
dividends are not paid at the time of such conversion, interest on the unpaid
amount of such dividends shall continue to accrue at the rate of 12% per annum,
compounded quarterly, until such amount is paid.
(b) The Corporation shall not issue fractions of shares of
Common Stock upon conversion of Series B Preferred Stock or scrip in lieu
thereof. If any fraction of a share of Common Stock would, except for the
provisions of this paragraph (b), be issuable upon conversion of any Series B
Preferred Stock, the Corporation shall in lieu thereof pay to the person
entitled thereto an amount in cash equal to such fraction multiplied by the
Market Price of one share of Common Stock, calculated to the nearest
one-hundredth (1/100) of a share.
(c) Whenever the Conversion Rate and Conversion Price shall be
adjusted as provided in Section 6 hereof, the Corporation shall forthwith file
at each office designated for the conversion of Series B Preferred Stock, a
statement, signed by the Chairman of the Board, the President, any Vice
President or Treasurer of the Corporation, showing in reasonable detail the
facts requiring such adjustment and the Conversion Rate that will be effective
after such adjustment. The Corporation shall also cause a notice setting forth
any such adjustments to be sent by mail, first class, postage prepaid, to each
holder of record of Series B Preferred Stock at his or its address appearing on
the stock register. If such notice relates to an adjustment resulting from an
event referred to in paragraph 6(g), such notice shall be included as part of
the notice required to be mailed and published under the provisions of paragraph
6(g) hereof.
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<PAGE>
(d) In order to exercise the conversion privilege, the holder
of record of any Series B Preferred Stock to be converted shall surrender his or
its certificate or certificates therefor to the principal office of the transfer
agent for the Series B Preferred Stock (or if no transfer agent is at the time
appointed, then the Corporation at its principal office), and shall give written
notice to the Corporation at such office that the holder elects to convert the
Series B Preferred Stock represented by such certificates, or any number
thereof. Such notice shall also state the name or names (with address) in which
the certificate or certificates for shares of Common Stock which shall be
issuable on such conversion shall be issued, subject to any restrictions on
transfer relating to shares of the Series B Preferred Stock or shares of Common
Stock upon conversion thereof. If so required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the Corporation,
duly authorized in writing. The date of receipt by the transfer agent (or by the
Corporation if the Corporation serves as its own transfer agent) of the
certificates and notice shall be the conversion date. As soon as practicable
after receipt of such notice and the surrender of the certificate or
certificates for Series B Preferred Stock as aforesaid, the Corporation shall
cause to be issued and delivered at such office to such holder, or on his or its
written order, a certificate or certificates for the number of full shares of
Common Stock issuable on such conversion in accordance with the provisions
hereof and cash as provided in paragraph (b) of this Section 5 in respect of any
fraction of a share of Common Stock otherwise issuable upon such conversion.
(e) The Corporation shall at all times when the Series B
Preferred Stock shall be outstanding reserve and keep available out of its
authorized but unissued stock, for the purposes of effecting the conversion of
the Series B Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding Series B Preferred Stock. Before taking any action which
would cause an adjustment reducing the Conversion Price below the then par value
of the shares of Common Stock issuable upon conversion of the Series B Preferred
Stock, the Corporation will take any corporate action which may, in the opinion
of its counsel, be necessary in order that the Corporation may validly and
legally issue fully-paid and nonassessable shares of such Common Stock at such
adjusted Conversion Price.
(f) All shares of Series B Preferred Stock which shall have
been surrendered for conversion as herein provided shall no longer be deemed to
be outstanding and all rights with respect to such shares, including the rights,
if any, to receive notices and
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<PAGE>
to vote, shall forthwith cease and terminate except the right of the holder
thereof to receive payment of any accrued but unpaid dividends thereon and
shares of Common Stock in exchange therefor. Any shares of Series B Preferred
Stock so converted shall be retired and cancelled and shall not be reissued, and
the Corporation may from time to time take such appropriate action as may be
necessary to reduce the authorized Series B Preferred Stock accordingly.
6. ANTI-DILUTION PROVISIONS.
(a) In order to prevent dilution of the right granted
hereunder, the Conversion Price shall be subject to adjustment from time to time
in accordance with this paragraph 6(a). At any given time the Conversion Price,
whether as the initial price of $10.00 per share or as last adjusted, shall be
that dollar (or part of a dollar) amount the payment of which shall be
sufficient at the given time to acquire one share of Common Stock upon
conversion of shares of Series B Preferred Stock. Upon each adjustment of the
Conversion Price pursuant to Section 6, the Conversion Rate shall be adjusted
such that the registered holders of shares of Series B Preferred Stock shall
thereafter be entitled to acquire upon exercise, at the Conversion Price
resulting from such adjustment, the number of shares of Common Stock obtainable
by multiplying the Conversion Price in effect immediately prior to such
adjustment by the number of shares of Common Stock acquirable immediately prior
to such adjustment and dividing the product thereof by the Conversion Price
resulting from such adjustment. For purposes of this Section 6, the term "Number
of Common Shares Deemed Outstanding" at any given time shall mean the sum of (x)
the number of shares of Common Stock outstanding at such time, (y) the number of
shares of Common Stock issuable assuming conversion at such time of the
Corporation's Series A Preferred Stock and Series B Preferred Stock and (z) the
number of shares of Common Stock deemed to be outstanding under subparagraphs
6(b)(1) to (9), inclusive, at such time.
(b) Except as provided in paragraph 6(c) or 6(f) below, if and
whenever on or after the Initial Issuance Date, the Corporation shall issue or
sell, or shall in accordance with subparagraphs 6(b)(1) to (9), inclusive, be
deemed to have granted, issued or sold, any shares of its Common Stock for a
consideration per share less than the Conversion Price in effect immediately
prior to the time of such grant, issue or sale, then forthwith upon such grant,
issue or sale (the "Triggering Transaction"), the Conversion Price shall,
subject to subparagraphs (1) to (9) of this paragraph 6(b), be reduced to the
Conversion Price (calculated to the nearest tenth of a cent) determined by
dividing:
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(i) an amount equal to the sum of (x) the product derived by
multiplying the Number of Common Shares Deemed Outstanding immediately
prior to such Triggering Transaction by the Conversion Price then in
effect, plus (y) the consideration, if any, received by the Corporation
upon consummation of such Triggering Transaction, by
(ii) an amount equal to the sum of (x) the Number of Common
Shares Deemed Outstanding immediately prior to such Triggering
Transaction, plus (y) the number of shares of Common Stock granted,
issued or sold (or deemed to be granted, issued or sold in accordance
with subparagraphs 6(b)(1) to (9) hereof) in connection with such
Triggering Transaction;
provided, however, that the Conversion Price shall not be so reduced if (A) for
so long as the holders of the Series B Preferred Stock have the right to elect
one or more Series B Directors pursuant to Section 4(b) hereof or to approve
certain transactions by the Corporation pursuant to Section 4(c) hereof, such
Triggering Transaction involves a grant, issuance or sale of Common Stock to any
GP Holding Party other than ratably to all holders of the Common Stock, and such
Triggering Transaction has not been approved by a majority of the Non-Series B
Directors (other than natural persons who are GP Holding Parties or officers,
directors or employees of entities that are GP Holding Parties) or (B) the
Triggering Transaction involves a grant, issuance or sale of Common Stock that
has not been registered pursuant to the Securities Act of 1933, as amended, and
an investment bank of national standing and reputation, engaged for a fee by the
Corporation pursuant to a written engagement letter, has not been consulted by
the Corporation with respect to the structure of such Triggering Transaction and
participated in the negotiation of such Triggering Transaction.
For purposes of determining the adjusted Conversion Price
under this paragraph 6(b), the following subsections (1) to (9), inclusive,
shall be applicable:
(1) In case the Corporation at any time shall in any
manner grant (whether directly or by assumption in a merger or
otherwise) any rights to subscribe for or to purchase, or any
options for the purchase of, (A) Common Stock or (B) any stock
or other securities convertible into or exchangeable for
Common Stock (such rights or options being herein called
"Options" and such convertible or exchangeable stock or
securities being herein called "Convertible Securities"),
whether or not such
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<PAGE>
Options or the right to convert or exchange any such
Convertible Securities are immediately exercisable, and the
price per share for which the Common Stock is issuable upon
exercise, conversion or exchange (determined by dividing (x)
the total amount, if any, received or receivable by the
Corporation as consideration for the granting of such Options,
plus the minimum aggregate amount of additional consideration,
if any, payable to the Corporation upon the exercise of all
such Options, plus, in the case of such Options which relate
to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue or
sale of such Convertible Securities and upon the conversion or
exchange thereof, by (y) the total maximum number of shares of
Common Stock issuable upon the exercise of such Options or the
conversion or exchange of such Convertible Securities) shall
be less than the Conversion Price in effect immediately prior
to the granting of such Option, then the total maximum amount
of Common Stock issuable upon the exercise of such Options or
in the case of Options which relate to Convertible Securities,
upon the conversion or exchange of such Convertible
Securities, shall (as of the date of granting of such Options)
be deemed to be outstanding and to have been issued and sold
by the Corporation for such price per share. No adjustment of
the Conversion Price shall be made upon the actual issue of
such shares of Common Stock or such Convertible Securities
upon the exercise of such Options, except as otherwise
provided in subparagraph (3) below.
(2) In case the Corporation at any time shall in any
manner issue (whether directly or by assumption in a merger or
otherwise) or sell any Convertible Securities, whether or not
the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by
dividing (x) the total amount received or receivable by the
Corporation as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation
upon the conversion or exchange thereof, by (y) the total
maximum number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities)
shall be less than the Conversion Price in respect of such
issue or sale, then the total maximum number of shares of
Common Stock
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<PAGE>
issuable upon conversion or exchange of all such Convertible
Securities shall (as of the date of the issue or sale of such
Convertible Securities) be deemed to be outstanding and to
have been issued and sold by the Corporation for such price
per share. No adjustment of the Conversion Price shall be made
upon the actual issue of such Common Stock upon exercise of
the rights to exchange or convert under such Convertible
Securities, except as otherwise provided in subparagraph (3)
below.
(3) If the purchase price provided for in any Options
referred to in subparagraph (1), the additional consideration,
if any, payable upon the conversion or exchange of any
Convertible Securities referred to in subparagraphs (1) or
(2), or the rate at which any Convertible Securities referred
to in subparagraph (1) or (2) are convertible into or
exchangeable for Common Stock shall change at any time (other
than under or by reason of provisions designed to protect
against dilution of the type set forth in paragraphs 6(b) or
6(d)), the Conversion Price in effect at the time of such
change shall forthwith be readjusted to the Conversion Price
which would have been in effect at such time had such Options
or Convertible Securities still outstanding provided for such
changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted,
issued or sold. If the purchase price provided for in any
Option referred to in subparagraph (1) or the rate at which
any Convertible Securities referred to in subparagraphs (1) or
(2) are convertible into or exchangeable for Common Stock,
shall be reduced at any time under or by reason of provisions
with respect thereto designed to protect against dilution,
then in case of the delivery of Common Stock upon the exercise
of any such Option or upon conversion or exchange of any such
Convertible Security, the Conversion Price then in effect
hereunder shall forthwith be adjusted to such respective
amount as would have been obtained had such Option or
Convertible Security never been issued as to such Common Stock
and had adjustments been made upon the issuance of the shares
of Common Stock delivered as aforesaid, but only if as a
result of such adjustment the Conversion Price then in effect
hereunder is hereby reduced.
(4) On the expiration of any Option or the
termination of any right to convert or exchange any
Convertible Securities, the Conversion Price then in
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<PAGE>
effect hereunder shall forthwith be increased to the
Conversion Price which would have been in effect at the time
of such expiration or termination had such Option or
Convertible Securities, to the extent outstanding immediately
prior to such expiration or termination, never been issued.
(5) In case any Options shall be issued in connection
with the issue or sale of other securities of the Corporation,
together comprising one integral transaction in which no
specific consideration is allocated to such Options by the
parties thereto, such Options shall be deemed to have been
issued without consideration (but shall otherwise be deemed
issued for the specific consideration allocated thereto).
(6) In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold or deemed to
have been issued or sold for cash, the consideration received
therefor less any underwriting discounts, selling commissions
and other expenses paid or incurred in respect of such
issuance or sale, shall be deemed to be the amount received by
the Corporation therefor. In case any shares of Common Stock,
Options or Convertible Securities shall be issued or sold for
a consideration other than cash, the amount of the
consideration other than cash received by the Corporation
shall be the fair value of such consideration as determined in
good faith by the Board of Directors of the Corporation. In
case any shares of Common Stock, Options or Convertible
Securities shall be issued in connection with any merger in
which the Corporation is the surviving corporation, the amount
of consideration therefor shall be deemed to be the value
attributable to such shares in such merger, provided that, to
the extent such value is not readily ascertainable, such value
shall be the fair value of such consideration as determined in
good faith by the Board of Directors of the Corporation.
(7) The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or
for the account of the Corporation, and the disposition of any
shares so owned or held shall be considered an issue or sale
of Common Stock for the purpose of this paragraph 6(b).
(8) In case the Corporation shall declare a dividend
or make any other distribution upon the stock of the
Corporation (other than dividends payable on the
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<PAGE>
Series B Preferred Stock pursuant to Section 2 hereof) payable
in Common Stock, Options, or Convertible Securities (other
than a dividend or distribution payable in Common Stock
covered by subparagraph 6(c) or 6(d)), then in such case any
Common Stock, Options or Convertible Securities, as the case
may be, issuable in payment of such dividend or distribution
shall be deemed to have been issued or sold without
consideration.
(9) For purposes of this paragraph 6(b), in case the
Corporation shall take a record of the holders of its Common
Stock for the purpose of entitling them (x) to receive a
dividend or other distribution payable in Common Stock,
Options or in Convertible Securities, or (y) to subscribe for
or purchase Common Stock, Options or Convertible Securities,
then such record date shall be deemed to be the date of the
issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or
the making of such other distribution or the date of the
granting of such right or subscription or purchase, as the
case may be.
(c) In the event the Corporation shall declare a dividend upon
the Common Stock payable otherwise than out of earnings or earned surplus,
determined in accordance with generally accepted accounting principles,
including the making of appropriate deductions for minority interests, if any,
in subsidiaries but without increasing the same as a result of any write-up of
assets related to such dividend or any gain from the sale of any capital assets
related to such dividend (herein referred to as "Liquidating Dividends"), then,
the Corporation shall pay to the holders of the Series B Preferred Stock (in
respect of each share of Class B Preferred Stock), at the time such dividend is
paid to holders of the Common Stock and in addition to any other dividend
required to be paid to the holders of the Series B Preferred Stock, an amount
equal to the product of the Conversion Rate then in effect and the aggregate
value at such time of all Liquidating Dividends paid in respect of one share of
Common Stock. For the purposes of this paragraph 6(c), a dividend shall be
considered payable out of earnings or earned surplus only if paid in cash and to
the extent that such earnings or earned surplus are charged an amount equal to
the fair value of such dividend as determined in good faith by the Board of
Directors of the Corporation.
(d) In case the Corporation shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such
IV-16
<PAGE>
subdivision shall be proportionately reduced, and, conversely, in case the
outstanding shares of Common Stock of the Corporation shall be combined into a
smaller number of shares, the Conversion Price in effect immediately prior to
such combination shall be proportionately increased.
(e) If any capital reorganization or reclassification of the
capital stock of the Corporation, or consolidation or merger of the Corporation
with another corporation, or the sale of all or substantially all of its assets
to another corporation (other than pursuant to a liquidation subject to Section
3 hereof) shall be effected in such a way that holders of Common Stock shall be
entitled to receive stock, securities, cash or other property with respect to or
in exchange for Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holders of the Series B Preferred Stock shall have the
right to acquire and receive upon conversion of the Series B Preferred Stock,
which right shall be pari passu with the rights of holders of Parity Stock and
prior to the rights of the holders of Junior Stock (but after and subject to the
rights of holders of Senior Preferred Stock, if any), such shares of stock,
securities, cash or other property issuable or payable (as part of the
reorganization, reclassification, consolidation, merger or sale) with respect to
or in exchange for such number of outstanding shares of Common Stock as would
have been received upon conversion of the Series B Preferred Stock at the
Conversion Price then in effect. The Corporation will not effect any such
consolidation, merger or sale, unless prior to the consummation thereof the
successor corporation (if other than the Corporation) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument (in form and substance reasonably satisfactory to the
holders of a majority of the outstanding Series B Preferred Stock) mailed or
delivered to the holders of the Series B Preferred Stock at the last address of
each such holder appearing on the books of the Corporation, the obligation to
deliver to each such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
purchase.
(f) The provisions of this Section 6 shall not apply to any
Common Stock issued or issuable to any person or entity, or deemed outstanding,
under subparagraphs 6(b)(1) to (9) inclusive: (i) on exercise of options
outstanding as of the Initial Issuance Date to acquire up to 1,874,300 shares of
Common Stock issued to employees of the Corporation pursuant to the Stock Option
Plan or any options approved by the holders of record of a majority of the
outstanding shares of Series B Preferred Stock pursuant to Section 4(c)(ii)(y)
hereof, (ii) pursuant to options granted to
IV-17
<PAGE>
Richard E. Snyder under the Stock Option Plan, as amended by the Corporation's
Board of Directors on January 31, 1996, (iii) on conversion of the Series B
Preferred Stock or Series A Preferred Stock, (iv) as a dividend on the Series B
Preferred Stock, or (v) on exercise of the Warrant issued to GP Holding on the
Initial Issuance Date.
(g) In the event that:
(1) the Corporation shall declare any cash dividend upon its
Common Stock, or
(2) the Corporation shall declare any dividend upon its Common
Stock payable in stock or make any special dividend or other
distribution to the holders of its Common Stock, or
(3) the Corporation shall offer for subscription pro rata to
the holders of its Common Stock any additional shares of stock of any
class or other rights, or
(4) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, including any
subdivision or combination of its outstanding shares of Common Stock,
or consolidation or merger of the Corporation with, or sale of all or
substantially all of its assets to, another individual or entity, or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in connection with such event, the Corporation shall give to the holders
of the Series B Preferred Stock:
(i) at least ten (10) days' prior written notice of the
date on which the books of the Corporation shall
close or a record shall be taken for such dividend,
distribution or subscription rights or for
determining rights to vote in respect of any such
reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up;
and
(ii) in the case of any such reorganization,
reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, at least
twenty (20) days' prior written notice of the date
when the same shall take place. Such notice in
accordance with the foregoing clause (i) shall also
specify, in the case of any such dividend,
distribution or subscription rights, the date on
IV-18
<PAGE>
which the holders of Common Stock shall be entitled
thereto, and such notice in accordance with the
foregoing clause (ii) shall also specify the date on
which the holders of Common Stock shall be entitled
to exchange their Common Stock for securities or
other property deliverable upon such reorganization,
reclassification consolidation, merger, sale,
dissolution, liquidation or winding up, as the case
may be. Each such written notice shall be given by
first class mail, postage prepaid, addressed to the
holders of the Series B Preferred Stock at the
address of each such holder as shown on the books of
the Corporation.
(h) If at any time or from time to time on or after the
Initial Issuance Date, the Corporation shall grant, issue or sell any Options,
Convertible Securities, rights to purchase property or evidences of indebtedness
(the "Purchase Rights") pro rata to the record holders of any class of Common
Stock and such grants, issuances or sales do not result in an adjustment of the
Conversion Price under paragraph 6(b) hereof, then each holder of record of
Series B Preferred Stock shall be entitled to acquire (within thirty (30) days
after the later to occur of the initial exercise date of such Purchase Rights or
receipt by such holder of the notice concerning Purchase Rights to which such
holder shall be entitled under paragraph 6(g)) and upon the terms applicable to
such Purchase Rights either:
(i) the aggregate Purchase Rights which such holder could
have acquired if it had held the number of shares of
Common Stock acquirable upon conversion of the Series
B Preferred Stock immediately before the grant,
issuance or sale of such Purchase Rights; provided
that if any Purchase Rights were distributed to
holders of Common Stock without the payment of
additional consideration by such holders,
corresponding Purchase Rights shall be distributed to
the exercising holders of the Series B Preferred
Stock as soon as possible after such exercise and it
shall not be necessary for the exercising holders of
the Series B Preferred Stock specifically to request
delivery of such rights; or
(ii) in the event that any such Purchase Rights shall have
expired or shall expire prior to the end of said
thirty (30) day period, the number of shares of
Common Stock or the amount of property which such
holder could have acquired upon such exercise
IV-19
<PAGE>
at the time or times at which the Corporation
granted, issued or sold such expired Purchase Rights.
(i) If any event occurs as to which, in the opinion of the
Board of Directors of the Corporation, the provisions of this Section 6 are not
strictly applicable or if strictly applicable would not fairly protect the
rights of the holders of the Series B Preferred Stock in accordance with the
essential intent and principles of such provisions, then the Board of Directors
shall make an adjustment in the application of such provisions, in accordance
with such essential intent and principles, so as to protect such rights as
aforesaid, but in no event shall any adjustment have the effect of increasing
the Conversion Price as otherwise determined pursuant to any of the provisions
of this Section 6 except in the case of a combination of shares of a type
contemplated in paragraph 6(d) and then in no event to an amount larger than the
Conversion Price as adjusted pursuant to paragraph 6(d).
7. REDEMPTION.
(a) The Corporation, at its option, may redeem (to the extent
that such redemption shall not violate any applicable provisions of the laws of
the State of Delaware) all or a portion of the shares of Series B Preferred
Stock at a price of $5,000 per share (subject to adjustment in the event of any
stock dividend, stock split, stock distribution or combination with respect to
such shares), plus an amount equal to any dividends thereon cumulated or accrued
but unpaid, whether or not declared (such amount is hereinafter referred to as
the "Redemption Price"), from time to time after the fourth anniversary of the
Initial Issuance Date (any such date of redemption is hereafter referred to as a
"Redemption Date"), if prior to such redemption all accrued but unpaid dividends
on all outstanding shares of Series B Preferred Stock have been paid, provided,
however, that, without the written consent of the holders of a majority of the
outstanding shares of Class A Preferred Stock, the Corporation shall not redeem
any shares of Class B Preferred Stock so long as any shares of Class A Preferred
Stock remain outstanding.
(b) In the event of any redemption of only a part of the then
outstanding Series B Preferred Stock, the Corporation shall effect such
redemption pro rata among the holders thereof (based on the number of shares of
Series B Preferred Stock held on the date of notice of redemption).
(c) At least thirty (30) days prior to any proposed Redemption
Date, written notice shall be mailed, postage prepaid,
IV-20
<PAGE>
to each holder of record of Series B Preferred Stock to be redeemed, at his or
its post office address last shown on the records of the Corporation, notifying
such holder of the number of shares so to be redeemed, specifying the Redemption
Date and the date on which such holder's conversion rights (pursuant to Section
5 hereof) as to such shares terminate and calling upon such holder to surrender
to the Corporation, in the manner and at the place designated, his or its
certificate or certificates representing the shares to be redeemed (such notice
is hereinafter referred to as the "Redemption Notice"). On or prior to each
Redemption Date, each holder of record of Series B Preferred Stock to be
redeemed shall surrender his or its certificate or certificates representing
such shares to the Corporation, in the manner and at the place designated in the
Redemption Notice, and thereupon the Redemption Price of such shares shall be
payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
cancelled. In the event less than all the shares represented by any such
certificate are redeemed, a new certificate shall be issued representing the
unredeemed shares. From and after the Redemption Date, unless there shall have
been a default in payment of the Redemption Price, all rights of the holders of
the Series B Preferred Stock designated for redemption in the Redemption Notice
as holders of Series B Preferred Stock of the Corporation (except the right to
receive the Redemption Price upon surrender of their certificate or
certificates) shall cease with respect to such shares, and such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever.
(d) Except as provided in paragraph (a) above, the Corporation
shall have no right to redeem the shares of Series B Preferred Stock. Any shares
of Series B Preferred Stock so redeemed shall be permanently retired, shall no
longer be deemed outstanding and shall not under any circumstances be reissued,
and the Corporation may from time to time take such appropriate corporate action
as may be necessary to reduce the amount of authorized Series B Preferred Stock
accordingly. Nothing herein contained shall prevent or restrict the purchase by
the Corporation, from time to time either at public or private sale, of the
whole or any part of the Series B Preferred Stock at such price or prices as the
Corporation and the selling holders of the Series B Preferred Stock may mutually
determine, subject to the provisions of applicable law.
IN WITNESS WHEREOF, [Western Publishing Group, Inc.] has
caused this Certificate of Designations, Number, Voting Powers, Preferences and
Rights of Series B Convertible Preferred
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<PAGE>
Stock to be duly executed by its ______________ this ____ day of ____________,
1996.
[WESTERN PUBLISHING GROUP, INC.]
By:
----------------------------------
Name:
Title:
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<PAGE>
Index of Defined Terms
Affiliates 6
Common Stock 1
Conversion Price 8
Conversion Rate 8
Convertible Securities 12
Corporation 1
Dividend Date 1
Dividend Value 2
GP Holding 5
GP Holding Parties 5
Indebtedness 7
Initial Issuance Date 1
Initial Series B Shares 5
Junior Stock 2
Liquidating Dividends 16
Market Price 2
Non-Series B Directors 5
Number of Common Shares Deemed Outstanding 11
Parity Stock 2
Redemption Date 20
Redemption Notice 21
Redemption Price 20
Senior Preferred Stock 4
Series A Preferred Stock 2
Series B Directors 5
Series B Preferred Stock 1
Stock Option Plan 7
Triggering Transaction 11
WPV 5
<PAGE>
WF&G DRAFT
1/31/96
APPENDIX V
FORM OF WARRANT
THIS WARRANT AND THE SECURITIES ISSUABLE UPON ITS EXERCISE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT
BE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION UNDER THE ACT OR IN
A TRANSACTION WHICH, IN THE OPINION OF COUNSEL REASONABLY SATISFACTORY TO
[WESTERN PUBLISHING GROUP, INC.], QUALIFIES AS AN EXEMPT TRANSACTION UNDER THE
ACT AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER.
[WESTERN PUBLISHING GROUP, INC.]
Common Stock Purchase Warrant
[Western Publishing Group, Inc.], a Delaware corporation (the
"Company"), hereby certifies that, for value received, Golden Press Holding,
L.L.C. (the "Holder"), or assigns, is entitled, subject to the terms set forth
below, to purchase from the Company, at any time and from time to time during
the period beginning on the earlier to occur of (i) the second anniversary of
the date of issuance hereof and (ii) the date on which a bona fide Business
Combination Proposal (as defined in the Securities Purchase Agreement, dated as
of January 31, 1996, between the Company and the Holder) is publicly announced
or a proxy solicitation for control of the Company's Board of Directors is
initiated by any person or entity other than a Holder Party (as defined in
Section 3.1 hereof)(the "Earliest Exercise Date"), and ending on , 2003, in
whole or in part, an aggregate of 3,250,000 fully paid and non-assessable shares
of the Common Stock of the Company at a purchase price, subject to the
provisions of Paragraph 3 hereof, of $10.00 per share (the "Purchase Price").
The Purchase Price and the number and character of such shares are subject to
adjustment as provided below, and the term "Common Stock" shall mean, unless the
context otherwise requires, the stock or other securities or property at the
time deliverable upon the exercise of this Warrant.
1. EXERCISE OF WARRANT. The purchase rights evidenced by this
Warrant shall be exercised by the holder surrendering this Warrant, with the
form of subscription at the end hereof duly executed by such holder, to the
Company at its office in New
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<PAGE>
York, New York, accompanied by payment of an amount (the "Exercise Amount")
equal to the Purchase Price multiplied by the number of shares being purchased
pursuant to such exercise, payable as follows: (i) by payment to the Company in
cash, by certified or official bank check, or by wire transfer of the Exercise
Amount, (ii) by surrender to the Company for cancellation of securities of the
Company having a Market Price (as hereinafter defined) in respect of such
exercise equal to the Exercise Amount, or (iii) by a combination of the methods
described in clauses (i) and (ii) above. In lieu of exercising this Warrant
pursuant to the immediately preceding sentence, the holder may elect to receive
a payment equal to the difference between (i) the Market Price multiplied by the
number of shares as to which this Warrant is then being exercised and (ii) the
Purchase Price with respect to such shares, payable by the Company to the Holder
only in shares of Common Stock valued at the Market Price in respect of such
exercise, by surrendering this Warrant, with the form of subscription at the end
hereof duly executed by such holder, to the Company at its office in New York,
New York. For purposes hereof, the term "Market Price" shall mean the average
closing price of a share of Common Stock for the ten consecutive trading days
immediately preceding the date of exercise of this Warrant as reported on the
principal national securities exchange on which the shares of Common Stock or
securities are listed or admitted to trading or, if not listed or admitted to
trading on any national securities exchange, the average of the closing bid and
asked prices during such ten trading day period in the over-the-counter market
as reported by the Nasdaq National Market or any comparable system, or, if no
such firm is then engaged in the business of reporting such prices, as reported
by The Wall Street Journal, or, if not so reported, as furnished by any member
of the National Association of Securities Dealers, Inc. selected by the Company
or, if the shares of Common Stock or securities are not publicly traded, the
Market Price for such day shall be the fair market value thereof determined
jointly by the Company and the holder of this Warrant; provided, however, that
if such parties are unable to reach agreement within a reasonable period of
time, the Market Price shall be determined in good faith by an independent
investment banking firm selected jointly by the Company and the holder of this
Warrant or, if that selection cannot be made within ten days, by an independent
investment banking firm selected by the American Arbitration Association in
accordance with its rules, and provided further, that the Company shall pay all
of the fees and expenses of any third parties incurred in connection with
determining the Market Price.
1.1 Partial Exercise. This Warrant may be exercised for less
than the full number of shares of Common Stock, in which
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<PAGE>
case the number of shares receivable upon the exercise of this Warrant as a
whole, and the sum payable upon the exercise of this Warrant as a whole, shall
be proportionately reduced. Upon any such partial exercise, the Company at its
expense will forthwith issue to the holder hereof a new Warrant or Warrants of
like tenor calling for the number of shares of Common Stock as to which rights
have not been exercised, such Warrant or Warrants to be issued in the name of
the holder hereof or its nominee (upon payment by such holder of any applicable
transfer taxes).
2. DELIVERY OF STOCK CERTIFICATES ON EXERCISE. As soon as
practicable after the exercise of this Warrant and payment of the Purchase
Price, and in any event within ten (10) days thereafter, the Company, at its
expense, will cause to be issued in the name of and delivered to the holder
hereof a certificate or certificates for the number of fully paid and
non-assessable shares or other securities or property to which such holder shall
be entitled upon such exercise, plus, in lieu of any fractional share to which
such holder would otherwise be entitled, cash in an amount determined in
accordance with Paragraph 3.9 hereof. The Company agrees that the shares so
purchased shall be deemed to be issued to the holder hereof as the record owner
of such shares as of the close of business on the date on which this Warrant
shall have been surrendered and payment made for such shares as aforesaid.
3. ANTI-DILUTION PROVISIONS AND OTHER ADJUSTMENTS. In order to
prevent dilution of the right granted hereunder, the Purchase Price shall be
subject to adjustment from time to time in accordance with this Paragraph 3.
Upon each adjustment of the Purchase Price pursuant to this Paragraph 3, the
registered Holder of this Warrant shall thereafter be entitled to acquire upon
exercise, at the Purchase Price resulting from such adjustment, the number of
shares of Common Stock obtainable by multiplying the Purchase Price in effect
immediately prior to such adjustment by the number of shares of Common Stock
acquirable immediately prior to such adjustment and dividing the product thereof
by the Purchase Price resulting from such adjustment.
3.1. Adjustment for Issue or Sale of Common Stock at Less than
Purchase Price. Except as provided in Paragraph 3.2 or 3.5 below, if and
whenever on or after the date of issuance hereof the Company shall grant, issue
or sell, or shall in accordance with subparagraphs 3.1(1) to (9), inclusive, be
deemed to have granted, issued or sold, any shares of its Common Stock for a
consideration per share less than the Purchase Price in effect immediately prior
to the time of such grant, issue or sale, then forthwith upon such grant, issue
or sale (the
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<PAGE>
"Triggering Transaction"), the Purchase Price shall, subject to subparagraphs
(1) to (9) of this Paragraph 3.1, be reduced to the Purchase Price (calculated
to the nearest tenth of a cent) determined by dividing:
(i) an amount equal to the sum of (x) the product derived by multiplying the
Number of Common Shares Deemed Outstanding immediately prior to such Triggering
Transaction by the Purchase Price then in effect, plus (y) the consideration, if
any, received by the Company upon consummation of such Triggering Transaction,
by
(ii) an amount equal to the sum of (x) the Number of Common Shares Deemed
Outstanding immediately prior to such Triggering Transaction plus (y) the number
of shares of Common Stock granted, issued or sold (or deemed to be granted,
issued or sold in accordance with subparagraphs 3.1(1) to (9)) in connection
with the Triggering Transaction;
provided, however, that the Purchase Price shall not be so reduced if (i) so
long as the Holder has the right to elect as a class one or more directors of
the Company's Board of Directors or to approve certain transactions by the
Company pursuant to Section 4(b) or 4(c), respectively, of the Certificate of
Designations of the Company's Series B Convertible Preferred Stock (the "Series
B Preferred Stock"), such Triggering Transaction involves a grant, issuance or
sale of Common Stock to the Holder, any of its members, any affiliates of such
members (other than of Warburg, Pincus Ventures, L.P. ("WPV")) and the general
partnership that acts as a general partner of WPV (the Holder, its members, such
affiliates and such general partnership being herein collectively referred to as
the "Holder Parties"), other than ratably to all holders of the Common Stock,
and such Triggering Transaction has not been approved by a majority of the
Non-Series B Directors (as defined in said Certificate of Designations and
excluding natural persons who are Holder Parties or officers, directors or
employees of entities that are Holder Parties) or (ii) the Triggering
Transaction involves a grant, issuance or sale of Common Stock that has not been
registered pursuant to the Securities Act of 1933, as amended, and an investment
bank of national standing and reputation, engaged for fee by the Company
pursuant to a written engagement letter, has not been consulted by the Company
with respect to the structure of such Triggering Transaction and participated in
the negotiation of such Triggering Transaction.
For purposes of this Paragraph 3, the term "Number of Common
Shares Deemed Outstanding"
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at any given time shall mean the sum of (x) the number of shares of Common Stock
outstanding at such time, (y) the number of shares of Common Stock issuable
assuming conversion at such time of the Company's Series A Preferred Stock and
Series B Convertible Preferred Stock and (z) the number of shares of the
Company's Common Stock deemed to be outstanding under subparagraphs 3.1(1) to
(9), inclusive, at such time.
For purposes of determining the adjusted Purchase Price under
this Paragraph 3.1, the following subsections (1) to (9), inclusive, shall be
applicable:
(1) In case the Company at any time shall in any
manner grant (whether directly or by assumption in a merger or otherwise) any
rights to subscribe for or to purchase, or any options for the purchase of,
Common Stock or any stock or other securities convertible into or exchangeable
for Common Stock (such rights or options being herein called "Options" and such
convertible or exchangeable stock or securities being herein called "Convertible
Securities"), whether or not such Options or the right to convert or exchange
any such Convertible Securities are immediately exercisable and the price per
share for which the Common Stock is issuable upon exercise, conversion or
exchange (determined by dividing (x) the total amount, if any, received or
receivable by the Company as consideration for the granting of such Options,
plus the minimum aggregate amount of additional consideration payable to the
Company upon the exercise of all such Options, plus, in the case of such Options
which relate to Convertible Securities, the minimum aggregate amount of
additional consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by (y) the
total maximum number of shares of Common Stock issuable upon the exercise of
such Options or the conversion or exchange of such Convertible Securities) shall
be less than the Purchase Price in effect immediately prior to the time of the
granting of such Option, then the total maximum amount of Common Stock issuable
upon the exercise of such Options, or, in the case of Options which relate to
Convertible Securities, upon the conversion or exchange of such Convertible
Securities, shall (as of the date of granting of such Options) be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. No adjustment of the Purchase Price shall be made upon the actual issue
of such shares of Common Stock or such Convertible Securities upon the exercise
of such Options, except as otherwise provided in subparagraph (3) below.
(2) In case the Company at any time shall in any
manner issue (whether directly or by assumption in a merger or
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otherwise) or sell any Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion or exchange
(determined by dividing (x) the total amount received or receivable by the
Company as consideration for the issue or sale of such Convertible Securities,
plus the minimum aggregate amount of additional consideration, if any, payable
to the Company upon the conversion or exchange thereof, by (y) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities) shall be less than the Purchase Price in effect
immediately prior to the time of such issue or sale, then the total maximum
number of shares of Common Stock issuable upon conversion or exchange of all
such Convertible Securities shall (as of the date of the issue or sale of such
Convertible Securities) be deemed to be outstanding and to have been issued and
sold by the Company for such price per share. No adjustment of the Purchase
Price shall be made upon the actual issue of such Common Stock upon exercise of
the rights to exchange or convert under such Convertible Securities, except as
otherwise provided in subparagraph (3) below.
(3) If the purchase price provided for in any
Options referred to in subparagraph (1), the additional consideration, if any,
payable upon the conversion or exchange of any Convertible Securities referred
to in subparagraphs (1) or (2), or the rate at which any Convertible Securities
referred to in subparagraph (1) or (2) are convertible into or exchangeable for
Common Stock shall change at any time (other than under or by reason of
provisions designed to protect against dilution of the type set forth in
Paragraph 3.1 or 3.3), the Purchase Price in effect at the time of such change
shall forthwith be readjusted to the Purchase Price which would have been in
effect at such time had such Options or Convertible Securities still outstanding
provided for such changed purchase price, additional consideration or conversion
rate, as the case may be, at the time initially granted, issued or sold. If the
purchase price provided for in any Option referred to in subparagraph (1) or the
rate at which any Convertible Securities referred to in subparagraphs (1) or (2)
are convertible into or exchangeable for Common Stock, shall be reduced at any
time under or by reason of provisions with respect thereto designed to protect
against dilution, then in case of the delivery of Common Stock upon the exercise
of any such Option or upon conversion or exchange of any such Convertible
Security, the Purchase Price then in effect hereunder shall forthwith be
adjusted to such respective amount as would have been obtained had such Option
or Convertible Security never been issued as to such Common Stock and had
adjustments been made upon the issuance of the shares of Common
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Stock delivered as aforesaid, but only if as a result of such adjustment the
Purchase Price then in effect hereunder is hereby reduced.
(4) On the expiration of any Option or the
termination of any right to convert or exchange any Convertible Securities, the
Purchase Price then in effect hereunder shall forthwith be increased to the
Purchase Price which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination, never been issued.
(5) In case any Options shall be issued in
connection with the issue or sale of other securities of the Company, together
comprising one integral transaction in which no specific consideration is
allocated to such Options by the parties thereto, such Options shall be deemed
to have been issued without consideration (but shall otherwise be deemed issued
for the specific consideration allocated thereto).
(6) In case any shares of Common Stock, Options or
Convertible Securities shall be issued or sold or deemed to have been issued or
sold for cash, the consideration received therefor, less any underwriting
discounts, selling commissions and other expenses paid or incurred in respect of
such issuance or sale, shall be deemed to be the amount received by the Company
therefor. In case any shares of Common Stock, Options or Convertible Securities
shall be issued or sold for a consideration other than cash, the amount of the
consideration other than cash received by the Company shall be the fair value of
such consideration as determined in good faith by the Board of Directors of the
Company. In case any shares of Common Stock, Options or Convertible Securities
shall be issued in connection with any merger in which the Company is the
surviving corporation, the amount of consideration therefor shall be deemed to
be the value attributable to such shares in such merger, provided that, to the
extent such value is not ascertainable, such value shall be the fair value of
such consideration as determined in good faith by the Board of Directors of the
Company.
(7) The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the account
of the Company, and the disposition of any shares so owned or held shall be
considered an issue or sale of Common Stock for the purpose of this Paragraph
3.1.
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(8) In case the Company shall declare a dividend or
make any other distribution upon the stock of the Company payable in Common
Stock, Options, or Convertible Securities (other than a dividend or distribution
payable in Common Stock covered by Section 3.3 or 3.4), then in such case any
Common Stock, Options or Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to have been issued or
sold without consideration.
(9) For purposes of this Paragraph 3.1, in case the
Company shall take a record of the holders of its Common Stock for the purpose
of entitling them (x) to receive a dividend or other distribution payable in
Common Stock, Options or in Convertible Securities, or (y) to subscribe for or
purchase Common Stock, Options or Convertible Securities, then such record date
shall be deemed to be the date of the issue or sale of the shares of Common
Stock deemed to have been issued or sold upon the declaration of such dividend
or the making of such other distribution or the date of the granting of such
right or subscription or purchase, as the case may be.
3.2. Dividends Not Paid Out of Earnings or Earned Surplus. In
the event the Company shall declare a dividend upon the Common Stock payable
otherwise than out of earnings or earned surplus, determined in accordance with
generally accepted accounting principles, including the making of appropriate
deductions for minority interests, if any, in subsidiaries but without
increasing the same as a result of any write-up of assets related to such
dividend or any gain from the sale of any capital assets related to such
dividend (herein referred to as "Liquidating Dividends"), then, the Company
shall pay to the holder of this Warrant, at the time such dividend is paid to
the holders of the Common Stock, an amount equal to the product of (i) the
number of shares of Common Stock that the holder of this Warrant would be
entitled to acquire upon exercise of this Warrant at the Purchase Price then in
effect and (ii) the aggregate value at such time of all Liquidating Dividends
paid in respect of one share of Common Stock. For the purposes of this Paragraph
3.2, a dividend shall be considered payable out of earnings or earned surplus
only if paid in cash and to the extent that such earnings or earned surplus are
charged an amount equal to the fair value of such dividend as determined in good
faith by the Board of Directors of the Company.
3.3. Subdivisions and Combinations. In case the Company shall
at any time subdivide its outstanding shares of Common Stock into a greater
number of shares, the Purchase Price in effect immediately prior to such
subdivision shall be
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proportionately reduced, and, conversely, in case the outstanding shares of
Common Stock shall be combined into a smaller number of shares, the Purchase
Price in effect immediately prior to such combination shall be proportionately
increased.
3.4. Reorganization, Reclassification, Consolidation, Merger
or Sale of Assets. If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of Common Stock
shall be entitled to receive stock, securities, cash or other property with
respect to or in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, lawful and
adequate provision shall be made whereby the holder of this Warrant shall have
the right to acquire and receive upon exercise of this Warrant such shares of
stock, securities, cash or other property issuable or payable (as part of the
reorganization, reclassification, consolidation, merger or sale) with respect to
or in exchange for such number of outstanding shares of the Company's Common
Stock as would have been received upon exercise of this Warrant at the Purchase
Price then in effect. The Company will not effect any such consolidation, merger
or sale, unless prior to the consummation thereof the successor corporation (if
other than the Company) resulting from such consolidation or merger or the
corporation purchasing such assets shall assume by written instrument (in form
and substance reasonably satisfactory to the holder of this Warrant) mailed or
delivered to the holder of this Warrant at the last address of such holder
appearing on the books of the Company, the obligation to deliver to such holder
such shares of stock, securities or assets as, in accordance with the foregoing
provisions, such holder may be entitled to purchase.
3.5. No Adjustment for Exercise of Certain Options, Warrants,
Etc. The provisions of this Section 3 shall not apply to any Common Stock issued
or issuable to any person or entity, or deemed outstanding, under subparagraphs
3.1(1) to (9) inclusive: (i) on exercise of options outstanding on the date of
issuance hereof to acquire up to 1,874,300 shares of Common Stock issued to
employees of the Company pursuant to the Amended and Restated 1986 Employee
Stock Option Plan of the Company (the "Stock Option Plan") or any options
approved with the consent of the holders of record of a majority of the
outstanding shares of Series B Preferred Stock; (ii) pursuant to options granted
to Richard E. Snyder under the Stock Option Plan, as amended by the Company's
Board of Directors on January 31, 1996; (iii) on conversion of the Series B
Preferred
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Stock or the Series A Preferred Stock of the Company; (iv) as a dividend on the
Series B Preferred Stock; or (v) on exercise of this Warrant.
3.6. Notices of Record Date, Etc. In the event that:
(1) the Company shall declare any cash dividend upon
its Common Stock, or
(2) the Company shall declare any dividend upon its
Common Stock payable in stock or make any special dividend or other distribution
to the holders of its Common Stock, or
(3) the Company shall offer for subscription pro
rata to the holders of its Common Stock any additional shares of stock of any
class or other rights, or
(4) there shall be any capital reorganization or
reclassification of the capital stock of the Company, including any subdivision
or combination of its outstanding shares of Common Stock, or consolidation or
merger of the Company with, or sale of all or substantially all of its assets
to, another corporation, or
(5) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Company;
then, in connection with such event, the Company shall give to the holder of
this Warrant:
(i) at least ten (10) days' prior written notice of the date on which the books
of the Company shall close or a record shall be taken for such dividend,
distribution or subscription rights or for determining rights to vote in respect
of any such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up; and
(ii) in the case of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, at least twenty (20) days'
prior written notice of the date when the same shall take place. Such notice in
accordance with the foregoing clause (i) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on which the
holders of Common Stock shall be entitled thereto, and such notice in accordance
with the foregoing clause (ii) shall also specify the date on which the holders
of Common Stock shall be entitled to exchange their Common Stock for securities
or other property deliverable upon such reorganization, reclassification
consolidation, merger, sale, dissolution,
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liquidation or winding up, as the case may be. Each such written notice shall be
given by first class mail, postage prepaid, addressed to the holder of this
Warrant at the address of such holder as shown on the books of the Company.
3.7. Grant, Issue or Sale of Options, Convertible Securities,
or Rights. If at any time or from time to time on or after the date of issuance
hereof, the Company shall grant, issue or sell any Options, Convertible
Securities, rights to purchase property or evidences of indebtedness (the
"Purchase Rights") pro rata to the record holders of any class of Common Stock
and such grants, issuances or sales do not result in an adjustment of the
Purchase Price under Paragraph 3.1 hereof, then the holder of this Warrant shall
be entitled to acquire (within thirty (30) days after the later to occur of the
initial exercise date of such Purchase Rights or receipt by such holder of the
notice concerning Purchase Rights to which such holder shall be entitled under
Paragraph 3.6) and upon the terms applicable to such Purchase Rights either:
(i) the aggregate Purchase Rights which such holder could have acquired if it
had held the number of shares of Common Stock acquirable upon exercise of this
Warrant immediately before the grant, issuance or sale of such Purchase Rights;
provided that if any Purchase Rights were distributed to holders of Common Stock
without the payment of additional consideration by such holders, corresponding
Purchase Rights shall be distributed to the exercising holder of this Warrant as
soon as possible after such exercise and it shall not be necessary for the
exercising holder of this Warrant specifically to request delivery of such
rights; or
(ii) in the event that any such Purchase Rights shall have expired or shall
expire prior to the end of said thirty (30) day period, the number of shares of
Common Stock or the amount of property which such holder could have acquired
upon such exercise at the time or times at which the Company granted, issued or
sold such expired Purchase Rights.
3.8. Adjustment by Board of Directors. If any event occurs as
to which, in the opinion of the Board of Directors of the Company, the
provisions of this Section 3 are not strictly applicable or if strictly
applicable would not fairly protect the rights of the holder of this Warrant in
accordance with the essential intent and principles of such provisions, then the
Board of Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such rights as aforesaid, but in no event shall any adjustment have the
effect of increasing the
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Purchase Price as otherwise determined pursuant to any of the provisions of this
Section 3 except in the case of a combination of shares of a type contemplated
in Paragraph 3.3 and then in no event to an amount larger than the Purchase
Price as adjusted pursuant to Paragraph 3.3.
3.9. Fractional Shares. The Company shall not issue fractions
of shares of Common Stock upon exercise of this Warrant or scrip in lieu
thereof. If any fraction of a share of Common Stock would, except for the
provisions of this Paragraph 3.9, be issuable upon exercise of this Warrant, the
Company shall in lieu thereof pay to the person entitled thereto an amount in
cash equal to the current value of such fraction, calculated to the nearest
one-hundredth (1/100) of a share, to be computed (i) if the Common Stock is
listed on any national securities exchange on the basis of the last sales price
of the Common Stock on such exchange (or the quoted closing bid price if there
shall have been no sales) on the date of conversion, or (ii) if the Common Stock
shall not be listed, on the basis of the mean between the closing bid and asked
prices for the Common Stock on the date of conversion as reported by the Nasdaq
National Market, or its successor, and if there are not such closing bid and
asked prices, on the basis of the fair market value per share as determined by
the Board of Directors of the Company.
3.10. Officers' Statement as to Adjustments. Whenever the
Purchase Price shall be adjusted as provided in Section 3 hereof, the Company
shall forthwith file at each office designated for the exercise of this Warrant,
a statement, signed by the Chairman of the Board, the President, any Vice
President or Treasurer of the Company, showing in reasonable detail the facts
requiring such adjustment and the Purchase Price that will be effective after
such adjustment. The Company shall also cause a notice setting forth any such
adjustments to be sent by mail, first class, postage prepaid, to the record
holder of this Warrant at his or its address appearing on the stock register. If
such notice relates to an adjustment resulting from an event referred to in
Paragraph 3.6, such notice shall be included as part of the notice required to
be mailed and published under the provisions of Paragraph 3.6 hereof.
4. NO DILUTION OR IMPAIRMENT. The Company will not, by
amendment of its charter or through reorganization, consolidation, merger,
dissolution, sale of assets or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms of this Warrant, but
will at all times in good faith assist in the carrying out of all such terms and
in the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holder hereof
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against dilution or other impairment. Without limiting the generality of the
foregoing, the Company will not increase the par value of any shares of stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise, and at all times will take all such action as may be
necessary or appropriate in order that the Company may validly and legally issue
fully paid and non-assessable stock upon the exercise of this Warrant.
5. RESERVATION OF STOCK, ETC., ISSUABLE ON EXERCISE OF
WARRANTS. The Company shall at all times reserve and keep available out of its
authorized but unissued stock, solely for the issuance and delivery upon the
exercise of this Warrant and other similar Warrants, such number of its duly
authorized shares of Common Stock as from time to time shall be issuable upon
the exercise of this Warrant and all other similar Warrants at the time
outstanding.
6. REPLACEMENT OF WARRANT. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to it, or (in the case of mutilation) upon surrender and
cancellation thereof, the Company will issue, in lieu thereof, a new Warrant of
like tenor.
7. REMEDIES. The Company stipulates that the remedies at law
of the holder of this Warrant in the event of any default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that the same may be specifically enforced.
8. NEGOTIABILITY, ETC. This Warrant is issued upon the
following terms, to all of which each taker or owner hereof consents and agrees:
(a) Subject to the legend appearing on the first page hereof,
at any time beginning on the Earliest Exercise Date, title to this Warrant may
be transferred by endorsement (by the holder hereof executing the form of
assignment at the end hereof including guaranty of signature) and delivery in
the same manner as in the case of a negotiable instrument transferable by
endorsement and delivery.
(b) Subject to Section 8(a), any person in possession of this
Warrant properly endorsed is authorized to represent himself as absolute owner
hereof and is granted power to transfer absolute title hereto by endorsement and
delivery hereof to a
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bona fide purchaser hereof for value; each prior taker or owner waives and
renounces all of his equities or rights in this Warrant in favor of every such
bona fide purchaser, and every such bona fide purchaser shall acquire title
hereto and to all rights represented hereby.
(c) Until this Warrant is transferred on the books of the
Company, the Company may treat the registered holder of this Warrant as the
absolute owner hereof for all purposes without being affected by any notice to
the contrary.
(d) Prior to the exercise of this Warrant, the holder hereof
shall not be entitled to any rights of a shareholder of the Company with respect
to shares for which this Warrant shall be exercisable, including, without
limitation, the right to vote, to receive dividends or other distributions or to
exercise any preemptive rights, and shall not be entitled to receive any notice
of any proceedings of the Company, except, in each case, as provided herein.
(e) The Company shall not be required to pay any Federal or
state transfer tax or charge that may be payable in respect of any transfer
involved in the transfer or delivery of this Warrant or the issuance or
conversion or delivery of certificates for Common Stock in a name other than
that of the registered holder of this Warrant or to issue or deliver any
certificates for Common Stock upon the exercise of this Warrant until any and
all such taxes and charges shall have been paid by the holder of this Warrant or
until it has been established to the Company's satisfaction that no such tax or
charge is due.
9. SUBDIVISION OF RIGHTS. This Warrant (as well as any new
warrants issued pursuant to the provisions of this paragraph) is exchangeable,
upon the surrender hereof by the holder hereof, at the principal office of the
Company for any number of new warrants of like tenor and date representing in
the aggregate the right to subscribe for and purchase the number of shares of
Common Stock which may be subscribed for and purchased hereunder.
10. MAILING OF NOTICES, ETC. All notices and other
communications from the Company to the holder of this Warrant shall be mailed by
first-class certified mail, postage prepaid, to the address furnished to the
Company in writing by the last holder of this Warrant who shall have furnished
an address to the Company in writing.
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11. HEADINGS, ETC. The headings in this Warrant are for
purposes of reference only, and shall not limit or otherwise affect the meaning
hereof.
12. CHANGE, WAIVER, ETC. Neither this Warrant nor any term
hereof may be changed, waived, discharged or terminated orally but only by an
instrument in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
13. SUCCESSORS AND ASSIGNS. This Warrant and the rights
evidenced hereby shall inure to the benefit of and be binding upon the
successors and assigns of the Company, the holder hereof and (to the extent
provided herein) the holders of shares Common Stock issued upon exercise of this
Warrant, and shall be enforceable by any such holder.
14. MODIFICATION AND SEVERABILITY. If, in any action before
any court or agency legally empowered to enforce any provision contained herein,
any provision hereof is found to be unenforceable, then such provision shall be
deemed modified to the extent necessary to make it enforceable by such court of
agency. If any such provision is not enforceable as set forth in the preceding
sentence, the unenforceablilty of such provision shall not affect the other
provisions of this Warrant, but this Warrant shall be construed as if such
unenforceable provision had never been contained herein.
15. GOVERNING LAW. THIS WARRANT SHALL BE CONSTRUED AND
ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
[WESTERN PUBLISHING GROUP, INC.]
By
-------------------------------
Name:
Title:
Dated: _____________
Attest:
____________________
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[To be signed only upon exercise of Warrant]
To [Western Publishing Group, Inc.]
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, ______ shares of Common Stock of [Western Publishing Group,
Inc.] and herewith makes payment of $ ___________________________[specify
amount of cash and/or number, market value and type of securities being paid
or whether a cashless exercise is elected], and requests that the certificates
for such shares be issued in the name of, and be delivered to ________________,
whose address is _______________________________________________.
Dated: ___________________
_______________________________
(Signature must conform in all respects to name of Holder as
specified on the face of the Warrant)
_______________________________
Address
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<PAGE>
[To be signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _______________________________________ the right represented by the
within Warrant to purchase the _____________ shares of the Common Stock of
[Western Publishing Group, Inc.] to which the within Warrant relates, and
appoints ___________________ attorney to transfer said right on the books of
[Western Publishing Group, Inc.] with full power of substitution in the
premises.
Dated:
__________________________
_____________________________
(Signature must conform in all respects to name of holder as
specified on the face of the Warrant)
_____________________________
Address
In the presence of
_____________________________
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<PAGE>
Index of Defined Terms
ACT 1
Common Stock 1
Company 1
Convertible Securities 5
Earliest Exercise Date 1
Exercise Amount 2
Holder 1
Holder Parties 4
Liquidating Dividends 8
Market Price 2
Number of Common Shares Deemed Outstanding 4
Purchase Price 1
Purchase Rights 11
Series B Preferred Stock 4
Stock Option Plan 9
Triggering Transaction 4
WPV 4
<PAGE>
APPENDIX VI
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of __________ __,
1996, is entered into by and among [Western Publishing Group, Inc.], a Delaware
corporation (the "Company"), and Golden Press Holding, L.L.C., a Delaware
limited liability company ("GP Holding").
WHEREAS, the Company has agreed to issue to GP Holding, shares
of its Series B Convertible Preferred Stock ("Preferred Stock") and a Warrant
(the "Warrant") to purchase shares of its Common Stock ("Common Stock") and to
grant to GP Holding and any subsequent holders of such Preferred Stock and such
Warrant certain rights to have such Preferred Stock, such Warrant and certain
shares of Common Stock registered under the Securities Act of 1933, as amended
(the "Act").
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises and covenants herein contained, the parties hereto hereby agree
as follows:
SECTION 1. Definitions.
As used in this Agreement:
(a) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Act;
(b) "Exchange Act" shall mean the Securities Exchange Act of
1934, as amended.
(c) the term "Holder" shall mean any holder of Registrable
Securities;
(d) the term "Initiating Holder" shall mean any Holder or
Holders who in the aggregate are Holders of more than 50% of the then
outstanding Registrable Securities;
(e) the terms "register," "registered" and "registration"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Act (and any post-effective amendments filed or
required to be filed) and the declaration or ordering of effectiveness of such
registration statement;
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(f) ( the term "Registrable Securities" means (i) any shares
of Preferred Stock, (ii) any shares of Common Stock issued upon conversion of
shares of Preferred Stock, (iii) the Warrant or any portion thereof, (iv) ny
shares of Common Stock issued upon exercise of the Warrant or any portion
thereof and (v) any capital stock of the Company issued as a dividend or other
distribution with respect to, or in exchange for or in replacement of, any
securities referred to in clauses (i) through (iv) above. For purposes of this
Agreement, a person will be deemed to be a Holder whenever such person has the
right to acquire directly or indirectly Registrable Securities (upon conversion
or exercise in connection with a transfer of securities or otherwise, but
disregarding any restrictions or limitations upon the exercise of such right),
whether or not such acquisition has actually been effected;
(g) "Registration Expenses" shall mean all expenses incurred
by the Company in compliance with Sections 2, 3 and 4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses and the
expense of any special audits incident to or required by any such registration
(but excluding the compensation of regular employees of the Company, which shall
be paid in any event by the Company); and
(h) "Selling Expenses" shall mean all underwriting discounts
and selling commissions applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for each of the Holders.
SECTION 2. Demand Registration.
(a) Request for Registration. If the Company shall receive
from an Initiating Holder, at any time, a written request that the Company
effect any registration with respect to all or a part of the Registrable
Securities, the Company will:
(i) within five (5) days of receipt of such
request, give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its diligent best
efforts to effect such registration (including, without
limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualification under
applicable blue sky or other state securities
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laws and appropriate compliance with applicable regulations
issued under the Act) as may be so requested and as would
permit or facilitate the sale and distribution of all or such
portion of such Registrable Securities as are specified in
such request, together with all or such portion of the
Registrable Securities of any Holder or Holders joining in
such request as are specified in a written request received by
the Company within ten (10) days after written notice from the
Company is given under Section 2(a)(i) above; provided that
the Company shall not be obligated to effect, or take any
action to effect, any such registration pursuant to this
Section 2:
(x) In any particular jurisdiction in
which the Company would be required to execute a
general consent to service of process in effecting
such registration, qualification or compliance,
unless the Company is already subject to service in
such jurisdiction and except as may be required by
the Act or applicable rules or regulations
thereunder; or
(y) After the Company has effected three
(3) such registrations pursuant to this Section 2 and
such registrations have been declared or ordered
effective and the sales of such Registrable
Securities shall have closed.
The registration statement filed pursuant to the request of
the Initiating Holders may, subject to the provisions of Section 2(b) below,
include other securities of the Company which are held by officers or directors
of the Company, or which are held by persons who, by virtue of agreements with
the Company, are entitled to include their securities in any such registration,
but the Company shall have no absolute right to include any of its securities in
any such registration.
The registration rights set forth in this Section 2 shall be
assignable, in whole or in part, to any transferee of Registrable Securities who
is a transferee of at least 5% of the then outstanding Registrable Securities, a
member of GP Holding, an affiliate of E.M. Warburg, Pincus & Co., Inc.
("Warburg") or a limited or general partner of an investment fund affiliated
with Warburg, and such transferee shall be bound by all obligations of this
Section 2.
(b) Underwriting. If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by
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means of an underwriting, they shall so advise the Company as a part of their
request made pursuant to Section 2(a).
If officers or directors of the Company holding other
securities of the Company shall request inclusion in any registration pursuant
to Section 2, or if holders of securities of the Company other than Registrable
Securities who are entitled, by contract with the Company or otherwise, to have
securities included in such a registration (the "Other Stockholders") request
such inclusion, the Holders shall offer to include the securities of such
officers, directors and Other Stockholders in the underwriting and may condition
such offer on their acceptance of the further applicable provisions of this
Section 2. The Holders whose shares are to be included in such registration and
the Company shall (together with all officers, directors and Other Stockholders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by the Initiating
Holders. Notwithstanding any other provision of this Section 2, if the
representative advises the Holders in writing that marketing factors require a
limitation on the number of shares to be underwritten, the securities of the
Company held by officers or directors (other than Registrable Securities) of the
Company and the securities held by Other Stockholders shall be excluded from
such registration to the extent so required by such limitation. If, after the
exclusion of such shares, further reductions are still required, the number of
shares included in the registration by each Holder shall be reduced on a pro
rata basis (based on the number of shares originally proposed to be registered
by such Holder), by such minimum number of shares as is necessary to comply with
such request. No Registrable Securities or any other securities excluded from
the underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. If any of the Holders or any officer, director or
Other Stockholder who has requested inclusion in such registration as provided
above disapproves of the terms of the underwriting, such person may elect to
withdraw therefrom by written notice to the Company, the underwriter and the
Initiating Holders. The securities so withdrawn shall also be withdrawn from
registration. If the underwriter has not limited the number of Registrable
Securities or other securities to be underwritten, the Company may include its
securities for its own account in such registration if the representative so
agrees and if the number of Registrable Securities and other securities which
would otherwise have been included in such registration and underwriting will
not thereby be limited.
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<PAGE>
SECTION 3. Company Registration.
(i) Request For Registration. If the Company shall determine
to register any of its equity securities either for its own account or for the
account of a security holder or holders exercising their respective demand
registration rights, other than a registration relating solely to employee
benefit plans, or a registration relating solely to a Commission Rule 145
transaction, or a registration on any registration form which does not permit
secondary sales or does not include substantially the same information as would
be required to be included in a registration statement covering the sale of
Registrable Securities, the Company will:
(i) promptly give to each of the Holders a written
notice thereof which shall describe in reasonable detail the
proposed registration and distribution (including those
jurisdictions in which the Company intends to attempt to
qualify such securities under the applicable blue sky or other
state securities laws); and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in
any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made by
the Holders within fifteen (15) days after receipt of the
written notice from the Company described in clause (i) above,
except as set forth in Section 3(b) below. Such written
request may specify all or a part of the Holders' Registrable
Securities.
(b) Underwriting. If the registration of which the Company
gives notice is for a registered public offering involving an underwriting, the
Company shall so advise each of the Holders as a part of the written notice
given pursuant to Section 3(a)(i). In such event, the right of each of the
Holders to registration pursuant to this Section 3 shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein; provided, however, that GP Holding shall not be required to participate
in such underwriting if GP Holding, or an affiliate of GP Holding who is a
Holder, notifies the Company that it is seeking registration of its shares to
enable it to distribute such shares to its members or to affiliates of Warburg
or limited or general partners of investment funds affiliated with Warburg. The
Holders whose shares are to be included in such registration (other than GP
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<PAGE>
Holding if GP Holding, or an affiliate of GP Holding who is a Holder, elects not
to participate in such underwriting) shall (together with the Company and the
Other Stockholders distributing their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected for underwriting by the Company.
Notwithstanding any other provision of this Section 3, if the representative
determines that marketing factors require a limitation on the number of shares
to be underwritten, the representative may (subject to the allocation priority
set forth below) limit the number of Registrable Securities to be included in
the registration and underwriting as the representative deems necessary and
appropriate. The Company shall so advise all holders of securities requesting
registration, and the number of shares of securities that are entitled to be
included in the registration and underwriting shall be allocated in the
following manner: The securities of the Company held by officers, directors and
Other Stockholders of the Company (other than Registrable Securities, securities
held by holders who by contractual right demanded such registration ("Demanding
Holders") and securities held by "Holders" under the Registration Rights
Agreement, dated as of January __, 1996, between the Company, Richard A.
Bernstein, and certain of his affiliates (the "Bernstein Holders")) shall be
excluded from such registration and underwriting to the extent required by such
limitation, and, if a limitation on the number of shares is still required, the
number of shares that may be included in the registration and underwriting by
each of the Holders and the Bernstein Holders (if the Bernstein Holders are not
Demanding Holders) shall be reduced, on a pro rata basis (based on the number of
shares originally proposed to be registered by each such person), by such
minimum number of shares as is necessary to comply with such limitation. If any
of the Holders or any officer, director or Other Stockholder disapproves of the
terms of any such underwriting, such person may elect to withdraw therefrom by
written notice to the Company and the underwriter. Any Registrable Securities or
other securities excluded or withdrawn from such underwriting shall be withdrawn
from such registration.
(c) Number and Transferability. Each of the Holders shall be
entitled to have its shares included in an unlimited number of registrations
pursuant to this Section 3. The registration rights granted pursuant to this
Section 3 shall be assignable, in whole or in part, to any transferee of
Registrable Securities who is a transferee of at least 5% of the then
outstanding Registrable Securities, a member of GP Holding, an affiliate of
Warburg or a limited or general partner of an
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<PAGE>
investment fund affiliated with Warburg, and such transferee shall be bound by
all obligations of this Section 3.
SECTION 4. Form S-3 and Shelf Registration.
(a) Form S-3. The Company shall use its best efforts to
qualify for registration on Form S-3 for secondary sales. So long as the Company
is so qualified, Holders shall have the right to request unlimited registrations
on Form S-3 (such requests shall be in writing and shall state the number of
shares of Registrable Securities to be disposed of and the intended method of
disposition of shares by such holders), subject only to the following:
(i) The Company shall not be required to effect a
registration pursuant to this Section 4(a) within 120 days of
the effective date of the most recent registration pursuant to
this Section 4(a) in which securities held by the requesting
Holder could have been included for sale or distribution.
(ii) The Company shall not be required to effect a
registration pursuant to this Section 4(a) if the Company
shall furnish to the Holders a certificate signed by the
President or Chief Executive Officer of the Company stating
that in the good faith judgment of the Board of Directors of
the Company, it would be materially detrimental to the Company
and its stockholders for such registration statement to be
filed and it is therefore essential to defer the filing of
such registration statement. In such event, the Company shall
have the right to defer the filing of the registration
statement no more than once during any twelve (12) month
period for a period of not more than 90 days after receipt of
the request of the Holder or Holders under this Section 4(a).
(iii) The Company shall not be obligated to effect
any registration pursuant to this Section 4(a) in any
particular jurisdiction in which the Company would be required
to execute a general consent to service of process in
effecting such registration, qualification or compliance,
unless the Company is already subject to service in such
jurisdiction and except as may be required by the Act or
applicable rules or regulations thereunder.
The Company shall, within five (5) days of receipt of request
for registration pursuant to this Section 4(a), give
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<PAGE>
written notice to all Holders of the receipt of such request and shall provide a
reasonable opportunity for other Holders to participate in the registration,
provided that if the registration is for an underwritten offering, the terms of
Section 2(b) shall apply to all participants in such offering. Subject to the
foregoing, the Company will use its diligent best efforts to effect promptly the
registration of all shares of Registrable Securities on Form S-3 to the extent
requested by the Holder or Holders thereof for purposes of disposition.
(b) Shelf Registration. If the Company shall receive from an
Initiating Holder, at any time, a written request that the Company effect a
registration pursuant to Rule 415, or any successor rule under the Act, that
would permit the sale of all or a part of the Registrable Securities from time
to time:
(i) The Company shall use its best efforts to file
with the Commission and thereafter to cause to be declared
effective as promptly as practicable a registration statement
on an appropriate form under the Act as reasonably determined
by the Company relating to the offer and sale of the
Registrable Securities by the Holders from time to time
pursuant to Rule 415, or any successor rule under the Act, in
accordance with the methods of distribution set forth in such
registration statement (a "Shelf Registration Statement").
(ii) The Company shall use its best efforts to keep
the Shelf Registration Statement continuously effective in
order to permit the prospectus forming part thereof to be
usable by Holders for a period of 18 months from the effective
date thereof or such shorter period that will terminate when
all the Registrable Securities covered by the Shelf
Registration Statement have been sold. Notwithstanding any
other provision hereof, the Company may postpone or suspend
the filing or the effectiveness of the Shelf Registration
Statement (or any amendments or supplements thereto) if (i)
such action is required by applicable law, or (ii) such action
is taken by the Company in good faith and for valid business
reasons (not including avoidance of the Company's obligations
hereunder), including the acquisition or divestiture of
assets, other pending corporate developments, public filings
with the Commission or other similar events, so long as the
Company promptly thereafter complies with the requirements of
Section 6(a)(v) hereof, if applicable. The Company shall be
deemed not to have used its best
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efforts to keep the Shelf Registration Statement effective
during the requisite period if it intentionally takes any
action not contemplated by clause (i) or (ii) above that would
result in holders of Registrable Securities covered thereby
not being able to offer and sell such Registrable Securities
during the period.
SECTION 5. Expenses of Registration. All Registration Expenses
incurred in connection with any registration, qualification or compliance
pursuant to this Agreement shall be borne by the Company, and all Selling
Expenses shall be borne by the Holders of the securities so registered pro rata
on the basis of the number of their shares so registered.
SECTION 6. Registration Procedures.
(a) In the case of each registration effected by the
Company pursuant to this Agreement, the Company will:
(i) provide the Holders of Registrable Securities
to be registered under the registration statement, their
underwriters, if any, and their respective counsel and
accountants, a reasonable opportunity to participate in the
preparation of such registration statement, each prospectus
included therein or filed with the Commission, and each
amendment thereof or supplement thereto (reflecting in each
such document such comments as such persons may reasonably
propose), and provide each of them such access to its books
and records and such opportunities to discuss the business of
the Company with its officers and the independent public
accountants who have certified its financial statements as
shall be necessary, in the opinion of such Holders' and such
underwriters' respective counsel, to conduct a reasonable
investigation within the meaning of the Act;
(ii) notify each Holder as to the filing of the
registration statement and of all amendments or supplements
thereto filed prior to the effective date of such registration
statement;
(iii) notify each Holder, promptly after it shall
receive notice thereof, of the time when such registration
statement becomes effective or when any amendment or
supplement to any prospectus forming a part of such
registration statement has been filed;
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<PAGE>
(iv) notify each Holder promptly of any request by
the Commission for the amending or supplementing of such
registration statement or prospectus or for additional
information;
(v) prepare and promptly file with the Commission,
and promptly notify each Holder of the filing of, any
amendments or supplements to such registration statement or
prospectus as may be necessary to correct any statements or
omissions if, at any time when a prospectus relating to the
Registrable Securities is required to be delivered under the
Act, any event with respect to the Company shall have occurred
as a result of which any such prospectus or any other
prospectus as then in effect would include an untrue statement
of a material fact or omit to state any material fact
necessary in order to make the statements made, in the light
of the circumstances under which they were made, not
misleading, and, in addition, prepare and file with the
Commission, promptly upon the written request of any Holder,
any amendments or supplements to such registration statement
or prospectus which may be reasonably necessary or advisable
in connection with the distribution of the Registrable
Securities;
(vi) prepare promptly upon request of the Holders or
any underwriters for the Holders such amendment or amendments
to such registration statement and such prospectus or
prospectuses as may be reasonably necessary to permit
compliance with the requirements of Section 10(a)(3) of the
Act;
(vii) advise each Holder promptly after the Company
shall receive notice or obtain knowledge of the issuance of
any stop order by the Commission suspending the effectiveness
of any such registration statement or amendment thereto or of
the initiation or threatening of any proceeding for that
purpose, and promptly use its best efforts to prevent the
issuance of any stop order or obtain its withdrawal promptly
if such stop order should be issued;
(viii) use its best efforts to qualify as soon as
reasonably practicable the Registrable Securities included in
the registration statement for sale under the blue sky or
other state securities laws of such states and jurisdictions
within the United States as shall be reasonably requested by
any Holder, provided
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<PAGE>
that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business, to become
subject to taxation or to file a consent to service of process
generally in any of the aforesaid states or jurisdictions;
(ix) furnish each Holder, as soon as available,
copies of any registration statement and each preliminary or
final prospectus, or supplement or amendment required to be
prepared pursuant hereto, all in such quantities as any Holder
may from time to time reasonably request;
(x) furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to
this Agreement, on the date that such Registrable Securities
are delivered to the underwriters for sale in connection with
a registration pursuant to this Agreement, if such securities
are being sold through underwriters or, if such securities are
not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes
effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such
registration, in form and substance as is customarily given by
company counsel to the underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the
holders requesting registration of Registrable Securities, and
(ii) a letter, dated such date, from the independent certified
public accountant of the Company, in form and substance as is
customarily given by independent certified public accountants
to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and, if customarily given to
holders of securities to be sold in a registration, to the
Holders requesting registration of Registrable Securities;
(xi) otherwise use its best efforts to comply with
all applicable rules and regulations of the Commission, and
make available to its security holders as soon as reasonably
practicable, but not later than 16 months after the effective
date of the registration statement, an earnings statement
covering a period of at least twelve (12) months beginning
after the effective date of the registration statement, which
earnings statement shall satisfy the provision of Section
11(a) of the Act; and
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<PAGE>
(xii) enter into and perform an underwriting
agreement with the managing underwriter, if any, selected as
provided in Section 2(b) or 3(b), containing customary (y)
terms of offer and sale of the securities, payment provisions,
underwriting discounts and commissions, and (z)
representations, warranties, covenants, indemnities, terms and
conditions, provided that the Holders may, at their option,
require that any or all of the representations and warranties
by, and the other agreements on the part of, the Company to
and for the benefit of such underwriters shall also be made to
and for the benefit of such Holders and that any or all of the
conditions precedent to the obligations of the Company shall
also be conditions precedent to the obligations of such
Holders, and provided further that such Holders shall not be
required to make any representations or warranties to or
agreements with the Company or the underwriters other than
representations, warranties or agreements regarding such
Holders and such Holders' intended method of distribution and
any other representation required by law.
(b) At its expense, the Company will: keep each registration
effected by the Company pursuant to this Agreement effective for a period of
nine (9) months or until the Holders have completed the distribution described
in the registration statement relating thereto, whichever first occurs;
provided, however, that in the case of any registration of Registrable
Securities on Form S-3 which are intended to be offered on a continuous or
delayed basis, such nine-month period shall be extended until all such
Registrable Securities are sold, provided that Rule 415, or any successor rule
under the Act, permits an offering on a continuous or delayed basis, and
provided further that applicable rules under the Act governing the obligation to
file a post-effective amendment permit, in lieu of filing a post-effective
amendment which (y) includes any prospectus required by Section 10(a) of the Act
or (z) reflects facts or events representing a material or fundamental change in
the information set forth in the registration statement, the incorporation by
reference in the registration statement of information required to be included
in (y) and (z) above to be contained in periodic reports filed pursuant to
Section 12 or 15(d) of the Exchange Act.
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<PAGE>
SECTION 7. Indemnification.
(a) To the extent permitted by law, the Company will
indemnify each of the Holders, each of its officers, directors, partners,
members, managers, agents, representatives and affiliates of the foregoing, each
underwriter (as defined in the Act), if any, and each person controlling each of
the Holders or such underwriter within the meaning of the Act and the rules and
regulations thereunder, with respect to each registration which has been
effected pursuant to this Agreement, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Act or any rule or regulation thereunder applicable to the
Company and relating to action or inaction required of the Company in connection
with any such registration, qualification or compliance, and will reimburse each
of the Holders, each of its officers, directors, partners, members, managers,
agents, representatives and their affiliates, each such underwriter and each
person controlling any such Holder or underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating and defending any
such claim, loss, damage, liability or action, provided that the Company will
not be liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement or
omission based upon written information furnished to the Company by the Holders
or underwriter and stated to be specifically for use therein.
(b) To the extent permitted by law, each of the Holders will,
if Registrable Securities held by it are included in the securities as to which
such registration, qualification or compliance is being effected, indemnify the
Company, each of its directors, officers, agents and representatives and each
underwriter, if any, and each person controlling the Company or such
underwriter, against all claims, losses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document made by such Holder,
or any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements by such Holder therein
not misleading, and will
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reimburse the Company and such directors, officers, agents, representatives,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder and stated to be specifically for use
therein; provided, however, that the indemnity agreement contained in this
Section 7(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of the Holders, and provided further that the obligations of each of the
Holders hereunder shall be limited to an amount equal to the proceeds to such
Holder of securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section
7 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld) and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have
reasonably concluded that there may be a conflict of interest between the
Indemnifying Party and the Indemnified Party in such action, in which case the
fees and expenses of counsel shall be at the expense of the Indemnifying Party),
and provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 7 unless the Indemnifying Party is materially prejudiced
thereby. No Indemnifying Party, in the defense of any such claim or litigation,
shall, except with the consent of each Indemnified Party, consent to entry of
any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall
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<PAGE>
be reasonably required in connection with the defense of such claim and
litigation resulting therefrom.
(d) If the indemnification provided for in this Section 7 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions which resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations, provided, however, that the obligations of each Holder shall be
limited to an amount equal to the proceeds to such Holder from the sale of
Registrable Securities as contemplated herein. The relative fault of the
Indemnifying Party and of the Indemnified Party shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. No person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act), shall be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with any underwritten public offering
contemplated by this Agreement are in conflict with the foregoing provisions,
the provisions in such underwriting agreement shall be controlling.
(f) The foregoing indemnity agreements are subject to the
condition that, insofar as they relate to any loss, claim, liability or damage
made in a preliminary prospectus but eliminated or remedied in the amended
prospectus on file with the Commission at the time the registration statement in
question becomes effective or the amended prospectus filed with the Commission
pursuant to Commission Rule 424(b) (the "Final Prospectus"), such indemnity
agreement shall not inure to the benefit of any underwriter if a copy of the
Final Prospectus was furnished to the underwriter and was not furnished to the
person asserting the loss, liability, claim or
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damage at or prior to the time such action is required by the Act.
(g) The obligations of the Company and the Holders under this
Section 7 shall survive the completion of any offering of Registrable Securities
in a registration statement under this Agreement and otherwise.
(h) The foregoing indemnity agreements shall include
reasonable fees and expenses of counsel incurred by the Indemnified Party in any
action or proceeding between the Indemnifying Party and the Indemnified Party or
between the Indemnified Party and any third party or otherwise.
SECTION 8. Information by the Holders. Each of the Holders
shall furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement.
SECTION 9. Rule 144 Reporting. With a view to making
available the benefits of certain rules and regulations of the Commission which
may permit the sale of restricted securities to the public without registration,
the Company agrees to use its reasonable best efforts:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144 under the Act;
(b) file with the Commission in a timely manner all reports
and other documents required of the Company under the Act and the Exchange Act;
and
(c) furnish to any Holder upon request, (i) a written
statement by the Company as to its compliance with the reporting requirements of
Rule 144, the Act and the Exchange Act, (ii) a copy of the most recent annual or
quarterly report of the Company filed with the Commission and such other reports
and documents so filed by the Company and (iii) such other information as a
Holder may reasonably request in availing itself of any rule or regulation of
the Commission allowing such Holder to sell any such securities without
registration.
SECTION 10. Assignability. The rights to cause the Company
to register Registrable Securities pursuant to this
VI-16
<PAGE>
Agreement may be assigned by a Holder to any transferee or assignee of
Registrable Securities who is a transferee or assignee of at least 5% of the
then outstanding Registrable Securities, a member of GP Holding, an affiliate of
Warburg or a limited or general partner of an investment fund affiliated with
Warburg. The Company may not assign or transfer its rights or obligations
hereunder without the prior written consent of all the Holders.
SECTION 11. Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of New York.
SECTION 12. Amendment. Any modification, amendment or waiver
of this Agreement or any provision hereof shall be in writing and executed by
the Company and the Holders of not less than 50% of the Registrable Securities
then outstanding, provided, however, that no such modification, amendment or
waiver shall reduce the aforesaid percentage of Registrable Securities without
the consent of all of the Holders of the Registrable Securities.
SECTION 13. Notices. All notices, requests, consents and
demands shall be in writing and shall be personally delivered, mailed, postage
prepaid, telecopied or telegraphed or delivered by any nationally recognized
overnight delivery service to the Company at:
to the Company:
[Western Publishing Group, Inc.]
444 Madison Avenue
Suite 601
New York, New York 10022
Telecopy: (212) 888-5025
Attn: Richard A. Bernstein
with a copy to:
James A. Cohen, Esq.
Senior Vice President - Legal Affairs
[Western Publishing Group, Inc.]
444 Madison Avenue
New York, New York 10022
Telecopy: (212) 888-5025
VI-17
<PAGE>
and a copy to:
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10028
Telecopy: (212) 530-5219
Attn: Lawrence Lederman, Esq.
and to each Holder at such address set forth on the signature page hereof or as
shall be furnished in writing to the Company. All such notices, requests,
demands and other communication shall, when mailed (registered or certified
mail, return receipt requested, postage prepared), personally delivered, or
telegraphed, be effective four (4) days after deposit in the mails, when
personally delivered, or when delivered to the telegraph company, respectively,
addressed as aforesaid, unless otherwise provided herein and, when telecopied or
delivered by any nationally recognized overnight delivery service, shall be
effective upon actual receipt.
SECTION 14. Specific Performance. The parties hereto agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of the
United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity.
SECTION 15. Counterparts. This Agreement may be executed in
any number of counterparts, each of which shall be an original, but all of which
together shall constitute one instrument.
SECTION 16. Severability. Any provision of this Agreement
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of this Agreement
or affecting the validity or enforceability of such provision in any other
jurisdiction.
SECTION 17. Headings. The various headings of this Agreement
are inserted for convenience only and shall not affect the meaning or
interpretation of this Agreement or any provisions hereof or thereof.
VI-18
<PAGE>
SECTION 18. Entire Agreement. This Agreement constitutes the
entire understanding among the parties hereto with respect to the subject matter
hereof and supersedes any prior agreements, written or oral, with respect
thereto.
VI-19
<PAGE>
IN WITNESS WHEREOF, the Company and each of the undersigned
parties has executed this Agreement effective for all purposes as of the date
first above written.
[WESTERN PUBLISHING GROUP, INC.]
By:
-------------------------------
Name:
Title:
GOLDEN PRESS HOLDING, L.L.C.
By: WARBURG, PINCUS VENTURES, L.P
Member
By:
---------------------------
Name:
Title:
Address for notices:
Golden Press Holding, L.L.C.
c/o Warburg, Pincus Ventures, L.P.
466 Lexington Avenue
New York, New York 10017
Telecopy: (212) 878-9351
Attn: Joanne R. Wenig
with a copy to:
Willkie Farr & Gallagher
153 East 53rd Street
New York, New York 10022
Telecopy: (212) 821-8111
Attn: Jack H. Nusbaum, Esq.
VI-20
<PAGE>
APPENDIX VII
EXECUTIVE OFFICER BONUS PLAN
----------------------------
WESTERN PUBLISHING GROUP, INC.
Executive Officer Bonus Plan
1. Purpose. The purpose of the Executive Officer Bonus Plan
(the "Plan") is to advance the interests of Western Publishing Group, Inc., a
Delaware corporation (the "Company"), and its stockholders by providing
incentives in the form of periodic cash bonus awards to certain senior executive
officers of the Company.
2. Administration. The Plan shall be administered by the
Compensation Committee of the Board of Directors of the Company (the
"Committee"), as such committee is from time to time constituted. The Committee
may delegate its duties and powers in whole or in part to any subcommittee
thereof consisting solely of at least two "outside directors", as defined under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"),
and Treasury Regulations promulgated thereunder.
The Committee has all the powers vested in it by the terms of
the Plan set forth herein, such powers to include the exclusive authority to
select the employees and other individuals to be granted bonus awards
("Bonuses") under the Plan, to determine the size and terms of the Bonus to be
made to each individual selected, to modify the terms of any Bonus that has been
granted (except with respect to any modification which would increase the amount
of compensation payable to a "Covered Employee," as such term is defined in
Section 162(m) of the Code), to determine the time when Bonuses will be awarded,
to establish performance objectives in respect to Bonuses and to certify that
such performance objectives were attained. The Committee is authorized to
interpret the Plan, to establish, amend and rescind any rules and regulations
relating to the Plan, and to make any other determinations which it deems
necessary or desirable for the administration of the Plan. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in the
Plan in the manner and to the extent the Committee deems necessary or desirable
to carry it into effect. Any decision of the Committee in the interpretation and
administration of the Plan, as described herein, shall lie within its sole and
absolute discretion and shall be final, conclusive and binding on all parties
concerned. No member of the Committee and no officer of the Company shall be
liable for anything done or omitted to be done by him or her, by any other
member of the Committee or by any officer of the company in connection with the
performance of duties under the Plan, except for his or her own willful
misconduct or as expressly provided by statute.
VII-1
<PAGE>
3. Participation. The Committee shall have exclusive power
(except as may delegated as permitted herein) to select the senior executives
of the Company who may participate in the Plan and be granted Bonuses under
the Plan ("Participants"); provided that prior to the first purchase of
securities of the Company by Golden Press Holdings LLC, the only person
who may be designated by the Committee to become a Participant is
Richard E. Snyder.
4. Bonuses under the Plan.
(a) The Committee may in its discretion award a
Bonus to a Participant for any fiscal year of the Company (a "Year") under the
terms and conditions of this Section 4. Subject to subsections (b) and (c) of
this Section 4, the amount of a Participant's Bonus shall be an amount (the
"Maximum Bonus") determinable from written performance goals approved by the
Committee not later than 90 days following the beginning of the Year to which
such goals relate and while the outcome is substantially uncertain. The
performance goals and formula applicable to each affected Participant shall be
set forth in a written schedule established by the Committee (the "Bonus
Schedule"). The performance goals, which must be objective, shall be based on
the Company's actual versus budgeted earnings before interest, taxes,
depreciation and amortization. The Bonus Schedule shall specify the manner in
which the Maximum Bonuses shall be determined if the performance goals are met
and the period or periods to which the performance goals apply.
(b) The performance goals and Maximum Bonus
applicable to any affected Participant may be adjusted in the discretion of the
Committee in order to reflect a change in accounting method mandated by the
Financial Accounting Standards Board, or such other adjustment as the Committee
determines to be proper and may be made without a loss of deductibility of
Bonuses under Section 162(m) of the Code. The previous sentence shall be applied
in a manner which does not increase the amount of any Maximum Bonus, as
calculated without giving effect to the change in accounting method.
(c) The Committee shall determine whether the
performance goals have been met with respect to any affected Participant and, if
they have, so certify and ascertain the amount of the applicable Maximum Bonus.
No Bonuses will be paid until such certification is made by the Committee. The
amount of the Bonus actually paid to any affected Participant may be less than
the Maximum Bonus at the discretion of the Committee, but shall be no greater
than the amount of such Participant's Maximum Bonus. No Bonus shall be paid
unless the material terms of the Bonus, including the performance goals
applicable thereto, have been disclosed to and approved by the shareholders of
the Company in a manner designed to comply with the requirements of Section
162(m) of the Code.
(d) The provisions of this Section 4 shall be
administered and interpreted in accordance with Section 162(m) of
VII-2
<PAGE>
the Code to ensure the deductibility by the Company or its affiliates of the
payment of Bonuses.
(e) Notwithstanding anything in the Plan to the
Contrary, in no event may a Participant's Maximum Bonus for any Year exceed $2
million.
5. Miscellaneous Provisions.
(a) No employee of the Company or other person
shall have any claim or right to be paid a Bonus under the Plan. Determinations
made by the Committee under the Plan need not be uniform and may be made
selectively among eligible individuals under the Plan, whether or not such
eligible individuals are similarly situated. Neither the Plan nor any action
taken hereunder shall be construed as giving any employee or other person any
right to continue to be employed by or perform services for the Company or any
affiliate, and the right to terminate the employment of or performance of
services by any Participant at any time and for any reason is specifically
reserved to the Company and its affiliates, subject to the provisions of any
applicable employment agreement.
(b) Except as may be approved by the Committee, a
Participant's rights and interest under the Plan may not be assigned or
transferred, hypothecated or encumbered in whole or in part either directly or
by operation of law or otherwise (except in the event of a Participant's death)
including, but not by way of limitation, execution, levy, garnishment,
attachment, pledge, bankruptcy or in any other manner; provided, however, that,
subject to applicable law, any amounts payable to any Participant hereunder are
subject to reduction to satisfy any liabilities owed to the Company or any of
its affiliates by the Participant.
(c) The Company and its affiliates shall have the
right to deduct from any payment made under the Plan any federal, state, local
or foreign income or other taxes required by law to be withheld with respect to
such payment.
(d) The Company is the sponsor and legal obligor
under the Plan, and shall make all payments hereunder, other than any payments
to be made by any of its affiliates, which shall be made by such affiliate, as
appropriate. Nothing herein is intended to restrict the Company from charging an
affiliate that employs a Participant for all or a portion of the payments made
by the Company hereunder. The Company shall not be required to establish any
special or separate fund or to make any other segregation of assets to assure
the payment of any amounts under the Plan, and the rights of Participants to the
payment of Bonuses hereunder shall be no greater than the rights of the
company's unsecured general creditors. All expenses involved in administering
the Plan shall be borne by the Company.
VII-3
<PAGE>
(e) The validity, construction, interpretation,
administration and effect of the Plan and rights relating to the Plan and to
Bonuses granted under the Plan, shall be governed by the substantive laws, but
not the choice of law rules, of the State of Delaware.
(f) The Plan shall be effective as of February 1,
1996, subject to the receipt of shareholder approval prior to the payment of any
Bonuses in accordance with the last sentence of Section 4(c).
6. Plan Amendment or Suspension. The Plan may be
amended or suspended in whole or in part at any time and from time to time
by the Committee.
7. Plan Termination. The Plan shall terminate upon
the adoption of a resolution of the Committee terminating the
Plan.
8. Actions and Decision Regarding the Business or Operations
of the Company and/or its Affiliates. Notwithstanding anything in the Plan to
the contrary, neither the Company nor any of its affiliates nor their respective
officers, directors, employees or agents shall have any liability to any
Participant (or his or her beneficiaries or heirs) under the Plan or otherwise
on account of any action taken, or not taken, in good faith by any of the
foregoing persons with respect to the business or operations of the Company or
any affiliates.
VII-4
<PAGE>
APPENDIX VIII
CHARTER AMENDMENTS
------------------
1. Article FIRST of the Amended and Restated Certificate of
Incorporation of the Company is hereby amended in its
entirety to read as follows:
"FIRST: The name of the corporation (the
"Corporation") is Golden Books Family Entertainment,
Inc."
2. Article FOURTH of the Amended and Restated Certificate of
Incorporation of the Company is hereby amended in its
entirety to read as follows:
"FOURTH: The Corporation shall have the authority to
issue 60,200,000 shares, consisting of 60,000,000 shares of
common stock, par value $.01, and 200,000 shares of preferred
stock, without par value. The Board of Directors may authorize
the issuance from time to time of preferred stock in one or
more series and with such designations, preferences, relative,
participating, optional and other special rights, and
qualifications, limitations or restrictions (which may differ
with respect to each series) as the Board may fix by
resolution."
VIII-1
<PAGE>
APPENDIX IX
FAIRNESS OPINION OF
BEAR, STEARNS & CO., INC.
-------------------------
January 31, 1996
Board of Directors
Western Publishing Group, Inc.
444 Madison Avenue
New York, NY 10222
Dear Sirs and Madame:
We understand that Western Publishing Group, Inc. ("Western Publishing" or the
"Company") intends to enter into a transaction with E.M. Warburg Pincus
Ventures, L.P. ("Warburg Pincus") and Mr. Richard E. Snyder (collectively, the
"Warburg Pincus Group"), pursuant to which, among other things, a newly formed
affiliate of the Warburg Pincus Group would purchase, for a purchase price of
$65 million which will be paid in cash, shares of Series B Convertible Preferred
Stock of Western Publishing with an aggregate redemption value of $65 million
(the "Series B Convertible Preferred Stock") and a Warrant (the "Warrant") to
purchase 3,250,000 shares of Common Stock of Western Publishing, all as more
fully described below and in the draft of the Securities Purchase Agreement
referred to below (collectively, the "Securities Issuance"). We further
understand that in connection with the Securities Issuance, Western Publishing
has agreed to reimburse the Warburg Pincus Group for up to $4 million of
investment banking, legal and other expenses. In addition, we understand that
the Company intends to redeem its currently outstanding shares of its Series A
Convertible Preferred Stock due March 31, 1996 for approximately $10 million.
The Series B Convertible Preferred Stock would (i) entitle its holder to receive
annual dividends at a rate of 780,000 shares of Common Stock of Western
Publishing (subject to certain adjustments based on the prevailing market value
of the shares of Common Stock when received) for four years and at 12.0% in cash
(or accruing at 12.0%) thereafter, (ii) be convertible into shares of Common
Stock of Western Publishing at a conversion price of $10.00, (iii) be redeemable
at the option of the Company after four years and (iv) have the right to elect
one-third of the Western Publishing directors voting separately as a class as
well as to vote with the other stockholders in the election of all other
directors, subject to certain limitations. The Warrant would be exercisable
after two years, have a term of seven years and would be exercisable, in whole
or in part, at a price of $10.00 per share (or in lieu thereof, the holder of
the Warrant
IX-1
<PAGE>
Board of Directors
January 31, 1996
Page 2
may elect to receive a cash payment equal to the difference between the exercise
price and the prevailing market price of the shares of Common Stock of Western
Publishing multiplied by the number of shares for which the Warrant is
exercisable and with respect to which this cash option is exercised).
You have asked us to render our opinion as to whether the consideration to be
received by the Company pursuant to the Securities Issuance is fair, from a
financial point of view, to Western Publishing. In that connection, we are not
opining as to any other transactions or contractual arrangements to be entered
into or payments to be made by or to Western Publishing or any other person
concurrently with the Securities Issuance.
In the course of performing our valuation and financial analyses for rendering
this opinion, we have:
1. Reviewed drafts of the Securities Purchase Agreement Between
Golden Press Holdings, L.L.C. and Western Publishing Group,
Inc.; the Certificate of Designations, Number, Voting
Powers, Preferences and Rights of Series B Preferred Stock
of Western Publishing Group, Inc.; the Form of Warrant; the
Registration Rights Agreement; and certain related
agreements;
2. Reviewed Western Publishing's Annual Reports to Shareholders for the
fiscal years ended on or about January 31, 1993 through 1995; its
Annual Reports on Form 10-K for the fiscal years ended on or about
January 31, 1993 through 1995; and its Quarterly Reports on Form 10-Q
for the periods ended April 29, 1995, July 29, 1995 and October 28,
1995;
3. Reviewed certain operating and financial information, including budgets
and current estimates for Fiscal 1996 (FYE February 3, 1996) provided
to us by the Company's senior management, relating to Western
Publishing's businesses and prospects.
4. Met with certain members of Western Publishing's senior management to
discuss the Company's businesses and operations, previous restructuring
initiatives, historical financial performance, estimated financial
performance for Fiscal 1996 (FYE February 3, 1996), current financial
condition and liquidity, expected capital requirements and future
prospects;
5. Met with Mr. Snyder and Warburg Pincus to discuss their
prospective business strategy for Western Publishing and
IX-2
<PAGE>
Board of Directors
January 31, 1996
Page 3
their views of the Company's corporate and operating management,
previous business strategies, businesses and operations, previous
restructuring initiatives, historical financial performance, estimated
financial performance for Fiscal 1996 (FYE February 3, 1996), current
financial condition and liquidity, expected capital requirements and
future prospects;
6. Reviewed the historical prices, trading activity and valuation
parameters of the shares of Common Stock of Western Publishing and
the Company's 7.65% Senior Notes due 2002;
7. Reviewed publicly available financial data, stock market performance
data and valuation parameters of certain companies which we deemed
generally comparable to Western Publishing;
8. Reviewed the terms of selected precedent investment transactions, to
the extent publicly available, which we deemed generally comparable
to the Securities Issuance;
9. Reviewed the terms of selected precedent mergers and acquisitions, to
the extent publicly available, involving companies which we deemed
generally comparable to Western Publishing;
10. Reviewed the terms of selected issuances of convertible preferred
stock in the public securities market; and
11. Conducted such other studies, analyses, inquiries and investigations
as we deemed appropriate.
In the course of our review, we have relied upon and assumed the accuracy and
completeness of the financial and other information provided to us by Western
Publishing and representations of the Company's senior management related
thereto. With respect to the Company's budgets and current estimates, we have
assumed that they have been reasonably prepared on bases reflecting the best
currently available estimates and judgments of the senior management of Western
Publishing as to the expected future performance of Western Publishing. We have
been informed by the senior management of the Company that no budget or forecast
is available for Fiscal 1997 (FYE February 1, 1997). We have not assumed any
responsibility for the information or current estimates provided to us and we
have further relied upon the assurances of the senior management of Western
Publishing that it is unaware of any facts that would make the information
provided
IX-3
<PAGE>
Board of Directors
January 31, 1996
Page 4
to us incomplete or misleading. In arriving at our opinion, we have
not performed or obtained any independent appraisal of the assets of Western
Publishing. Our opinion is necessarily based on economic, market and other
conditions, and the information made available to us, as of the date hereof.
In rendering our opinion, we have considered (i) the reaction of the stock
market and certain major shareholders to previous proposed transactions between
Western Publishing and the Warburg Pincus Group which had been publicly
disclosed during the Fall of 1995 and the potential positive impact on the
prices of the Company's equity and debt securities of new senior management;
(ii) the Company's recent financial performance, current financial condition and
future prospects; (iii) the potential negative impact on the prices of Western
Publishing's equity and debt securities of the Company's expected financial
performance for Fiscal 1996 (FYE February 3, 1996) in the absence of the
proposed transaction with the Warburg Pincus Group or another similar
extraordinary transaction; (iv) the fact that (a) no other potential equity
investors or strategic acquirors have made a formal investment or acquisition
proposal to the Company since the public announcement of the original agreement
in principle between Western Publishing and Warburg Pincus on September 6, 1995
and (b) the Company had failed to effect a sale transaction or similar
extraordinary transaction despite various discussions with potential financial
and strategic buyers throughout 1995 and during a public auction conducted
during 1994; (v) the Company's prospects for raising debt and/or equity in the
public and private capital markets; and (vi) various terms and conditions of the
Securities Issuance, including that (x) the Securities Issuance will be subject
to a vote of the Company's shareholders, (y) the "no solicitation" and
"termination" provisions of the Securities Purchase Agreement Between Golden
Press Holdings, L.L.C. and Western Publishing Group, Inc. provide the Board of
Directors of the Company with the flexibility to exercise its fiduciary duty to
pursue certain alternative transactions in lieu of the Securities Issuance and
(z) the irrevocable proxies granted by Richard A. Bernstein and his affiliates
to Warburg Pincus as condition to the Securities Issuance.
Based on and subject to the foregoing, it is our opinion that the consideration
to be received by the Company pursuant to the Securities Issuance is fair, from
a financial point of view, to Western Publishing.
We have acted as financial advisor to Western Publishing in connection with the
Securities Issuance and will receive a fee for such services, payment of a
significant portion of which is
IX-4
<PAGE>
Board of Directors
January 31, 1996
Page 5
contingent upon the consummation of the Securities Issuance. Previously, in
November 1993, Bear Stearns and Morgan Stanley & Co. Incorporated ("Morgan
Stanley") were jointly engaged by Western Publishing to assist the Company as
its financial advisors in responding to "several companies expressing a desire
to discuss a business combination." Bear Stearns and Morgan Stanley were charged
with "exploring all alternatives to maximize shareholder value." Although such
efforts by Bear Stearns and Morgan Stanley did not produce any offers for the
Company in its entirety, Western Publishing did sell its games and puzzles
business to Hasbro, Inc. In connection with the aforementioned sale of the games
and puzzles business, Bear Stearns and Morgan Stanley were each paid a customary
transaction fee. In September 1992, Bear Stearns lead-managed, with Morgan
Stanley as co-manager, Western Publishing's $150 million offering of 7.65%
Senior Notes due 2002.
It is understood that this letter is intended solely for the benefit and use of
the Board of Directors of Western Publishing and is neither for the benefit of
nor being rendered to the public securityholders of Western Publishing. This
letter is not to be used for any other purpose, or reproduced, disseminated,
quoted or referred to at any time, in whole or in part, in any manner for any
purpose without our prior consent, except that this letter may be included in
its entirety in Western Publishing's proxy statement to be distributed to the
stockholders of the Company in connection with their approval of the Securities
Issuance.
We have not reviewed any proxy statement or similar document that may be used in
connection with the Securities Issuance as such materials had not been prepared
as of the date of this letter.
Very truly yours,
BEAR, STEARNS & CO. INC.
By:_________________________
Senior Managing Director
IX-5
<PAGE>
APPENDIX X
FAIRNESS OPINION OF JEFFERIES & COMPANY, INC.
---------------------------------------------
PRIVILEGED AND CONFIDENTIAL
January 31, 1996
The Board of Directors
WESTERN PUBLISHING GROUP, INC.
444 Madison Avenue
New York, NY 10022
To the Members of the Board of Directors:
You have requested our opinion as to the fairness, from a
financial point of view, to Western Publishing Group, Inc., a Delaware
corporation ("Western Publishing" or the "Company"), of the consideration to be
received by Western Publishing pursuant to the Securities Issuance described
below. With your consent, however, we are not opining with respect to, nor
including within our understanding of the Securities Issuance, any other
transactions or contractual arrangements to be entered into or payments to be
made by or to Western Publishing or any other person in connection with that
purchase and sale of securities.
We understand that, pursuant to a draft Securities Purchase
Agreement (the "Securities Purchase Agreement") between the Company and Golden
Press Holding, L.L.C., a Delaware limited liability company ("Golden") and an
affiliate of E.M. Warburg, Pincus & Co., Inc., ("Warburg Pincus"), Golden will
purchase from the Company, for an aggregate purchase price of $65,000,000, (i)
13,000 shares of a newly-created issue of Western Publishing Series B
Convertible Preferred Stock (the "Series B Preferred Stock"), and (ii) a Warrant
(the "Warrant") to purchase an aggregate of 3,250,000 shares of Western
Publishing Common Stock (such issuance and sale of the Series B Preferred Stock
and the Warrant, the "Securities Issuance"). We understand that the Series B
Preferred Stock will have the terms, limitations and relative rights and
preferences set forth in the Certificate of Designations attached to the
Securities Purchase Agreement as its draft Exhibit A, and that the Warrant will
be in substantially the form of the draft Exhibit B attached to such Securities
Purchase Agreement. We also understand that the Company will redeem the
outstanding shares of Western Publishing's Convertible Preferred Stock, Series
A, due March 31, 1996, for approximately $10 million. We further understand that
Western Publishing has agreed to reimburse Golden for up to $4 million of costs,
fees
X-1
<PAGE>
and other expenses incurred by Golden in connection with the Securities
Issuance.
We also understand that Warburg Pincus will, through Golden,
be permitted, subject to the approval of Western Publishing's stockholders, to
designate a majority of the members of the Company's Board of Directors
immediately following the consummation of the Securities Issuance. You have
further informed us that, upon such consummation, Mr. Richard A. Snyder ("Mr.
Snyder") will be named as the Chairman and Chief Executive Officer of Western
Publishing.
Jefferies & Company, Inc. ("Jefferies"), as part of its
investment banking business, is regularly engaged in the evaluation of capital
structures, the valuation of businesses and their securities in connection with
the mergers and acquisitions, negotiated underwritings, competitive biddings,
secondary distributions of listed and unlisted securities, private placements,
financial restructurings and other financial services. In the ordinary course of
our business, we may trade the securities of the Company for our own account and
for the accounts of customers and, accordingly, may at any time hold a long or
short position in those securities. As you are aware, Jefferies did not
participate in structuring or negotiating the terms of the Securities Issuance,
and has not heretofore provided any investment banking services to the Company
or any of its subsidiaries or affiliates.
As you are also aware, Jefferies has been engaged by the
Company to provide the opinion contained herein, and will receive a fee for
providing such opinion. In addition, we note that we have not been authorized by
the Company or its Board of Directors to solicit, nor have we solicited, offers
for transactions alternative to the Securities Issuance (including a sale of all
of the Company's equity securities or of any of its constituent businesses), nor
have we been asked to advise the Company or its Board as to financial
alternatives to the Securities Issuance.
In connection with our opinion, we have reviewed the
Securities Purchase Agreement (including the Exhibits thereto) and certain
financial and other information that was publicly available or furnished to us
by Western Publishing, including certain internal financial analyses, budgets,
reports and other information prepared by the Company's management. We have also
discussed with representatives of the management of Western Publishing the
business, properties and prospects of the Company and undertaken such other
reviews, analyses and inquiries relating to the Company as we deemed
appropriate. We also conducted discussions with Mr. Snyder and with
representatives of Warburg Pincus as to the Company's business, properties and
prospects and as to their plans for Western Publishing following the
consummation of the Securities Issuance.
X-2
<PAGE>
In our review and analysis and in rendering the opinion
contained herein, we have relied upon, and have not independently verified, the
accuracy, completeness and fair presentation of all financial and other
information that was provided to us by or on behalf of Western Publishing, Mr.
Snyder, Golden or Warburg Pincus or that was publicly available, and such
opinion is conditioned upon such information (whether written or oral) being
complete, accurate and fair in all material respects. We note that the Company
has not prepared, and we have not accordingly reviewed or conducted valuation
analyses based upon, any financial projections with respect to the estimated
future performance of Western Publishing, and our opinion is, as a result,
qualified by the absence of such reviews and analyses. We have not made an
independent evaluation or appraisal or conducted a physical inspection of any of
the assets of Western Publishing, nor have we been furnished with any such
appraisals. Our opinion is based on economic, monetary, political, market and
other conditions existing and which can be evaluated as of the date of this
opinion; however, such conditions are subject to rapid and unpredictable change.
In conducting our analysis and arriving at the opinion
expressed herein, we have considered such financial and other factors as we have
deemed appropriate under the circumstances, including, among others: (i) the
business and financial aspects of the Securities Issuance; (ii) the historical
and current markets for Western Publishing Common Stock; (iii) the financial
impact of the Securities Issuance upon the Company; (iv) the discussions with
Mr. Snyder and with representatives of Golden, Warburg Pincus and of the
Company's management referred to above; (v) certain of the Company's operating
and financial information; (vi) the Company's Annual Reports to Stockholders and
Annual Reports on Form 10-K for its last three full fiscal years and its
Quarterly Reports on Form 10-Q filed since the date of its most recent such Form
10-K; (vii) the potential negative impact on the prices of Western Publishing's
equity and debt securities of the Company's expected financial performance for
its fiscal year ending February 3, 1996 in the absence of the proposed
transaction with Golden or another similar extraordinary transaction; (viii) the
fact that (a) the Company was unsuccessful in effecting a sale or similar
extraordinary transaction during a public auction conducted during 1994 or
thereafter and (b) no other potential equity investors or strategic acquirors
have made a formal investment or acquisition proposal to the Company since the
public announcement of the original agreement in principle between the Company
and Warburg Pincus on September 6, 1995; (ix) the degree of control that Golden
and Warburg Pincus will have with respect to the Company; (x) the potentially
positive impact of new senior management led by Mr. Snyder and the affiliation
with Warburg Pincus on the prices of the Company's equity and debt securities,
its capital raising capacity and its ability to access the capital markets; and
(xi) such other information as we deemed to be appropriate. We also conducted
such other reviews, analyses and inquiries
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relating to the Company, Mr. Snyder, Golden and Warburg Pincus (in addition to
those set forth above) as we considered proper.
With your permission, in rendering such opinion we have also
assumed that: (i) the terms and provisions contained in the definitive
Securities Purchase Agreement (including the Exhibits thereto) will not differ
materially from those contained in the drafts of those documents we have
heretofore reviewed; (ii) the conditions to the consummation of the Securities
Issuance set forth in the Securities Purchase Agreement will be satisfied; and
(iii) there is not now, and there will not as a result of consummation of the
transactions contemplated by the Securities Purchase Agreement be, any default,
or event of default, under any indenture, credit agreement or other material
instrument to which the Company or any of its subsidiaries or affiliates is a
party.
Finally, in rendering the opinion set forth below we note
that: (i) the Company has elected to pursue the Securities Issuance following a
thorough consideration of the financial alternatives available to it, in which
process it was assisted by nationally recognized investment banking firm; (ii)
the consummation of the Securities Issuance is conditioned upon the approval of
Western Publishing's stockholders; (iii) in providing our opinion we are not
recommending any action the Company, the Board of Directors or any of its
security holders should take in connection with the Securities Issuance; and
(iv) we are not opining as to the prices at which any of the securities of the
Company may trade upon and following the consummation of the Securities
Issuance.
Based upon and subject to the foregoing, and upon such other
matters as we consider relevant, it is our opinion as investment bankers that,
as of the date hereof, the consideration to be received by Western Publishing
pursuant to the Securities Issuance is fair to Western Publishing from a
financial point of view.
It is understood and agreed that this opinion is provided
solely for the use of the Board of Directors of the Company as one element in
such Board's consideration of the Securities Issuance, and may not be used for
any other purpose, or otherwise referred to, relied upon or circulated, without
our prior written consent. This opinion may be reproduced in full in any proxy
statement mailed to holders of Western Publishing Common Stock in connection
with the Securities Issuance but may not otherwise be disclosed publicly in any
manner without our prior written approval.
Sincerely,
JEFFERIES & COMPANY, INC.
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By:________________________
Chris M. Kanoff
Executive Vice President
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