<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
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
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(Name of Registrant As Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the
Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ No fee required.
/ / 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 or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
<PAGE>
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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<PAGE>
[Golden Books Letterhead]
April 1, 1997
Dear Golden Books Family Entertainment, Inc. Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders
to be held at Chase Manhattan Bank, 270 Park Avenue, 11th Floor, Room F, New
York, New York, on Tuesday, May 13, 1997, at 10:00 A.M., local time.
Information about the Meeting, nominees for Directors and the proposals to be
considered is presented in the Notice of Annual Meeting and the Proxy Statement
on the following pages.
1996 marked a turning point for our Company. In addition to the formal
items of business to be brought before the Meeting, there will be a report
immediately following the Meeting on the new direction and strategies that our
Company is taking. This will be followed by a question and answer period.
Your participation in our Company's affairs is important regardless of
the number of shares you hold. To ensure your representation, even if you
cannot attend the Meeting, please sign, date and return the enclosed proxy
promptly.
We look forward to seeing you on Tuesday, May 13, 1997.
Sincerely,
/s/ Richard E. Snyder
Richard E. Snyder
Chairman of the Board and
Chief Executive Officer
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GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
850 THIRD AVENUE
NEW YORK, NEW YORK 10022
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held May 13, 1997
------------------------------
The Annual Meeting of Stockholders of Golden Books Family
Entertainment, Inc., a Delaware corporation (the "Company"), will be held at
Chase Manhattan Bank, 270 Park Avenue, 11th Floor, Room F, New York, New York,
on Tuesday, May 13, 1997, at 10:00 A.M., local time, for the following
purposes:
1. To re-elect Shahara Ahmad-Llewellyn, Barry Diller, Eric Ellenbogen,
Linda L. Janklow, Lorne Michaels, Marshall Rose, Richard E. Snyder and H. Brian
Thompson as directors of the Company, to serve until the next annual meeting of
stockholders of the Company and until their successors have been duly elected
and qualified.
2. To consider and act upon a proposal to amend the Company's 1995
Stock Option Plan.
3. To consider and act upon a proposal to amend the Company's Executive
Officer Bonus Plan.
4. To approve and ratify the appointment of Ernst & Young LLP as the
Company's independent auditors for the fiscal year ending December 27, 1997.
5. To transact such other business as may properly come before the
Annual Meeting or any postponements or adjournments thereof.
Holders of record of the Company's Common Stock and Series B
Convertible Preferred Stock at the close of business on March 14, 1997 shall be
entitled to notice of, and to vote at, the Annual Meeting or any and all
postponements or adjournments thereof. A complete list of such stockholders,
arranged in alphabetical order and showing the address of each stockholder and
the number of shares registered in the name of each stockholder, will be
available at the Annual Meeting and will be available for examination by any
stockholder for any purpose germane to the Annual Meeting during ordinary
business hours for a period of ten days prior to the Annual Meeting at the
offices of Golden Books Family Entertainment, Inc., 850 Third Avenue, New York,
New York 10022.
By Order of the Board of Directors
/s/ Philip Galanes
Philip Galanes
Secretary
April 1, 1997
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<PAGE>
New York, New York
IMPORTANT:
TO ASSURE PROPER REPRESENTATION AT THE ANNUAL MEETING ALL STOCKHOLDERS
ARE REQUESTED TO FILL IN AND SIGN THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY IN THE ACCOMPANYING ENVELOPE.
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<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
850 THIRD AVENUE
NEW YORK, NEW YORK 10022
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PROXY STATEMENT
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ANNUAL MEETING OF STOCKHOLDERS
MAY 13, 1997
-----------------------
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation
by Golden Books Family Entertainment, Inc., a Delaware corporation (the
"Company"), of proxies to be voted at the Annual Meeting of Stockholders (the
"Annual Meeting") to be held at Chase Manhattan Bank, 270 Park Avenue, 11th
Floor, Room F, New York, New York, on Tuesday, May 13, 1997, at 10:00 A.M.,
local time, or any and all postponements or adjournments thereof, for the
purposes set forth in the accompanying Notice of Annual Meeting. This Proxy
Statement, the Notice of Annual Meeting and the accompanying proxy card are
being mailed to stockholders on or about April 1, 1997.
Holders of record of Common Stock (the "Common Stock") of the Company,
$.01 par value, and Series B Convertible Preferred Stock (the "Preferred
Stock") of the Company, no par value, at the close of business on March 14,
1997, will be entitled to notice of and to vote at the Annual Meeting or any
and all postponements or adjournments thereof. On that date, 25,986,842 shares
of Common Stock and 13,000 shares of Preferred Stock were issued and
outstanding. Holders of Common Stock and Preferred Stock will vote together
without regard to class upon the matters to come before the Annual Meeting.
Each stockholder is entitled to one vote for each share of Common Stock and 500
votes for each share of Preferred Stock held by such stockholder. All of the
shares of Preferred Stock are owned by Golden Press Holding, L.L.C. ("GPH"),
which, on March 14, 1997, also owned 585,000 shares of Common Stock and is
entitled to vote the 3,996,771 shares of Common Stock owned beneficially by
Richard A. Bernstein.
The presence, in person or by proxy, of the holders of a majority of
the shares of Common Stock combined with Preferred Stock, on an as converted
basis, entitled to vote at the Annual Meeting constitutes a quorum for the
Annual Meeting. GPH has indicated to the Company that its shares will be
present at the Annual Meeting and will be voted in favor of the matters
described herein to be voted on at the Annual Meeting.
If the accompanying proxy card is properly signed and returned to the
Company and not revoked, it will be voted in accordance with the instructions
contained therein. Unless contrary
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instructions are given, the persons designated as proxy holders in the
accompanying proxy card will vote (i) to elect the eight (8) nominees for the
Board of Directors to serve until the next Annual Meeting and until their
successors have been duly elected and qualified, (ii) to amend the 1995 Stock
Option Plan, as described herein, (iii) to amend the Company's Executive
Officer Bonus Plan (the "Bonus Plan"), as described herein, (iv) to approve and
ratify the appointment of Ernst & Young LLP ("Ernst & Young") as the Company's
independent auditors for the fiscal year ending December 27, 1997 and (v)
with respect to such other business as may properly come before the Annual
Meeting or any and all postponements or adjournments thereof as such persons
shall determine in their judgment. Management is not aware of any other matters
to be presented for action at the Annual Meeting.
Each proxy granted may be revoked by the stockholder giving such proxy
at any time before it is exercised by filing with the Secretary of Golden Books
Family Entertainment, Inc., at the address set forth above, a revoking
instrument or a duly executed proxy bearing a later date. The powers of any
proxy holder will be suspended if the person who executed the proxy held by
such proxy holder attends the Annual Meeting in person and so requests.
Attendance at the Annual Meeting will not in itself constitute revocation of
the proxy.
If a stockholder has invested in the Common Stock through the Company's
401(k) plan, the proxy will serve also as voting instructions for the trustee
for the 401(k) plan. The Trustee will vote unallocated shares of the 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.
Assuming the presence of a quorum, the eight (8) nominees receiving a
plurality of the votes cast at the Annual Meeting for the election of directors
will be elected as directors. Assuming the presence of a quorum, the
affirmative vote of the holders of a majority of the shares of Common Stock
combined with Preferred Stock (each share of Preferred Stock being considered
the equivalent of 500 shares of Common Stock for these purposes) present, in
person or by proxy, at the Annual Meeting is required to amend the 1995 Stock
Option Plan and to amend the Bonus Plan. Assuming the presence of a quorum,
the affirmative vote of a majority of the votes cast at the Annual Meeting
is required to approve and ratify the appointment of Ernst & Young as the
Company's independent auditors for the fiscal year ending December 27, 1997.
With regard to the election of directors, votes may be cast in favor or
withheld. With regard to the adoption of the proposed amendment to the 1995
Stock Option Plan, the adoption of the proposed amendment to the Bonus Plan and
the ratification of the appointment of Ernst & Young, votes may be cast for or
against or abstentions may be specified. Abstentions will be counted as present
for purposes of determining the presence or absence of a quorum. Abstentions
will have the same effect as a vote against the proposals to amend the
1995 Stock Option Plan and to amend the Bonus Plan and will have no effect on
the proposal to appoint Ernst & Young. Broker non-votes and shares as to
which proxy authority has been withheld with respect to any matter are not
deemed to be present or represented for purposes of determining whether
stockholder approval of that matter has been obtained.
The cost of soliciting proxies in the enclosed form will be borne by
the Company. In addition to solicitation by mail, directors, officers and
employees of the Company may solicit proxies by telephone or otherwise. The
Company will, upon request, reimburse brokerage firms
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and others for their reasonable expenses in forwarding solicitation material to
the beneficial owners of Common Stock.
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<PAGE>
PRINCIPAL STOCKHOLDERS AND
SHARE OWNERSHIP BY MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock and the Preferred Stock as of March
14, 1997 (except as set forth in notes, 5, 6 and 7 below), based upon
25,986,842 shares of Common Stock and 13,000 shares of Preferred Stock
outstanding on such date, by (a) each person or group known by the Company to
be the beneficial owner of more than 5% of each such class of capital stock,
(b) each of the Company's directors, (c) the Company's Chief Executive Officer
and the other four most highly compensated executive officers of the Company
(the "Named Executives") and (d) the directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP(1)
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NAME AND ADDRESS NUMBERS OF SHARES OF NUMBER OF SHARES OF PERCENTAGE OF
OF BENEFICIAL OWNER PREFERRED STOCK COMMON STOCK COMMON STOCK (2)
------------------- --------------- ------------- ----------------
<S> <C> <C> <C>
5% Holders
Warburg, Pincus Ventures, L.P.
Warburg, Pincus & Co.
E.M. Warburg, Pincus & Company
Golden Press Holding, L.L.C.
466 Lexington Avenue
New York, NY 10017................. 13,000(3) 11,081,771(4) 42.3%
Richard A. Bernstein
444 Madison Avenue
New York, New York 10022........... --- 4,056,771 (5) 15.6%
Mario J. Gabelli
Gabelli Funds, Inc.
655 Third Avenue
New York, New York 10017........... --- 3,748,439 (6) 14.4%
Hallmark Cards, Inc.
H C Crown Corp.
2501 McGee Street
Kansas City, MO 64141.............. --- 2,356,198 (7) 9.1%
Directors and Named Executives
Shahara Ahmad-Llewellyn (8).......... --- 7,100 *
Barry Diller (9)..................... --- --- ---
James A. Eskridge (8)................ --- 5,000 *
Linda L. Janklow (8)................. --- 11,000 *
Lorne Michaels (10).................. --- 455,000 1.8%
Marshall Rose (8).................... --- 5,000 *
David A. Tanner (11)................. --- --- ---
H. Brian Thompson (8)................ --- 5,000 *
John L. Vogelstein (11).............. --- --- ---
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Richard E. Snyder (12)............... --- 684,432 2.6%
Robert T. Asahina.................... --- --- ---
Eric Ellenbogen (13)................. --- 99,056 *
Willa M. Perlman..................... --- --- ---
Philip E. Rowley..................... --- --- ---
Directors and executive officers of
the Company as a group (17 persons).. --- 1,272,088 4.9%
</TABLE>
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* Less than one percent.
(1) Except where otherwise indicated, the Company believes that all parties
listed in the table, based on information provided by such persons,
have sole voting and dispositive power over the securities beneficially
owned by them, subject to community property laws, where applicable.
For purposes of this table, a person or group of persons is deemed to
be the "beneficial owner" of any shares that such person has the right
to acquire within 60 days. For purposes of computing the percentage of
outstanding shares held by each person or group of persons named above
on a given date, any security that such person or persons has the right
to acquire within 60 days is deemed to be outstanding, but is not
deemed to be outstanding for the purpose of computing the percentage
ownership of any other person.
(2) Determined on an as-converted basis, assuming the conversion of the
Preferred Stock into Common Stock.
(3) Each share of Preferred Stock is convertible into 500 shares of Common
Stock, or a total of 6,500,000 shares of Common Stock. GPH owns 100% of
the issued and outstanding shares of Preferred Stock.
(4) Includes 585,000 shares of Common Stock owned by GPH. GPH also may be
deemed to beneficially own the 6,500,000 shares of Common Stock
issuable upon conversion of the 13,000 shares of Preferred Stock owned
by GPH. Each of the other reporting entities may be deemed to share the
power to vote and dispose of the shares of Common Stock held by GPH and
the shares of Common Stock issuable upon conversion of the Preferred
Stock. In addition, each of the reporting entities may be deemed to
beneficially own 3,996,771 shares of Common Stock beneficially owned by
Richard A. Bernstein to which Mr. Bernstein and certain of his
affiliates have granted irrevocable proxies to give GPH the right to
vote such shares on any matter presented for the vote or consent of the
Company's stockholders. Each of the reporting entities may be deemed to
share the power to vote or direct the voting of such shares. To their
knowledge, the power to dispose of the shares is as described in
footnote (5) below. GPH also holds a warrant to purchase 3,250,000
shares of Common Stock that will not be exercisable until May 8, 1998
and, accordingly, is not included in the above table.
(5) Beneficial ownership of these shares was reported in a Schedule 13G, as
amended, that was filed on February 21, 1997. 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
1,000,000 shares of Common Stock owned by the Amelia Bernstein 1996
Trust, Fleet National Bank of Connecticut, as Trustee (the "Amelia
Bernstein Trust"). Mr. Bernstein has no voting or investment power over
the shares in the 1986 Trust or the Amelia Bernstein Trust. Also
includes 160,000 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. Mr. Bernstein, the 1978 Trust, the
1986 Trust and the Amelia Bernstein 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, the 1986 Trust and the Amelia
Bernstein Trust have retained sole dispositive power with respect to
these shares, subject to certain limitations. According to Amendment
No. 1 to the Schedule 13D filed on May 16, 1996 by GPH, Warburg, Pincus
Ventures, L.P. ("Warburg, Pincus Ventures"), Warburg, Pincus & Co.
("WP") and E.M. Warburg, Pincus & Company, each such entity has shared
voting power, and no dispositive power, as to such shares.
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<PAGE>
(6) The Gabelli Funds, Inc. has reported to the Company in Amendment No. 52
to its Schedule 13D that GAMCO Investors, Inc. beneficially owned, as
of January 27, 1997, 2,840,614 shares of Common Stock, of which
2,679,114 were subject to sole voting power and 2,840,614 were subject
to sole dispositive power, and The Gabelli Funds, Inc. beneficially
owned, as of such date, 860,000 shares of Common Stock, with respect to
which it had sole voting and sole dispositive power. Additionally,
Gabelli International Limited beneficially owned, as of such date,
40,000 shares of Common Stock, with respect to which it had sole voting
and dispositive power; Gabelli & Company, Inc., as of such date,
beneficially owned 1,825 shares of Common Stock, with respect to which
it had sole voting and dispositive power; Gabelli Asset Management
Company International Advisory Services Ltd. beneficially owned, as of
such date, 1,000 shares of Common Stock, with respect to which it had
sole voting and dispositive power; and Gabelli Performance Partnership
L.P. beneficially owned, as of such date, 5,000 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.
(7) Beneficial ownership of these shares was reported in a Schedule 13D
that was filed on September 10, 1996. H C Crown Corp. ("H C Crown") is
a wholly owned subsidiary of Hallmark Cards, Incorporated ("Hallmark")
and Hallmark may be deemed to beneficially own all of the shares owned
by H C Crown.
(8) Includes non-qualified stock options to purchase 5,000 shares of Common
Stock granted pursuant to the 1995 Stock Option Plan of the Company.
Such options are presently exercisable.
(9) Mr. Diller controls Arrow Holdings, LLC, a member of GPH. Mr. Diller
disclaims beneficial ownership of the securities owned by GPH.
(10) Includes non-qualified stock options to purchase 5,000 shares of Common
Stock granted pursuant to the 1995 Stock Option Plan of the Company.
Such options are presently exercisable. Also includes up to a maximum
of 450,000 shares of Common Stock held in escrow to which an entity
wholly-owned by Mr. Michaels is entitled, and which Mr. Michaels may
be deemed to beneficially own, pursuant to the acquisition (the
"Broadway Video Acquisition") by the Company of substantially all of
the assets of Broadway Video Entertainment, L.P., a private
partnership in which such entity was a partner.
(11) Such person is a general partner of WP, the general partner of Warburg,
Pincus Ventures, a member of GPH. Beneficial ownership of the
securities owned by GPH is disclaimed by such person.
(12) Consists of 599,465 shares of Common Stock issued to Mr. Snyder on
January 31, 1996 pursuant to his employment agreement with the Company
and 84,967 shares of Common Stock issued to Mr. Snyder pursuant to
certain anti-dilution provisions contained therein. Mr. Snyder controls
the Snyder 1996 Family Limited Partnership, a member of GPH. Mr. Snyder
disclaims beneficial ownership of the securities owned by GPH. Mr.
Snyder also owns non-qualified stock options to purchase 1,271,089
shares of Common Stock granted pursuant to Mr. Snyder's employment
agreement with the Company, including pursuant to certain anti-dilution
provisions contained therein. None of such options are exercisable
within 60 days after March 14, 1997.
(13) Includes up to a maximum of 99,056 shares of Common Stock held in
escrow to which Mr. Ellenbogen is entitled pursuant to the Broadway
Video Acquisition.
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<PAGE>
CERTAIN TRANSACTIONS
INVESTMENT BY GPH
On May 8, 1996, the Company completed the sale (the "GPH Transaction")
of a significant equity interest in the Company to GPH, an investment vehicle
formed by Warburg, Pincus Ventures, L.P. ("Warburg, Pincus Ventures"), the
Snyder 1996 Family Limited Partnership, a limited partnership controlled by
Richard E. Snyder, Arrow Holdings, LLC, a limited liability company controlled
by Barry Diller, and Marshall Rose. The Company issued to GPH, for an aggregate
purchase price of $65 million, 13,000 shares of Preferred Stock with an initial
conversion price of $10.00 per share and a warrant to purchase 3,250,000 shares
of Common Stock at an exercise price of $10.00 per share. The source of the
consideration for the acquisition was internal cash of the members of GPH.
On May 8, 1996, pursuant to the terms of the GPH Transaction, Mr.
Snyder became the Chairman of the Board and Chief Executive Officer of the
Company. In addition, GPH, which, as the holder of the Preferred Stock, is
entitled to elect one-third of the members of the Board of Directors of the
Company, named James A. Eskridge, David A. Tanner and John L. Vogelstein to
serve on the Board of Directors. Shahara Ahmad-Llewellyn, Barry Diller, Linda
L. Janklow, Marshall Rose and H. Brian Thompson also were appointed as
directors of the Company in connection with the consummation of the GPH
Transaction.
In connection with the GPH Transaction, prior to the consummation of
the GPH Transaction, Richard A. Bernstein, the former Chairman of the Board of
Directors of the Company and the Chief Executive Officer thereof, as well as a
principal stockholder of the Company, resigned from all of his positions with
the Company and granted to GPH an irrevocable proxy with respect to the shares
of Common Stock directly and indirectly owned by Mr. Bernstein. Approximately
$10.7 million of the net proceeds from the GPH Transaction were used to retire
the Series A Preferred Stock, no par value per share, of the Company (the
"Series A Preferred Stock") and to pay accrued dividends thereon. Approximately
46% of the shares of Series A Preferred Stock were beneficially owned by Mr.
Bernstein. In connection with the GPH Transaction, the Company granted to Mr.
Bernstein certain registration rights in respect of the shares of Common Stock
held by Mr. Bernstein and his affiliates. In addition, pursuant to the GPH
Transaction, on May 8, 1996, the Company paid to a corporation owned by Mr.
Bernstein $1.4 million in consideration for such corporation agreeing to
provide certain management services (including finance and accounting, cash
management, real estate matters, labor negotiations, corporate administration
and air transportation) to the Company during the 180-day period following the
consummation of the GPH Transaction.
BROADWAY VIDEO ACQUISITION
On August 20, 1996, the Company and certain of its subsidiaries
acquired, among other things, substantially all of the television and film
library properties of Broadway Video Entertainment, L.P. ("BVELP"), and assumed
payables and all liabilities incurred in connection with the exploitation of
such assets after the closing, for an aggregate purchase price of approximately
$91.9 million ($81 million in cash and 901,408 shares of Common Stock).
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Lorne Michaels indirectly controls BVELP. Prior to the consummation of
such acquisition (the "Broadway Video Acquisition"), Eric Ellenbogen was the
President of BVELP. After completion of the Broadway Video Acquisition, Mr.
Michaels and Mr. Ellenbogen were appointed to serve on the Board of Directors
and Mr. Ellenbogen became President of the Golden Books Entertainment Group
division of Golden Books Publishing Company, Inc. ("Golden Books Publishing").
HALLMARK INVESTMENT
On September 6, 1996, the Company completed the sale (the "Hallmark
Transaction") to H C Crown Corp., a wholly owned subsidiary of Hallmark Cards,
Incorporated ("Hallmark") of 2,356,198 shares of Common Stock for approximately
$25 million. Hallmark and the Company had announced the possibility of a
second investment of $25 million in the Company by Hallmark. While the parties
have delayed a decision with respect to such second investment until July 1,
1997, they continue to discuss a strategic relationship between the two
companies, premised on the good faith efforts of Hallmark and the Company to
develop constructive working relationships across appropriate lines of
business.
GEORGETOWN TRANSACTION
Pursuant to a letter agreement (the "Georgetown Agreement") dated as of
August 1, 1996, The Georgetown Company ("Georgetown"), a corporation of which
Marshall Rose is the Managing Partner, has acted, since August 1, 1996, as a
real estate advisor to the Company. Pursuant to the Georgetown Agreement, the
Company is obligated to make the following payments to Georgetown: (i) $25,000
per month for the period beginning August 1, 1996 and ending July 1, 1999,
subject to offset under certain circumstances as a result of incentive fees
earned by Georgetown, as described in clause (ii) below; and (ii) subject to
certain exceptions, an incentive fee, payable in cash or Common Stock (valued
at the then-current market price thereof and to be issued not earlier than July
31, 1999), for each completed real estate transaction during the period
beginning August 1, 1996 and ending July 3, 2000, in an amount equal to
one-half of each commission that would be paid to an outside broker
representing the Company. To date, the Company has paid to Georgetown $980,149
in incentive fees for services rendered in respect of four different
properties.
TRIBECA TRANSACTION
Pursuant to a letter agreement (the "Tribeca Agreement") dated as of
July 1, 1996, the Company paid to Tribeca Technologies LLC ("Tribeca"), a
limited liability company in which Philip E. Rowley is a member, as
compensation for the loss by Tribeca of the exclusive services of Mr. Rowley
following his employment by the Company, the sum of $200,000 on July 1, 1996.
On each of July 1, 1997 and 1998, provided that Mr. Rowley is in the employ of
the Company at such time, the Company will be required to pay to Tribeca an
additional $200,000. Tribeca is obligated to pay to the Company one-third of
the aggregate amount of any distributions otherwise to be made by Tribeca to
Mr. Rowley and the President of Tribeca on or before June 30, 1999 (or such
earlier time as Mr. Rowley's employment with the Company ceases), provided,
that the maximum amount payable to the Company under the Tribeca Agreement is
the lesser of $600,000 and the amount paid by the Company to Tribeca under the
Tribeca Agreement, as described in the previous sentence. In addition, the
Company has retained Tribeca on an arms'-
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length basis in connection with certain computer consulting projects and as a
purchasing agent for certain of the Company's computer hardware and software.
To date, the Company has paid Tribeca approximately $450,000 in connection with
such services and equipment.
POWERHOUSE TRANSACTION
On May 8, 1996, the Company and Powerhouse Entertainment Company, Inc.
("Powerhouse"), a corporation affiliated with Richard A. Bernstein, entered
into a software development agreement (the "Development and Licensing
Agreement") relating to the development by Powerhouse of six interactive PC
CD-ROM storybooks under the "Little Golden Books Interactive" name and logo
(the "Powerhouse Products") and certain other computer software products.
Under the terms of the Development and Licensing Agreement, Powerhouse
received a fee in the amount of $1,000,000 for the development of the
Powerhouse Products. Separately, Powerhouse is paid a royalty based upon the
net proceeds of sales of the Powerhouse Products and such royalty obligation
continues for the term of the copyright. To date, the Company has paid to
Powerhouse approximately $75,000 in royalties.
On May 8, 1996, the Company and Powerhouse entered into an agreement
(the "Support Agreement") pursuant to which Powerhouse, on behalf of the
Company and at the Company's sole cost and expense, performed all services
relating to the manufacturing, marketing, distribution, sale and licensing of
the Powerhouse Products. The Support Agreement expired on December 31, 1996,
and the Company is currently determining any further amounts due Powerhouse, if
any, for marketing, advertising, returns and other related costs. To date, the
Company has paid to Powerhouse approximately $500,000 in connection with the
services performed by Powerhouse thereunder.
ELECTION OF DIRECTORS
(PROPOSAL 1)
The Board has nominated for election as the directors entitled to be
elected by the holders of Common Stock and Preferred Stock the eight current
directors listed below. As previously noted, proxies will be voted, unless
authority is withheld, FOR the election as directors of the nominees listed
below to serve until the next annual meeting of stockholders and until their
respective successors shall be elected and qualified. The Board of Directors
has no reason to believe that any of the listed nominees will not serve if
elected, but if any of them should become unavailable to serve as a director or
be withdrawn from nomination, and if the Board of Directors shall designate a
substitute nominee, the persons named as proxy holders will vote for the
substitute nominee.
-14-
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
EACH OF THE NOMINEES LISTED BELOW.
NOMINEES FOR ELECTION
Shahara Ahmad-Llewellyn
Director since: May 8, 1996
Age: 53
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, Virginia. Ms. Ahmad-Llewellyn
previously served as Chairperson of the Small Business Administration District
Advisory Council for Region II, as Vice President of the Home Care Council of
New York City Inc. and as a Presidential appointee to the White House
Conference on Small Business.
Barry Diller
Director since: May 8, 1996
Age: 55
Mr. Diller has been a director and the Chairman of the Board and Chief
Executive Officer of Silver King Communications, Inc. since August 1995. He was
Chairman of the Board and Chief Executive Officer of QVC Network, Inc. (now
QVC, Inc.) from January 1993 until February 1995. From 1984 to 1992, Mr. Diller
served as the Chairman of the Board and Chief Executive Office 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 the
University of California-Los Angeles.
Eric Ellenbogen
Director since: September 17, 1996
Age: 40
Mr. Ellenbogen has served as the President of the Golden Books
Entertainment Group division of Golden Books Publishing, the principal
operating subsidiary of the Company, and as Executive Vice President of the
Company since August 20, 1996. Mr. Ellenbogen was President of BVELP and
Broadway Video Enterprises, Inc. from 1987 to August 1996. Prior to such time,
Mr. Ellenbogen was an executive with ICPR, a public relations and marketing
company.
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<PAGE>
Linda L. Janklow
Director since: May 8, 1996
Age: 58
Ms. Janklow is the 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 Director of Lincoln Center for the
Performing Arts, Inc. and a member of its Executive Committee. 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 also is a member of the Board of Directors of The New 42nd Street
Corporation.
Lorne Michaels
Director since: September 17, 1996
Age: 52
Mr. Michaels is the Chairman and founder of Broadway Video, Inc., an
entertainment company based in New York City. Mr. Michaels has worked for the
National Broadcasting Company since 1975, producing such comedy shows as
Saturday Night Live and Late Night With Conan O'Brien. Since 1991, Mr. Michaels
has produced motion pictures for Paramount Pictures.
Marshall Rose
Director since: May 8, 1996
Age: 60
Mr. Rose is the Managing Partner of The Georgetown Group, a privately
held real estate development and financial services group. Mr. Rose serves as a
Director of One Liberty Properties and Estee Lauder Companies, Inc. and as a
Trustee of BRT Realty Trust. In addition, Mr. Rose serves as Chairman of the
Executive Committee and Chairman of the Board Emeritus of The New York Public
Library; as Trustee of the New York University Medical Center; as Director of
Lincoln Center for the Performing Arts; as a Member of the Executive Committee
of the Board of Visitors of the Graduate School and University Center of The
City University of New York; as Director and Executive Committee member of the
Bryant Park Restoration Committee; and as a Trustee of the Robert Steel
Foundation for Pediatric Cancer Research.
Richard E. Snyder
Director since: May 8, 1996
Age: 63
Mr. Snyder has been Chairman of the Board of Directors and Chief
Executive Officer of the Company since May 8, 1996. Mr. Snyder was President of
the Company from January 31, 1996 to May 8, 1996. 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 Reliance Group Holdings, Inc. and HSN,
Inc.
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<PAGE>
H. Brian Thompson
Director since: 1996
Age: 58
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 from 1981 to 1990, with responsibility for its
operating divisions, including MCI International. Prior to that time, Mr.
Thompson was a management consultant with McKinsey & Company for nine years in
its Washington, DC office. Mr. Thompson serves as a member of the board of
directors of Microdyne Corporation and Comcast UK Cable Partners Limited and is
a member of the Listed Company Advisory Committee to the New York Stock
Exchange Board of Directors.
PREFERRED STOCK DIRECTORS
GPH, as the holder of the Preferred Stock, in addition to voting as a
class with the holders of the Common Stock, is entitled to elect up to
one-third of the members of the Board of Directors. It is expected that, on the
day of the Annual Meeting, GPH will re-elect Messrs. Tanner and Vogelstein as
directors to serve until their respective successors are elected and qualified.
Mr. Eskridge will not be standing for re-election at such time. Following the
conclusion of Mr. Eskridge's term as a director of the Company, GPH will have
the right to designate two additional directors; however, GPH has advised the
Company that it does not presently intend to exercise such right, although it
reserves the right to do so in the future.
Biographical information concerning Messrs. Tanner and Vogelstein is
provided below.
David A. Tanner
Director since: May 8, 1996
Age: 38
Mr. Tanner has served as a Member and Managing Director of E.M.
Warburg, Pincus & Company ("EMW"), and as a general partner of Warburg, Pincus
& Co., since January 1993. Mr. Tanner served as a Vice President of EMW from
January 1991 to January 1993 and was an associate at EMW from March 1986 to
December 1990. Prior to joining EMW, Mr. Tanner was engaged in the private
practice of law with the law firm of Simpson Thacher & Bartlett. Mr. Tanner is
a director of the New York Venture Capital Forum and several privately held
companies.
John L. Vogelstein
Director since: May 8, 1996
Age: 62
Mr. Vogelstein has served since 1982 as Vice Chairman of the Board of
Directors, and since 1994 as President, of EMW. Prior thereto, he was an
officer and a director of EMW and certain of its affiliates. Mr. Vogelstein
currently is a director of Aegis Group plc., ADVO Inc., LCI International,
Mattel, Value Health, Inc., Vanstar Corporation and several privately held
companies.
-17-
<PAGE>
COMMITTEES OF THE BOARD; BOARD MEETINGS
The Board of Directors has an Audit Committee and a Compensation
Committee. The Board of Directors does not presently have a Nominating
Committee or other committee performing a similar function.
The Audit Committee currently is composed of Ms. Ahmad-Llewellyn, Mr.
Eskridge (Chairperson), Ms. Janklow and Mr. Tanner. The Audit Committee met
once during fiscal 1996. Duties of the Audit Committee include meeting with the
independent accountants and certain personnel of the Company to discuss the
planned scope of their examinations, the adequacy of internal controls and
financial reporting, reviewing the results of the annual examination of the
financial statements and periodic internal audit examinations, reviewing the
services and fees of the Company's independent accountants, authorizing special
investigations and studies and performing any other duties or functions deemed
appropriate by the Board of Directors.
The Compensation Committee currently is composed of Messrs. Diller,
Michaels, Thompson (Chairperson) and Vogelstein. The Compensation Committee met
twice during fiscal 1996. The Compensation Committee has overall responsibility
for compensation actions affecting the Company's executive officers. The
Compensation Committee's responsibilities include approving base salaries,
setting incentive targets and administering, and granting awards to executive
officers under, all executive compensation plans.
Each incumbent director attended at least 75% of the aggregate of the
total number of meetings of the Board of Directors held during the period for
which he or she has been a director and the total number of meetings held by
all committees of the Board of Directors on which he or she served during such
period. During fiscal 1996, the Board of Directors met four times.
EXECUTIVE OFFICERS
Set forth below is the name and business experience of each of the
executive officers of the Company as of March 14, 1997, to the extent not
provided above.
Robert T. Asahina
Age: 46
Mr. Asahina has served as President and Publisher of the Adult
Publishing Group of Golden Books Publishing since May 1996. From 1983 to May
1996, Mr. Asahina was employed by Simon & Schuster, most recently as Vice
President and Senior Editor. From 1982 to 1983, Mr. Asahina was Arts Editor of
Harper's Magazine. From 1979 to 1982, Mr. Asahina was an Editor of the New York
Times Book Review and, from 1978 to 1979, Mr. Asahina was an Administrative
Editor of GEO.
Susan Beckett
Age: 48
Ms. Beckett has served as Executive Vice President of the Golden Books
Entertainment Group division of Golden Books Publishing since November 1996.
From 1978 to November
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<PAGE>
1996, Ms. Beckett was employed by the National Broadcasting Company, most
recently as Senior Vice President, NBC Enterprises.
Colin Finkelstein
Age: 37
Mr. Finkelstein has served as Senior Vice President, Finance and
Planning of the Company and Executive Vice President, General Manager of the
Children's Publishing Group of Golden Books Publishing since October 1996. From
November 1988 to September 1996, Mr. Finkelstein was employed by EMI Music,
Inc., most recently as Vice President, Controller.
Philip Galanes
Age: 33
Mr. Galanes has served as General Counsel and Vice President, Legal
Affairs of the Company since December 1996. From January 1995 to November 1996,
Mr. Galanes was an associate at the law firm of Paul, Weiss, Rifkind, Wharton &
Garrison. From October 1991 to November 1994, Mr. Galanes was an associate at
the law firm of Debevoise & Plimpton.
Jay M. Grossman
Age: 42
Mr. Grossman has served as Senior Vice President, Business Process
Development of the Company since November 1996. From 1976 to October 1996, Mr.
Grossman was employed by Simon & Schuster, most recently as Senior Vice
President, Business Process Improvement.
Howard R. Marcus
Age: 40
Mr. Marcus has served as Senior Vice President, Human Resources of the
Company since October 1996. From August 1995 to October 1996, Mr. Marcus was
National Director of Human Resources, U.S., at KPMG Peat Marwick LLP. From
April 1992 to April 1995, Mr. Marcus was employed by Dunn & Bradstreet Corp.,
most recently as Senior Vice President, Management and Organizational
Development.
Willa M. Perlman
Age: 37
Ms. Perlman has served as President and Publisher of the Children's
Publishing Group of Golden Books Publishing since May 28, 1996. From May 1993
to May 1996, Ms. Perlman was President and Publisher of the Children's
Publishing Division of Simon & Schuster. From December 1990 to May 1993, Ms.
Perlman was a Vice President and Editorial Director of Harper Collins,
Children's Division. From August 1982 to December 1990, Ms. Perlman was
employed by Harcourt Brace, most recently as Director of their Children's
Division.
-19-
<PAGE>
Philip E. Rowley
Age: 44
Mr. Rowley has served as Executive Vice President and Chief Financial
Officer of the Company and as Chief Operating Officer of Golden Books
Publishing since July 1, 1996. From May 1995 to June 1996, Mr. Rowley was a
Managing Director of Tribeca, which he co-founded. From July 1988 to March
1994, Mr. Rowley was the Executive Vice President and Chief Financial Officer
of EMI Music. From February 1987 to June 1988, Mr. Rowley was Group Financial
Controller of Kingfisher plc.
-20-
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information for the past three years for
the Named Executives and the former Chairman and Chief Executive Officer of the
Company.
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------------
Annual Compensation (1) Awards
-------------------------- ---------------------------------
Name and Securities All Other
Principal Restricted Underlying Compensation
Position Year(2) Salary($) Bonus($) Stock Awards ($) Options (#) ($)
--------- ------- --------- -------- ----------------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Richard E. Snyder FY96 465,891 491,667 276,142.75 1,271,089 431(4)
Chairman and
Chief Executive FY95 7,896 8,333 824,264.37 --- ---
Officer (3)
FY94 --- --- --- --- ---
Robert T. FY96 153,846 75,000 --- 100,000 ---
Asahina
President of the FY95 --- --- --- --- ---
Golden Books
Adult Publishing FY94 --- --- --- --- ---
Group
Eric Ellenbogen FY96 256,731 105,000 --- 500,000 ---
President of the
Golden Books FY95 --- --- --- --- ---
Entertainment
Group, Executive FY94 --- --- --- --- ---
Vice President
and Director
Willa M. Perlman FY96 173,654 287,700 --- 100,000 ---
President of the
Children's FY95 --- --- --- --- ---
Publishing Group
of Golden Books FY94 --- --- --- --- ---
Publishing
Philip E. Rowley FY96 240,385 125,000 --- 300,000 ---
Chief Financial
Officer and FY95 --- --- --- --- ---
Executive Vice
President FY94 --- --- --- --- ---
Richard A. FY96 141,231 148,500 --- --- ---
Bernstein (5)
FY95 540,000 --- --- --- 12,533(6)
FY94 540,000 --- --- 30,000 12,706(7)
</TABLE>
(1) The Company has concluded that the aggregate amount of perquisites
and other personal benefits, securities or property provided to each
Named Executive was less than the lesser of $50,000 and 10% of the
total of such person's annual salary and bonus, as reported in the
table. Accordingly, none of such items are included in the table.
(2) The three years reported upon in the foregoing table are the fiscal
years ended January 28, 1995 ("FY94"), February 3, 1996 ("FY95") and
December 28, 1996 ("FY96").
(3) Mr. Snyder was elected to the Board of Directors and was appointed
Chairman of the Board and Chief Executive Officer on May 8, 1996. From
January 31, 1996 until May 8, 1996, Mr. Snyder served as President of
the Company.
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<PAGE>
(4) Consists of amounts the Company paid in excess life insurance
premiums for Mr. Snyder.
(5) Mr. Bernstein resigned as Chairman and Chief Executive Officer of the
Company on May 8, 1996. Excludes $1.4 million paid to a corporation
owned by Mr. Bernstein for certain services. See "Certain
Transactions."
(6) 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
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, the contribution to the Program
with respect to Mr. Bernstein was $10,044. In addition, in calendar
year 1995, the Executive Medical Reimbursement Plan paid premiums for
Mr. Bernstein in the amount of $1,800. During the same period, the
Company paid excess life insurance premiums for Mr. Bernstein in the
amount of $689.
(7) In calendar year 1994, the contribution to the Program with respect
to Mr. Bernstein was $10,044. In addition, in calendar year 1994, the
Executive Medical Reimbursement Plan paid premiums for Mr. Bernstein in
the amount of $1,800. During the same period, the Company paid excess
life insurance premiums for Mr. Bernstein in the amount of $862.
-22-
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
[Potential Realizable Value
at Assumed Annual Rates of
Stock Price Appreciation for
Individual Grants Option Term(1)]
- ---------------------------------------------------------------------------------- ------------------------------------
% of Total Market
Number of Options Price
Securities Granted to Exercise on Date
Underlying Employees or Base of
Options In Fiscal Price Grant Expiration
Name Granted (#) Year (%) ($/Sh) ($/Sh) Date 0%($) 5% ($) 10% ($)
---- ----------- -------- ------ ------ ---- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard E.Snynder 1,271,089 44.98 12.81 12.81 May 8, 2006 --- 10,240,071 25,950,351
Robert T. Asahina 100,000 3.54 12.81 12.81 May 8, 2003 --- 521,496 1,215,307
Eric Ellenbogen 500,000 17.69 10.875 11.25 July 30, 2003 187,500 2,213,609 5,158,649
Willa M. Perlman 75,000 2.65 14.25 14.25 May 28, 2003 --- 435,089 1,013,941
25,000 .88 12.125 12.125 July 1, 2003 --- 123,402 287,580
Philip E. Rowley 300,000 10.62 12.125 12.125 July 1, 2003 --- 1,480,828 3,450,958
Richard A. Bernstein --- --- --- --- --- --- --- ---
</TABLE>
(1) 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 the Common Stock. 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.
-23-
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Value of
Securities Unexercised
Underlying In-the-Money
Unexercised Options at
Options at December 28,
Shares FY-End (#) 1996 ($) (1)
Acquired on Value Exercisable/ Exercisable/
Name Exercise (#) Realized ($) Unexercisable/ Unexercisable
-------------------------- ---------------- --------------- ------------------- ---------------
<S> <C> <C> <C> <C>
Richard E. Snyder --- --- 0/1,271,089 ---
Robert T. Asahina --- --- 0/100,000 ---
Eric Ellenbogen --- --- 0/500,000 0/62,500
Willa M. Perlman --- --- 0/100,000 ---
Philip E. Rowley --- --- 0/300,000 ---
Richard A. Bernstein 32,500 114,687.50 0/0 ---
</TABLE>
- ---------------------
(1) Market value of underlying securities at December 28, 1996 was $11.00.
EXECUTIVE INCENTIVE PLANS
1995 STOCK OPTION PLAN
See Proposal 2 below concerning the amendment of the 1995 Stock Option
Plan for a description of the 1995 Stock Option Plan.
EXECUTIVE OFFICER BONUS PLAN
See Proposal 3 below concerning the amendment of the Bonus Plan for a
description of the Bonus Plan.
EMPLOYMENT AGREEMENTS
Richard E. Snyder
On May 8, 1996, the Company entered into an employment agreement with
Richard E. Snyder (the "Snyder Employment Agreement"), which has a five-year
term and pursuant to which Mr. Snyder serves as Chief Executive Officer of the
Company and Chairman of the Company's Board of Directors. Under the Snyder
Employment Agreement, in the event of a Change in Control (as defined therein),
if at such time there remains less than three years in Mr. Snyder's employment
term, Mr. Snyder's employment term will be extended until the third anniversary
of such Change of Control upon the consent of the Company or its successor (in
the absence of such consent, Mr. Snyder's employment term shall automatically
end and Mr. Snyder will receive payments and benefits as if he had been
terminated without cause). Under the Snyder Employment Agreement, Mr. Snyder is
entitled to receive an annual base salary of $500,000, which amount will be
subject to review and increase at least every twelve months. In addition, Mr.
Snyder is eligible to receive an additional bonus under the Bonus Plan of up to
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<PAGE>
200% of his annual base salary, subject to the attainment of certain
performance goals (such bonus will be pro rated for years in which Mr. Snyder
is employed for less than twelve months). Mr. Snyder also is entitled to
receive a one-time special bonus equal to the product obtained by multiplying
1,271,089 by the amount by which $12.81 or the market value of the Common Stock
on the date immediately preceding the payment of such special bonus, whichever
is less, exceeds $8.00. This was the approximate per share market price of the
Common Stock prior to the announcement that Mr. Snyder and Warburg, Pincus
Ventures would invest in the Company as described above. This special bonus
will be paid on the earlier of (i) the fifth anniversary of the effective date
of the Snyder Employment Agreement (if Mr. Snyder is employed by the Company on
such date) or (ii) the effective date of the termination of his employment
other than by the Company for cause or by Mr. Snyder without good reason or
upon his death or disability. This special bonus will cease to be payable upon
the termination of his employment by the Company for cause or by Mr. Snyder
without good reason. In addition, the Snyder Employment Agreement provides that
upon the earliest of (i) Mr. Snyder's termination of employment for any reason,
(ii) the tenth anniversary of his employment with the Company and (iii) a
disposition of any of the 684,432 shares of incentive stock acquired by Mr.
Snyder prior to the date hereof, he will be entitled to one or more special
bonuses equal to $5,475,456 in the aggregate; provided, that, upon the
disposition of less than all of such incentive stock, the amount of the bonus
will be equal to $5,475,456 multiplied by a fraction, the numerator of which is
the number of shares of incentive stock disposed of, and the denominator of
which is 684,432. Pursuant to the Snyder Employment Agreement, Mr. Snyder also
is entitled to a supplemental retirement benefit of $250,000 per annum (subject
to increase under certain circumstances set forth in the Snyder Employment
Agreement, which increase will be offset by any other defined benefit pension
amounts payable to Mr. Snyder by any previous employer or by the Company), to
be paid in the form of a single life annuity with payments commencing on the
first day of the month immediately following the later of (i) May 8, 2001 or
(ii) Mr. Snyder's cessation of employment with the Company other than by reason
of death.
In the event the Company terminates Mr. Snyder's employment for any
reason other than cause or disability or Mr. Snyder terminates his employment
for good reason, the Company will be required to pay to him, in addition to
accrued obligations, (i) in a lump sum an amount equal to (a) his annual base
salary and (b) the greater of his target bonus and his actual bonus for the
preceding fiscal year, in each case multiplied by the greater of (I) three and
(II) the number of years (including fractions thereof) remaining under the
Snyder Employment Agreement, and (ii) a payment in respect of certain excess or
supplemental retirement plans in which Mr. Snyder participates, calculated in
accordance with the Snyder Employment Agreement. Mr. Snyder also will be
entitled to a bonus for the fiscal year in which termination occurs equal to
the pro rata portion of the greater of his target bonus and his actual bonus
for the preceding fiscal year. In addition, any options held by Mr. Snyder will
become immediately exercisable. The Snyder Employment Agreement requires the
Company to provide for a tax gross-up for any excess parachute payments, within
the meaning of Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), made to Mr. Snyder.
Pursuant to the Snyder Employment Agreement, Mr. Snyder was granted on
May 8, 1996, under the 1995 Stock Option Plan, a non-qualified stock option to
acquire 1,113,293
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<PAGE>
shares of Common Stock (the "Snyder Option") at a per share purchase price
equal to $12.81. Such option has a term of ten years from the date of grant and
will become exercisable three years and four months following the date of
grant, subject to acceleration under certain circumstances described in the
Snyder Employment Agreement. In addition, under the interim employment
agreement (the "Interim Employment Agreement"), dated January 31, 1996, between
Mr. Snyder and the Company, the Company issued to Mr. Snyder, on such date,
599,465 shares of Common Stock (the "Snyder Incentive Stock") at a per share
purchase price of $8.00. Mr. Snyder paid for such shares by executing and
delivering to the Company a ten-year nonrecourse note due on January 31, 2006,
in the amount of the purchase price (subject to prepayment in part out of net
proceeds of the sale of any such shares prior to maturity of such note) and
secured by a pledge of such shares. Pursuant to the Snyder Employment
Agreement, in the event that the Company issued additional equity up to an
aggregate of $50 million (other than as a result of exercises of options or
convertible securities) in connection with an agreement entered into within
twelve months after May 8, 1996, the Company was required to adjust the number
of shares issuable upon exercise of the Snyder Option and issue additional
shares of Snyder Incentive Stock such that the percentage of the outstanding
Common Stock (on a fully diluted basis) represented by the Snyder Option and
the percentage of the outstanding Common Stock (on a fully diluted basis)
represented by the Snyder Incentive Stock would be the same percentage as
immediately before such issuance of additional equity. Upon consummation of the
offering of the 8 3/4% Convertible Trust Originated Preferred Securities SM,
the Broadway Video Acquisition and the Hallmark Transaction, pursuant to the
anti-dilution provisions of the Snyder Employment Agreement, Mr. Snyder
received (i) options to purchase an additional 157,796 shares of Common Stock
on the same terms as the Snyder Option and (ii) an additional 84,967 shares of
Common Stock on the same terms as the Snyder Incentive Stock.
Robert T. Asahina
On May 8, 1996, the Company entered into a three-year employment
agreement with Robert T. Asahina pursuant to which Mr. Asahina serves as
President of the Company's Adult Publishing Group. Under his employment
agreement, Mr. Asahina is entitled to receive an annual base salary of $200,000
for the first year of the term, subject to increase thereafter. In addition,
Mr. Asahina is eligible to receive an annual bonus pursuant to the Bonus Plan
of up to 200% of his annual base salary, subject to the attainment of certain
performance goals. In the event the Company terminates Mr. Asahina's employment
for any reason other than cause or Mr. Asahina terminates his employment for
good reason, the Company will be required to pay to him, in addition to accrued
obligations, his then-current annual base salary for 18 months (to be offset by
any other compensation earned over such period) and 150% of his Target Bonus
(as defined in Mr. Asahina's employment agreement). In addition, Mr. Asahina
will be entitled to exercise any options that he holds that are exercisable at
the date of such termination for a period of 90 days from such termination.
Pursuant to his employment agreement with the Company, on May 8, 1996, Mr.
Asahina was granted an option to acquire 100,000 shares of Common Stock at a
per share purchase price equal to $12.81. The option has a term of seven years
from the date of grant and will become exercisable in three equal parts on the
three consecutive anniversaries of the date of grant, subject to acceleration
under certain circumstances described in his employment agreement.
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<PAGE>
Eric Ellenbogan
On July 30, 1996, the Company entered into a five-year employment
agreement with Eric Ellenbogen, effective August 20, 1996, pursuant to which
Mr. Ellenbogen serves as President of the Company's Golden Books Entertainment
Group division, Executive Vice President of the Company and a member of the
Board of Directors. Under his employment agreement, Mr. Ellenbogen is entitled
to receive an annual base salary of $750,000 for the first year of the term,
$800,000 for the second year or the term, $900,000 for each of the third and
fourth years of the term and $1 million for the fifth year of the term. In
addition, Mr. Ellenbogen is entitled to receive an annual bonus pursuant to the
Bonus Plan of up to 100% of his annual base salary, subject to the attainment
of certain performance goals (pro rated for years in which Mr. Ellenbogen is
employed for less than twelve months) and will receive a special payment of
$250,000 for the first year of the term and $200,000 for the second year of the
term. In the event the Company terminates Mr. Ellenbogen's employment for any
reason other than cause or Mr. Ellenbogen terminates his employment for good
reason, including a Change of Control (as defined in Mr. Ellenbogen's
employment agreement), the Company will be required to pay to him, in addition
to accrued obligations, up to his annual base salary for the greater of (i) the
number of years remaining under his employment agreement and (ii) two years. In
addition, any options that Mr. Ellenbogen holds shall become immediately
exercisable. In addition, pursuant to Mr. Ellenbogen's employment agreement,
one year prior to the expiration of such employment agreement, the Company and
Mr. Ellenbogen will enter into good-faith negotiations for a new employment
agreement. If the Company fails to offer Mr. Ellenbogen a new agreement with
terms no less favorable than as set forth in his current employment agreement,
or if such offer is subsequently revoked, the Company will pay to Mr.
Ellenbogen two times Mr. Ellenbogen's then-current annual base salary, to be
paid either (a) in a lump sum, if approved by the Board of Directors, 30 days
after the date of expiration of Mr. Ellenbogen's employment term or (b) as
salary continuation for a period of two years following the date of expiration
of Mr. Ellenbogen's employment term. Pursuant to his employment agreement with
the Company, on August 20, 1996, Mr. Ellenbogen was granted under the 1995
Stock Option Plan an option to acquire 500,000 shares of Common Stock at a per
share purchase price equal to the market value of the Common Stock on July 23,
1996. The option has a term of seven years from the date of grant and will
become exercisable in five equal parts on the five consecutive anniversaries of
the date of grant, subject to acceleration under certain circumstances
described in Mr. Ellenbogen's employment agreement. In addition, pursuant to
Mr. Ellenbogen's employment agreement, the Company will issue to Mr. Ellenbogen
under the 1995 Stock Option Plan additional shares of Common Stock in amounts
equal to not less than 25% of the future equity-based incentive compensation
awards, if any, granted under the 1995 Stock Option Plan by the Company to its
Chairman.
Willa M. Perlman
On May 28, 1996, the Company entered into a three-year employment
agreement with Willa M. Perlman pursuant to which Ms. Perlman serves as
President and Publisher of the Children's Publishing Group of Golden Books
Publishing. Under her employment agreement, as amended on December 9, 1996, Ms.
Perlman is entitled to receive an annual base salary of $350,000 for the first
year of the term and $400,000 for the balance of the term. In addition, Ms.
Perlman is eligible to receive an annual bonus pursuant to the Bonus Plan of up
to 200% of her annual base salary, subject to the attainment of certain
performance goals and subject to a guaranteed minimum bonus of $287,700 for the
first fiscal year during the term, $300,000 for the
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second fiscal year during the term and $112,300 for the third fiscal year
during the term. In the event the Company terminates Ms. Perlman's employment
for any reason other than cause or Ms. Perlman terminates her employment for
good reason, the Company will be required to pay to her, in addition to accrued
obligations, her then-current annual base salary for the remainder of the term
of her employment (to be offset by any new compensation earned over the balance
of that period by Ms. Perlman) and any unpaid guaranteed minimum bonus. In
addition, any options that Ms. Perlman holds will become immediately
exercisable. Pursuant to her employment agreement with the Company, on May 28,
1996, Ms. Perlman was granted under the 1995 Stock Option Plan an option to
acquire 75,000 shares of Common Stock at a per share purchase price equal to
$14.25. On July 1, 1996, Ms. Perlman was granted an option to purchase an
additional 25,000 of Common Stock at a per share purchase price of $12.125 per
share. Both options have a term of seven years from the date of grant and will
become exercisable in three equal parts on the three consecutive anniversaries
of the date of grant, subject to acceleration under certain circumstances
described in her employment agreement.
Philip E. Rowley
On July 1, 1996, the Company entered into a three-year employment
agreement with Philip E. Rowley pursuant to which Mr. Rowley serves as
Executive Vice President and Chief Financial Officer of the Company and Chief
Operating Officer of Golden Books Publishing. Under his employment agreement,
Mr. Rowley is entitled to receive an annual base salary of $500,000 for the
first year of the term, $625,000 for the second year of the term and $750,000
for the third year of the term. In addition, Mr. Rowley is eligible to receive
an annual bonus pursuant to the Bonus Plan of 100% of his annual base salary
(pro rated for years in which Mr. Rowley is employed for less than twelve
months), subject to the attainment of certain goals and subject to a guaranteed
minimum bonus of $250,000 for the first year of the term and $125,000 for the
second year of the term. In the event the Company terminates Mr. Rowley's
employment for any reason other than cause or Mr. Rowley terminates his
employment for good reason, including a Change of Control (as defined in his
employment agreement), the Company will be required to pay to him, in addition
to accrued obligations, two times his annual base salary, to be paid either (i)
in a lump sum, if approved by the Compensation Committee of the Board of
Directors, 30 days after the date of such termination or (ii) as salary
continuation for a period of two years following the date of such termination.
In addition, any options that Mr. Rowley holds shall become immediately
exercisable. Pursuant to his employment agreement with the Company, on July 1,
1996, Mr. Rowley was granted under the 1995 Stock Option Plan an option to
acquire 300,000 shares of Common Stock at a per share purchase price equal to
$12.125. The option has a term of seven years from the date of grant and will
become exercisable in three equal parts on the three consecutive anniversaries
of the date of grant, subject to acceleration under certain circumstances
described in his employment agreement. In addition, pursuant to Mr. Rowley's
employment agreement, the Company will grant to Mr. Rowley under the 1995 Stock
Option Plan additional options to purchase shares of Common Stock in amounts
equal to not less than 25% of the future stock entitlements, if any, granted
under the 1995 Stock Option Plan by the Company to its Chairman.
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COMPENSATION OF DIRECTORS
Each non-employee director of the Company is entitled to receive under
the 1995 Stock Option Plan on the date that such person first becomes a
non-employee director, a non-qualified option to purchase 5,000 shares of
Common Stock and, on the date of each subsequent annual meeting of the
stockholders of the Company, an option to purchase 3,000 shares of Common
Stock, in each case at an exercise price per share equal to the fair market
value of the Common Stock on the date of grant. Such options will be fully
exercisable on the date of grant and will have a term of ten years. Employee
directors receive no additional cash or stock compensation for service on the
Board of Directors or its committees.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1996, no executive officer of the Company served as a
director of 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
Compensation Committee of the Board of Directors of the Company is an executive
officer.
From May 8, 1996 through December 28, 1996, the end of the last fiscal
year of the Company, Messrs. Diller, Michaels, Thompson and Vogelstein served
as members of the Compensation Committee of the Board of Directors. Mr. Diller
controls Arrow Holdings LLC, a member of GPH. Mr. Vogelstein is a partner of
Warburg, Pincus Ventures, a member of GPH. Mr. Michaels indirectly owns a
controlling interest in BVELP. See "Certain Transactions" above for a
discussion of the Company's transactions with GPH and BVELP during fiscal 1996.
Prior to May 8, 1996, the members of the Compensation Committee were
Mr. Richard H. Hochman, Ms. Jenny Morgenthau and Mr. Michael A. Pietrangelo.
Mr. Pietrangelo served as President and Chief Operating Officer of the Company
from July 1989 through April 1990. That Compensation Committee did not meet
in fiscal 1996.
REPORT OF THE
COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
ON EXECUTIVE COMPENSATION
The current Compensation Committee consists entirely of independent
outside directors. The Compensation Committee is responsible for establishing
the compensation philosophy of the Company, determining the policies associated
with stock option programs and management incentive plans, approving the
compensation package for the Chief Executive Officer (the "CEO") and approving
all stock option awards.
The Compensation Committee met once during the last fiscal year. Prior
to that meeting, compensation-related decisions were limited to approving
various employment agreements and were made by the entire Board.
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1996 COMPENSATION PROGRAMS
Executive compensation programs in 1996 consisted of three elements.
Base salaries were established in accordance with prevailing salary rates in
the publishing and entertainment industries for comparable positions. Annual
incentive opportunities were expressed as a percentage of base salary. Actual
bonus amounts (with the exception of that of the CEO) were determined either
contractually or were based upon the recommendation of the CEO, based on his
evaluation of the individual's performance. Stock option awards were made in
connection with the recruitment of a new executive. Stock options granted in
1996 generally have an exercise price equal to fair market value on the date of
grant, seven-year terms and vest as to one-third of the shares encompassed in
such grant on the first anniversary of such grant as to an additional one-third
of such shares on the second anniversary of such grant and as to the remaining
balance on the third anniversary of such grant.
In late 1996, the Compensation Committee authorized the commission of a
consulting study of the Company's executive compensation programs. In early
1997, the Compensation Committee selected an independent, nationally recognized
consulting firm to conduct the study and report to the Compensation Committee
on both the competitive positioning of the existing programs and its
recommendations for any changes.
CEO COMPENSATION DECISIONS
As provided by his employment agreement, the CEO's 1996 base salary was
established at the rate of $500,000 per year. The CEO's employment agreement
was negotiated as part of the GPH Transaction and the Compensation Committee
believes that this salary rate is below comparable companies, particularly
given the CEO's industry experience, prevailing practice in the publishing and
entertainment industries and the magnitude of the task of reversing the
Company's performance over recent years.
Also as provided in his employment agreement, the CEO was eligible for
a target bonus of 100% of his base salary, subject to increase to a maximum of
200% of base salary based on performance. In early 1997, the Compensation
Committee approved a 1996 bonus for the CEO of $500,000. In approving this
bonus, the Compensation Committee took special notice of the CEO's many
outstanding achievements during his first full year of employment by the
Company, including the recruitment of an outstanding new senior management
team, the raising of $115 million through a convertible preferred securities
offering, the acquisition of BVELP's assets and subsequent establishment of the
Company's Entertainment Group, the establishment of the Company's Adult
Publishing Group, completion of Hallmark's equity investment in the Company,
the successful negotiation of amended collective bargaining agreements,
planning of the new manufacturing facility to be built in 1997, preparing to
consolidate New York operations into one facility in 1997, improvements in
trade relations, successful negotiation of new licensing agreements and
building an exciting new editorial and creative capability resulting in
improvements in the Children's Publishing Group's product line.
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As provided in his employment agreement, on May 8, 1996, the CEO was
granted an option to purchase 1,113,293 shares of Common Stock with an exercise
price of $12.81, which was fair market value on the date of grant. On August
20, the CEO was granted an additional option to purchase 157,796 shares of
Common Stock with an exercise price of $12.81, pursuant to the anti-dilution
provisions of the CEO's employment agreement with the Company.
TAX CONSIDERATIONS
Section 162(m) of the Code generally denies a tax deduction to any
publicly held corporation for compensation that exceeds $1,000,000 paid to any
Named Executive in a taxable year, subject to an exception for
"performance-based compensation". The Compensation Committee believes that the
deductions for compensation paid to the Named Executives in fiscal 1996 will
not be limited by Section 162(m) of the Code.
FIVE YEAR PERFORMANCE COMPARISON
STOCK PRICE PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total
stockholder return on the Company's Common Stock against the cumulative total
return of S & P 500 Companies and an index of Peer Group companies selected by
the Company for the five-year period ended December 28, 1996.
<TABLE>
[GRAPH]
<CAPTION>
1991 1992 1993 1994 1995 1996
- -------------- ------------- ------------ ------------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
GBFE $100 $140 $129 $64 $53 $75
S & P 500 100 114 133 131 185 172
Peer Group 100 105 113 111 147 180
</TABLE>
The Peer Group is comprised of other publishing and related companies
of comparable size, complexity and quality as selected by the Company with the
assistance of an outside consultant. The Peer Group consists of the following
companies: American Greetings Corporation, Artistic Greetings Inc., Banta
Corp., Courier Corporation, Daily Journal Corp. S.C., Gibson Greetings Inc.,
Intervisual Books Inc., John Wiley and Sons Inc., Pharmaceuticals Marketing
Services, Plenum Publishing Corporation, Pulitzer Publishing Co., Scholastic
Corporation, Thomas Nelson Inc., Topps Company Inc. and Waverly Incorporated.
The following companies, which have previously been included in the Company's
Peer Group, are not included because the common stock trading prices for such
companies are unavailable: American City Business Journals Inc., Commerce
Clearing House, Inc., Multimedia Incorporated, Price Stern Sloan Inc. and
United Newspapers Public Ltd. Co. ADR.
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The calculation assumes that $100 was invested at the close of business
at December 28, 1991 in the Company's Common Stock, the S & P 500 Index and the
selected Peer Group. The total return calculated assumes the reinvestment of
dividends. The Company does not pay a dividend on its Common Stock.
AMENDMENT TO 1995 STOCK OPTION PLAN
(PROPOSAL 2)
On July 19, 1995, the Board of Directors adopted, subject to
stockholder approval, the 1995 Stock Option Plan to serve as a replacement for
the 1986 Employee Stock Option Plan. Stockholders approved the adoption of the
1995 Stock Option Plan at the 1995 Annual Meeting of Stockholders of the
Company and subsequently approved certain amendments to the 1995 Stock Option
Plan on May 8, 1996 at a Special Meeting of Stockholders.
On March 11, 1997, the Board of Directors adopted, subject to
stockholder approval, an amendment to the 1995 Stock Option Plan to increase
the number of shares of Common Stock available for the grant of options by
3,500,000 shares from 2,250,000 to 5,750,000 shares. As of August 20, 1996, the
date of the most recent grant of an option under the 1995 Stock Option Plan,
options to purchase 2,171,089 shares of Common Stock had already been granted
thereunder. In the event that the Compensation Committee so approves and the
Company's key executives so elect under the Bonus Plan, the Company expects to
issue, pursuant to the Bonus Plan (included as Exhibit A hereto), under the
1995 Stock Option Plan, options to purchase up to 1,800,000 shares of Common
Stock in exchange for awards under the Bonus Plan. In addition, following
adoption of the amendment to the 1995 Stock Option Plan, the Company intends to
amend certain stock options that were granted to key employees other than
pursuant to the 1995 Stock Option Plan to provide that such options are granted
pursuant to the 1995 Stock Option Plan, and thus conform to the requirements of
the 1995 Stock Option Plan. As of March 14, 1997, such options represented, in
the aggregate, the right to purchase 682,500 shares of Common Stock.
DESCRIPTION OF THE 1995 STOCK OPTION PLAN
The 1995 Stock Option Plan currently provides for the issuance of
options to purchase up to an aggregate of 2,250,000 shares of Common Stock. The
1995 Stock Option Plan provides for the granting of options intended to qualify
as incentive stock options as defined in Section 422 of the Code to key
employees of the Company or its subsidiaries, including officers and directors
of the Company or its subsidiaries who are also employees, and of non-qualified
stock options to such key employees and to non-employee directors and
consultants who perform services for the Company or its subsidiaries. The 1995
Stock Option Plan is administered by the Compensation Committee. No person may
receive in any one calendar year options to purchase more than 1,500,000 shares
of Common Stock.
The exercise price of incentive stock options granted under the 1995
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 1995 Stock Option Plan may not
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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 Compensation Committee, by delivering to the Company shares of Common
Stock that have a fair market value equal to the option price or by delivering
to the Company a combination of cash and shares of Common Stock. Shares of
Common Stock may not be issued or transferred upon the exercise of an option
until the option price is paid in full.
Options become exercisable over such period, and subject to such terms
and conditions, as the Compensation 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
Compensation Committee may accelerate the exercisability of any outstanding
stock options at any time. Options are not assignable or otherwise transferable
other than by will or the laws of descent and distribution, except that the
Compensation Committee may permit transfers by an optionee to his family
members. Shares subject to options granted under the 1995 Stock Option Plan
that have lapsed or terminated may again be subject to options granted under
the 1995 Stock Option Plan. Furthermore, the Compensation Committee may offer
to exchange new options for existing options with the shares subject to the
existing options again being available for grant under new options.
The Board of Directors may amend or terminate the 1995 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 income 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 received and the exercise price. Such optionee's basis in any
shares acquired upon such exercise will equal their fair market value on the
exercise date. A subsequent sale of shares will result in a capital gain or
loss equal to the difference between the amount realized and such basis. 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, 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.
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 gain as described above, the Company will not be
entitled to any tax 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.
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The Company believes that compensation attributable to options granted
under the 1995 Stock Option Plan at a price at least equal to the fair market
value of the underlying option shares at the date of grant should 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.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE
APPROVAL OF THE ADOPTION OF THE AMENDMENT TO
THE 1995 STOCK OPTION PLAN
AMENDMENT AND RESTATEMENT
OF THE BONUS PLAN
(PROPOSAL 3)
On January 31, 1996, the Board of Directors adopted, subject to
stockholder approval, the Company's Bonus Plan. The stockholders of the Company
approved the adoption of the Bonus Plan on May 8, 1996 at a Special Meeting of
Stockholders. On March 11, 1997, the Board of Directors adopted, subject to
stockholder approval, an amendment and restatement of the Bonus Plan, effective
as of January 1, 1997, and with a term of six years, unless extended by the
Board of Directors and such extension is approved by the stockholders. The
Bonus Plan, as amended and restated, (i) expands the Compensation
Committee's possible methods of calculating performance goals under the Bonus
Plan and (ii) allows bonus payments awarded under the Bonus Plan to be
exchanged by participants in the Bonus Plan for options, granted under and
subject to the 1995 Stock Option Plan, to purchase shares of Common Stock.
DESCRIPTION OF BONUS PLAN
The text of the Bonus Plan, as amended and restated, is set forth in
Exhibit A to this Proxy Statement. The following is intended to be a summary of
the terms of the Bonus Plan and does not purport to be a complete statement of
the Bonus Plan's terms. The following is subject to and qualified in its
entirety by reference to Exhibit A.
The purpose of the Bonus Plan is to (i) motivate and reward key
executives for good performance and (ii) enable the Company to attract and
retain executives of the highest caliber and ability. The Company's
compensation policy is that employee compensation should vary with Company
performance. Thus, a large part of each executive's total cash compensation is
tied to performance of the Company by way of the Bonus Plan.
Individuals eligible for the Bonus Plan include those key employees of
the Company who, by virtue of their position, have a demonstrable impact on
either the profitability of a major business unit of the Company or upon the
overall profitability of the Company. The Bonus Plan is administered by the
Compensation Committee, which selects participants in the Bonus Plan based on
recommendations of management. The Compensation Committee determines, at or
near the start of the applicable year, the amount of the payment (the "Target
Award") to be made
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to each participant if the applicable performance objectives (the "Performance
Objectives") established by the Compensation Committee with respect to the
participant for the applicable year are achieved. The Compensation Committee
determines the Target Award, the related award schedule and the Performance
Objectives for Named Executives within 90 days of the beginning of the
applicable year. The maximum amount payable to any Named Executive under the
Bonus Plan is $2,000,000 in any single year.
Performance Objectives may consist of financial objectives, individual
objectives or a combination of both. However, for Named Executives, Performance
Objectives may consist only of financial objectives. Financial objectives for
any given year may be expressed in terms of one or more of the following
performance measures established by the Compensation Committee: earnings per
share; net income; net operating income; pre-tax profit; revenue growth; return
on sales; return on profit; return on equity; return on assets; return on
investment; total return to shareholders; and cash flow. Financial objectives
may be established on a corporate-wide basis or established with respect to one
or more operating units, divisions, acquired businesses, minority investments,
partnerships or joint ventures. Individual objectives, if applicable, may be
expressed in terms of significant qualitative or quantitative individual goals
to be achieved during the applicable year.
To the extent permitted by the Compensation Committee, in its sole
discretion, participants in the Bonus Plan may elect to exchange payments under
the Bonus Plan for an option issued under the 1995 Stock Option Plan. For
fiscal 1997 only, options issued pursuant to the Bonus Plan shall have a value
(determined pursuant to the Black-Scholes method) equal to twice the amount of
the Target Award. The option will be subject to such vesting requirements as
the Compensation Committee may require pursuant to the terms of the 1995 Stock
Option Plan.
As soon as practicable following the end of each fiscal year,
management shall determine each participant's level of achievement of his or
her applicable Performance Objectives and the amount of the award payment. In
the event that management determines that one or more (but not necessarily all)
of a participant's objectives have been clearly and demonstrably exceeded, the
participant, unless a Named Executive, may be paid an amount in excess of the
portion of the award related to such objectives. The award payments for all
participants, including Named Executives, are subject to review and approval by
the Compensation Committee.
If a participant's employment with the Company is terminated by reason
of death, Disability or Retirement (in each case, as defined in the Bonus
Plan), the participant will receive a pro rata award payment based on the
portion of the applicable year the participant was employed by the Company in
an eligible position while the Target Award was outstanding and the degree to
which the applicable Performance Objectives were achieved. A participant whose
employment with the Company terminates for any other reason will not receive
any award payments for the applicable year.
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FEDERAL TAX CONSEQUENCES TO PARTICIPANTS
Cash awards granted to participants pursuant to the Bonus Plan will
generally be treated as ordinary income. Any participant who elects to exchange
an award under the Bonus Plan for an option will recognize ordinary income, at
the time the participant exercises such option, in the amount equal to the
difference between the fair market value of the shares received and the
exercise price, as described above in Proposal 2.
FEDERAL INCOME TAX CONSEQUENCES TO THE COMPANY
The Company believes that awards granted under the Bonus Plan should 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. In the case of awards made in the
form of options, the Company will generally be entitled to a deduction at the
same time and in the same amount as the participant recognizes ordinary income,
as described above.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF
THE AMENDMENT AND RESTATEMENT OF THE BONUS PLAN
APPROVAL AND RATIFICATION OF INDEPENDENT AUDITORS
(PROPOSAL 4)
The Board of Directors of the Company has appointed Ernst & Young as
the Company's independent auditors for the fiscal year ending December 27,
1997. Ernst & Young was engaged as the Company's independent auditors by
management on June 20, 1996 to replace Deloitte & Touche LLP ("Deloitte &
Touche") as the independent auditors for the Company. The Deloitte & Touche
reports on the Company's consolidated financial statements for the fiscal years
ended January 28, 1995 and February 3, 1996 did not contain an adverse opinion
or disclaimer of opinion and were not qualified or modified as to uncertainty,
audit scope or accounting principles. Since January 30, 1994, the Company has
not had any disagreements with Deloitte & Touche on any matter of accounting
principles or practices, financial statement disclosure or auditing scope or
procedures which, if not resolved to the satisfaction of Deloitte & Touche,
would have caused Deloitte & Touche to make a reference to the subject matter
of the disagreements in connection with its report.
Representatives of Ernst & Young will be present at the Annual Meeting
to respond to appropriate questions and to make such statements as they may
desire.
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR THE APPROVAL AND RATIFICATION OF THE APPOINTMENT
OF ERNST & YOUNG AS THE COMPANY'S INDEPENDENT
AUDITORS FOR THE FISCAL YEAR ENDING DECEMBER 27, 1997
OTHER BUSINESS
As of the date of this Proxy Statement, the Company knows of no
business that will be presented for consideration at the Annual Meeting other
than that which has been referred to above. As to other business, if any, that
may come before the Annual Meeting, it is intended that proxies in the enclosed
form will be voted in accordance with the judgment of the proxy holder.
STOCKHOLDER PROPOSALS
Any proposal of a stockholder intended to be presented at the Company's
1998 Annual Meeting of Stockholders must be received by the Secretary of the
Company by December 1, 1997 for inclusion in the notice of meeting and proxy
statement relating to the 1998 Annual Meeting.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), requires the Company's directors, officers and persons who
beneficially 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 Securities and Exchange
Commission (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 fiscal
1996, except that one report on behalf of Willa M. Perlman covering one
option grant was not filed on a timely basis.
AVAILABLE INFORMATION
Financial statements of the Company, the Company's certified public
accountants' report thereon and management's discussion and analysis of the
Company's financial condition and results of operations are contained in the
Company's 1996 Annual Report to Stockholders (the "Annual Report"), a copy of
which has been sent to each stockholder of record along with a copy of this
Proxy Statement. The Annual Report is not to be regarded as proxy soliciting
material or a communication by means of which any solicitation is to be made.
Any exhibit to the Company's Form 10-K for the fiscal year ended
December 28, 1996 is available without charge upon request to any holder
of shares of Common Stock at the close of business on March 14, 1997.
Requests for such documents should be directed to Golden Books Family
Entertainment, Inc., 850 Third Avenue, New York, New York 10022,
Attention: Philip Galanes, telephone number (212) 583-6700.
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, NW, Washington, D.C. 20549, and at the regional offices of the SEC at
Seven World Trade Center, New York, New York 10048, and Northwest Atrium
Center, 500 West Madison Street, Chicago, Illinois 60621. Copies of such
material can be obtained from the Public Reference Section of the SEC at
prescribed rates by writing to the SEC at 450 Fifth
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Street, NW, Washington, D.C. 20549. Such materials can also be inspected at the
offices of the National Association of Securities Dealers, Inc., at 33
Whitehall Street, 10th Floor, New York, New York 10004. Additionally, the
Company files such reports, proxy statements and other information with the SEC
pursuant to the SEC's EDGAR system. The SEC maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC pursuant to the EDGAR system.
The address of the SEC's web site is http://www.sec.gov.
By Order of the Board of Directors
Philip Galanes
Secretary
April 1, 1997
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EXHIBIT A
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
EXECUTIVE OFFICER BONUS PLAN
(AMENDED AND RESTATED AS OF MARCH 11, 1997)
This Plan amends and restates in its entirety the plan previously known as the
Western Publishing Group, Inc. Executive Officer Bonus Plan.
Section 1. PURPOSE
The Executive Officer Bonus Plan is intended to increase the profitability of
Golden Books Family Entertainment, Inc. and its subsidiaries by providing the
opportunity for key executives to earn incentive payments based upon individual
achievement and Corporation performance. It is the purpose of the Plan to
motivate key executives to the attainment of demanding goals by providing
recognition and rewards in the form of incentive awards. The Plan has the
further purpose of fulfilling the Corporation's objective of offering a fully
competitive total compensation package to its key employees, thus enabling the
Corporation to attract and retain executives of the highest caliber and
ability.
Section 2. DEFINITIONS
The following terms used in the Plan are defined as follows:
Award Year--the fiscal year of the Corporation during which Performance
Objectives must be achieved by the Participant.
Board of Directors--the Corporation's Board of Directors.
CEO--the Chief Executive Officer of the Corporation.
Code--the Internal Revenue Code of 1986, as amended.
Committee--the Compensation Committee, or a special subcommittee thereof, of
the Board of Directors. The Committee shall be composed solely of two or more
"outside directors" as defined in the regulations under Section 162(m) of the
Code.
Corporation--Golden Books Family Entertainment, Inc. and its subsidiaries.
Covered Employee--a key executive as contemplated by the regulations under
Section 162(m) of the Code.
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Disability--means eligibility for disability benefits under the terms of the
Corporation's Long-Term Disability Plan in effect at the time the Participant
becomes disabled.
Management--the CEO and such other member of the Corporation management as the
CEO may from time to time designate to take action with respect to the Plan.
Option--an option, granted under and subject to the Stock Option Plan, to
purchase shares of common stock, par value $.01 per share, of the Corporation.
Participant--a key executive of the Corporation whose decisions and actions
significantly affect the Corporation's growth and profitability and who
receives an award opportunity under the Plan as determined by the Committee.
Performance Objectives--significant financial or individual objectives to be
achieved by the Participant during the Award Year and upon which the percentage
or payment of the Target Award shall be based.
Plan--the Corporation's Executive Officer Bonus Plan.
Retirement--means termination of employment with the Corporation on or after
age 65.
Stock Option Plan--the Corporation's 1995 Stock Option Plan, as amended from
time to time.
Target Award--the payment that shall be made to the Participant if the
Participant's Performance Objectives are achieved during the applicable Award
Year, provided, however, that, to the extent and in the manner permitted by the
Committee in its sole discretion, the Participant may elect to receive all or a
portion of such payment in the form of an Option.
Section 3. EFFECTIVE DATE
Subject to compliance with all applicable legal requirements, the Plan, as
amended and restated, shall be effective as of January 1, 1997, subject to the
approval by shareholders of the Corporation at the 1997 Annual Meeting. The
1997 calendar year shall be the first Award Year of the Plan. No future awards
shall be granted subsequent to the 2002 Award Year unless the Plan is extended
by the Board of Directors and such extension is approved by the shareholders.
Section 4. ADMINISTRATION
The Committee shall be responsible for the implementation and administration of
the Plan. No Committee member shall be eligible for a Target Award under the
Plan while serving as a Committee member. The Committee's functions shall
include, but not be limited to: (i) interpretation of the Plan (which
interpretation shall be final and binding, unless otherwise determined by the
Board of Directors) and establishment of the rules and regulations governing
Plan administration; (ii) selection of Participants; (iii) determination of
Target Awards; (iv) approval of Performance Objectives; (v) determination of
the degree of the attainment of the Performance Objectives; and (vi)
determination of the size of individual awards and payments to
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Participants. In reaching its decisions, the Committee shall consider
recommendations made by Management. The Committee may, in discharging its
responsibilities under the Plan, delegate such duties to officers or other
employees of the Corporation as it deems appropriate, with the exception of
decisions which affect the Covered Employees. In addition, the Committee is
authorized to use the services of the Corporation's accounting department
and/or independent auditors to determine the level of achievement of
Performance Objectives, subject to the certification of the Committee with
respect to the achievement of the Performance Objectives for the Covered
Employees.
Section 5. ELIGIBILITY
The Committee shall select Participants based on recommendations of Management.
Selection as a Participant shall be limited to those key employees of the
Corporation who, by virtue of their positions, have a demonstrable impact on
either the profitability of a major business unit of the Corporation, or upon
the overall profitability of the Corporation. No Committee member shall be
eligible to be a Participant while serving as a Committee member, but a
director of the Corporation who is also a full-time employee, but not a member
of the Committee, shall be eligible to be a Participant. No Participant or
employee of the Corporation shall have any right to be awarded any Target Award
of actual payment under the Plan.
Section 6. TARGET AWARD
The amount of the Target Award for each Participant shall be determined by the
Committee at or near the start of the applicable Award Year based upon
Management's recommendation. For Covered Employees, the Target Award, the
related award schedule and the Performance Objective(s) shall be established
within 90 days of the beginning of the Award Year. Notwithstanding the
foregoing, to the extent and in the manner permitted by the Committee in its
sole discretion, the Target Award may be exchanged for an Option. For the 1997
Award Year only, options issued pursuant to the Plan shall have a value
(determined pursuant to the Black-Scholes method) equal to twice the amount of
the Target Award elected to be exchanged by the Participant, which option shall
be subject to such vesting requirements as the Committee may require pursuant
to the terms of the Stock Option Plan.
Section 7. PERFORMANCE OBJECTIVES
Performance Objectives for each Participant shall be established as provided in
this section at demanding levels so that their achievement reflects commendable
performance by the Participant. The Performance Objectives may consist of
Financial Objectives, Individual Objectives or a combination of Financial and
Individual Objectives. With respect to Covered Employees, the Performance
Objectives shall consist of Financial Objectives only. Financial and Individual
Objectives are defined as follows:
(i) Financial Objectives--Financial Objectives shall be expressed in
terms of one or more of the following performance measures
established by the Committee for each year: earnings per share,
net income, net operating income, pre-tax profit, revenue
growth, return on sales, return on profit, return on equity,
return on assets, return on investment, total return to
shareholders, and cash flow, each of which
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may be established on a corporate-wide basis or established with
respect to one or more operating units, divisions, acquired
businesses, minority investments, partnerships or joint
ventures. At the same time, a "range" of achievement for
financial objectives ranging from "zero" to "target" (100% of
Target Award relating to Financial Objectives) to "maximum"
(200% of Target Award relating to Financial Objectives) shall be
established. The Committee shall have the authority to alter or
adjust Financial Objectives during the course of an Award Year,
or to alter or adjust the financial results otherwise reported
or achieved by the Corporation during such Award Year, if it is
deemed appropriate to do so, except with respect to the Covered
Employees who are subject to the terms of the last sentence of
Section 9(ii).
(ii) Individual Objectives--Individual Objectives, if appropriate for
a Participant, shall be expressed in terms of significant
qualitative or quantitative individual goals to be achieved
during the Award Year. Individual Objectives usually shall be
established jointly by the Participant and the Participant's
immediate superior, subject to approval by the CEO, or his
delegate. Individual Objectives for all Participants shall be
reviewed by the Committee for consistency with overall Corporate
goals and individual equity. A Participant's Individual
Objectives may be altered or amended during an Award Year, if
necessary, to properly reflect changed business conditions and
priorities, subject to approval by the CEO or his delegate.
Section 8. NOTICE OF AWARD
Except as may otherwise be determined by the Committee, a Participant shall be
notified in writing as soon as practicable after the start of the Award Year of
the amount of the Participant's Target Award and the applicable Performance
Objectives.
Section 9. AWARD DETERMINATION
As soon as practicable following the completion of each Award Year, the level
of achievement of Performance Objectives for each Participant and the amount of
the Award payment shall be determined by Management and, with respect to
Covered Employees, approved by the Committee. The Award payments for all
Participants, including the Covered Employees, are subject to review and
approval by the Committee. The level of achievement of the Performance
Objectives shall be determined in the following manner:
(i) Financial Objectives--For performance at or below the "zero"
level of achievement, there shall be no payment. Performance
between the "zero" level of achievement and the "target" level
shall result in a payment in accordance with the established
range of achievement payment schedule. Performance between the
"target" and the "maximum" level of achievement shall result in
a payment in accordance with the established range of
achievement payment schedule.
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(ii) Adjustments in Financial Calculations--Except as provided below
with respect to Covered Employees, the Committee in its sole
discretion has the authority to effect adjustments from time to
time in connection with determining the degree of achievement of
the Financial Objectives for the Corporation or a business unit
of the Corporation for the applicable year in question, and to
make any other determinations, as it deems equitable, fair or
advisable for the purpose of ascertaining the amount of any
payments under this Plan. With respect to Covered Employees, the
Committee shall have no discretion to increase, but may
decrease, the amount of an award payable based upon the range of
achievement of the Financial Objectives established under
Sections 6 and 7 hereof.
(iii) Individual Objectives--The attainment of Individual
Objectives shall be determined by the Participant's superior,
subject to review by Management and by the Committee for
consistent and equitable evaluations and judgments.
(iv) Actual Awards--The sum of the award based on achievement
of Financial Objectives and, if applicable, Individual
Objectives.
(v) Maximum Awards--Where one or more objectives (but not
necessarily all) have been clearly and demonstrably exceeded, a
Participant (other than a Covered Employee) may be paid an
amount in excess of the portion of the award related to such
objectives. The maximum award payable to any Covered Employee
for any Plan year is $2,000,000.
Section 10. PAYMENT OF AWARDS
Award payments shall be made, less required tax and applicable benefits
withholdings, as soon as practicable after the determination and the final
approval of such payments as provided in Section 9; provided, however, that no
payments shall be made to the extent that Awards have been exchanged for an
Option as provided in Section 6.
Section 11. TERMINATION OF EMPLOYMENT
Upon the termination during an Award Year of a Participant's employment by the
Corporation by reason of death, Disability or Retirement, the Participant (or
the Participant's designated beneficiary or estate in the absence of a
surviving designated beneficiary) shall receive a pro rata Award payment based
on the portion of the Award Year the Participant was employed by the
Corporation in an eligible position while the Target Award was outstanding and
the degree to which during such Award Year the Performance Objectives were
achieved. A Participant whose employment with the Corporation terminates during
an Award Year for any other reason shall not be eligible for any payment of an
Award for such Award Year. Neither the Plan nor any action taken hereunder
shall be construed as giving any Participant any right to be retained in the
employ of the Corporation.
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Section 12. AMENDMENT, SUSPENSION OR TERMINATION OF PLAN
The Board of Directors may at any time based upon a recommendation by the
Committee, amend, suspend, or terminate the Plan, except that, without approval
of the shareholders, the Board of Directors may not change (i) the performance
measures in Section 7(i) with respect to Covered Employees, (ii) the
individuals or class of individuals eligible to participate in the Plan or
(iii) the maximum amount payable to a Covered Employee under the Plan.
Section 13. NON-ASSIGNMENT OF RIGHTS
A Participant's Target Award may not be assigned or transferred, and is not
subject to attachment, garnishment, execution or other creditor's processes. In
the event of a Participant's death, the payment of the Award as provided in the
Plan, if any, shall be made to the Participant's designated beneficiary, or
estate in the absence of a surviving beneficiary.
Section 14. COSTS OF PLAN
The expenses incurred in administering the Plan, including any Committee fees,
charges by the Corporation's independent auditors or other costs, shall be
borne by the Corporation.
Section 15. CHANGE OF CONTROL
In the event of a Change of Control of the Corporation, then immediately after
such event becomes effective (the "Effective Date"), the Corporation shall pay
to each Participant the pro rata amount of said participant's Target Award for
said Award Year, determined solely by the ratio which the number of calendar
quarters during which the award had been outstanding (including the calendar
quarter in which the Change of Control occurred) bears to four (4).
For purposes of this Plan, the term "Change of Control" shall mean any of the
following events:
(i) The acquisition (other than from the Corporation) by any person,
entity or "group," within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange
Act"), (excluding, for this purpose, the Corporation, its
subsidiaries or any employee benefit plan of the Corporation) of
beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 20% or more of either the
then outstanding shares of common stock or the combined voting
power of the Corporation's then outstanding voting securities
entitled to vote generally in the election of directors; or
(ii) Individuals who, as of the date hereof, constitute the Board (as
of the date hereof, the "Incumbent Board") cease for any reason
to constitute at least a majority of the Board, provided that
any person becoming a director subsequent to the date hereof
whose election, or nomination for election by the Corporation's
shareholders, was approved by a vote of at least a majority of
the directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial assumption
of office is in connection with an actual or threatened election
contest relating to the election of the Directors of the
Corporation, as such terms are used in Rule 14a-11 of Regulation
14A
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promulgated under the Exchange Act) shall be, for purposes of
this Plan, considered as though such person were a member of the
Incumbent Board; or
Approval by the stockholders of the Corporation of a reorganization,
merger or consolidation, in each case, with respect to which persons who were
the stockholders of the Corporation immediately prior to such reorganization,
merger or consolidation do not, immediately thereafter, own, directly or
indirectly, more than 50% of the combined voting power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities, or a liquidation or
dissolution of the Corporation or of the sale of all or substantially all of
the assets of the Corporation.
Section 17. GOVERNING LAW
The validity, construction, interpretation, administration and effect of the
Plan, and rights relating to the Plan and to Awards granted under the Plan,
shall be governed by the substantive laws, but not the choice of law rules, of
the State of Delaware.
