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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM T-3
FOR APPLICATIONS FOR QUALIFICATION OF INDENTURES UNDER THE
TRUST INDENTURE ACT OF 1939
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Golden Books Publishing Company, Inc.
(Name of applicant)
888 Seventh Avenue, 40th Floor, New York, NY 10106
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(Address of principal executive offices)
SECURITIES TO BE ISSUED UNDER THE INDENTURE TO BE QUALIFIED
TITLE OF CLASS AMOUNT
10% Senior Secured Notes due 2004 $87,000,000
Approximate date of issuance: July __, 1999
Name and address of agent for service: Philip Galanes
Golden Books Publishing
Company, Inc.
888 Seventh Avenue
40th Floor
New York, New York 10106
(212) 547-6400
With a copy to:
Alan B. Hyman, Esq.
Proskauer Rose LLP
1585 Broadway
New York, New York
10036-8299
(212) 969-3000
The applicant hereby amends this application for qualification on such
date or dates as may be necessary to delay its effectiveness until (i) the 20th
day after the filing of a further amendment which specifically states that it
shall supersede this amendment, or (ii) such date as the Commission, acting
pursuant to Section 307(c) of the Trust Indenture Act of 1939, as amended (the
"Act"), may determine upon the written request of the applicant.
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GENERAL
1. General information. Furnish the following as to the applicant:
(a) Form of organization:
A corporation.
(b) State or other sovereign power under the laws of which
organized:
Delaware
2. Securities Act exemption applicable. State briefly the facts
relied upon by the applicant as a basis for the claim that registration of the
indenture securities under the Securities Act of 1933 is not required.
Golden Books Publishing Company, Inc., a Delaware corporation (the
"Company"), proposes to issue, as part of the Amended Joint Plan of
Reorganization of Golden Books Family Entertainment, Inc. (the "Debtor") Golden
Books Home Video, Inc. and the Company, dated May 13, 1999 (as same may be
further modified, the "Plan of Reorganization"), its Senior Secured Notes due
2004 (the "Senior Notes"). Pursuant to the Plan of Reorganization, Old Senior
Notes ("Old Senior Notes") will be exchanged for the Senior Notes and common
stock of the Debtor. The Company has filed with the United States Bankruptcy
Court for the Southern District of New York (the "Bankruptcy Court") an Amended
Disclosure Statement (the "Disclosure Statement") to be distributed to holders
of claims against or stock interests in the Debtor for the purpose of soliciting
their votes for the acceptance or rejection of the Plan of Reorganization (Case
Nos. 99-10030 through 99-10032 (TLB), such cases having been administratively
consolidated into a single reorganization proceeding). At a hearing held on May
13, 1999, the Bankruptcy Court approved the Disclosure Statement. A hearing is
presently scheduled with the Bankruptcy Court to confirm the Plan of
Reorganization. A copy of the Disclosure Statement, with the Plan of
Reorganization annexed thereto as an exhibit, is attached hereto as Exhibit T3E.
The Senior Notes are to be issued under an indenture (the "Senior Note
Indenture") between the Company, the guarantors named therein and HSBC Bank USA,
a form of which is attached hereto as Exhibit T3C.
The Company believes that the issuance of the Senior Notes is exempt
from the registration requirements of the Securities Act of 1933 (the
"Securities Act") pursuant to Section 1145(a)(1) of the United States Bankruptcy
Code (the "Bankruptcy Code"). Generally, Section 1145(a)(1) of the Bankruptcy
Code exempts the issuance of securities from the registration requirements of
the Securities Act and equivalent state securities and "blue sky" laws if the
following conditions are satisfied: (i) the securities are issued by a debtor,
an affiliate participating in a joint plan of reorganization with the debtor, or
a successor of the debtor under a plan of reorganization, (ii) the recipients of
the securities hold a claim against, an interest in, or a claim for an
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administrative expense against, the debtor, and (iii) the securities are
issued entirely in exchange for the recipient's claim against or interest in the
debtor, or are issued "principally" in such exchange and "partly" for cash or
property. The Company believes that the issuance of securities contemplated by
the Plan of Reorganization will satisfy the aforementioned requirements.
AFFILIATIONS
3. Affiliates. Furnish a list or diagram of all affiliates of the
applicant and indicate the respective percentages of voting securities or other
bases of control.
The following diagram sets forth the relationship among the Company and
all of its affiliates, including their respective percentages of voting
securities, as of June 30, 1999.
Golden Books Family Entertainment, Inc.
(100%) (100%) (100%) (100%)
Golden Books Publishing LRM Acquisition Golden Books Golden Books
Company, Inc. Corp. Home Video, Inc. Publishing (Canada)
Inc.
(100%) (100%)
Shari Lewis Enterprises, McSpadden-Smith,
Inc. Inc.
(100%)
SLE Productions, Inc.
(50%)
McSpadden-Smith
Music, LLC*
(98%) (98%) (98%) (98%) (98%)
McSpadden Summerdawn, Chunky Monkey McSpadden-Smith Magnolia Hill
Music, LLC** Music, LLC** Music, LLC** Publishing, LLC** Music, LLC**
* Also owned 50% by Golden Books Publishing Company, Inc.
** Also owned 1% by Golden Books Publishing Company, Inc. and 1% by McSpadden-
Smith, Inc.
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The relationship among the Company and all of its affiliates, including
their respective percentages of voting securities, will be unchanged upon the
effectiveness of the Plan of Reorganization (the "Effective Date").
MANAGEMENT AND CONTROL
4. Directors and executive officers. List the names and complete
mailing addresses of all directors and executive officers of the applicant and
all persons chosen to become directors or executive officers. Indicate all
offices with the applicant held or to be held by each person named.
Except as otherwise noted below, the address for each director and
executive officer listed below is 888 Seventh Avenue, 40th Floor, New York, New
York 10106.
NAME OFFICE
Richard E. Snyder Chairman and Chief Executive Officer
Richard Collins Executive Vice President and Chief
Operating Officer
Philip Galanes Chief Administrative Officer; Executive
Vice President, General Counsel &
Secretary
Colin Finkelstein Chief Financial Officer; Executive Vice
President
5. Principal owners of voting securities. Furnish the following
information as to each person owning 10 percent or more of the voting securities
of the applicant.
As of June 30, 1999:
PERCENTAGE
OF VOTING
NAME AND COMPLETE TITLE OF AMOUNT SECURITIES
MAILING ADDRESS CLASS OWNED OWNED OWNED
- ---------------------- -------------------- ------------- -------------------
Golden Books Family Common Stock 100 100%
Entertainment, Inc.
Golden Books Family Entertainment, Inc. will continue to be the sole owner of
all of the Company's issued and outstanding shares of Common Stock upon the
Effective Date.
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UNDERWRITERS
6. Underwriters. Give the name and complete mailing address of (a)
each person who, within three years prior to the date of filing the application,
acted as an underwriter of any securities of the obligor which were outstanding
on the date of filing the application, and (b) each proposed principal
underwriter of the securities proposed to be offered. As to each person
specified in (a), give the title of each class of securities underwritten.
(a) A Syndicate acted as initial purchasers in the Company's
private placement of 8-3/4% convertible trust originated preferred securities in
August of 1996. Syndicate consisted of Merrill Lynch & Co., Donaldson Lufkin &
Jenrette Securities Corporation, and SBC Warburg Inc., all c/o Merrill Lynch
World Headquarters, North Tower, World Financial Center, New York, New York
102A4.
(b) None.
CAPITAL SECURITIES
7. Capitalization. (a) Furnish the following information as to each
authorized class of securities of the applicant.
As of June 30, 1999:
AMOUNT AMOUNT
TITLE OF CLASS AUTHORIZED OUTSTANDING
- ----------------------------- -------------------- -----------------------
Common Stock, par value
$.01 per share 100 100
Old Senior Notes due 2002 $150,000,000 $150,000,000
As of the Effective Date:
AMOUNT AMOUNT
TITLE OF CLASS AUTHORIZED OUTSTANDING
- ----------------------------- -------------------- -----------------------
Common Stock, par value 100 100
$.01 Per share
Senior Notes due 2004 $87,000,000 $87,000,000
(b) Give a brief outline of the voting rights of each class of voting
securities referred to in paragraph (a) above.
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Each outstanding share of the Company's existing Common Stock has or
will have, as applicable, one vote with respect to all matters subject to common
stockholder vote.
Holders of the Old Senior Notes due 2002 and the Senior Notes due 2004
do not have any voting rights by reason of ownership of those securities.
INDENTURE SECURITIES
8. Analysis of indenture provisions. Insert at this point the
analysis of indenture provisions required under section 305(a)(2) of the Act.1
A) Events of Default and Notice of Default.
The following are Events of Default under the Senior Note Indenture:
(i) failure by the Company to pay interest on any Senior Note
when the same becomes due and payable, and the Default continues for 30
days after becoming due;
(ii) failure by the Company to pay the principal of any Senior
Note when the same becomes due and payable, at maturity or upon acceleration,
redemption or otherwise (including the failure to repurchase Senior Notes
tendered pursuant to the requirements of Section 4.04, 4.17 or 4.18 of the
Senior Note Indenture);
(iii) failure by the Company or any Guarantor to comply with any
other agreement or covenant contained in the Senior Notes, the Indenture, any
Collateral Agreements or the Registration Rights Agreements, and the Default
continues for the period and after the notice specified below;
(iv) there shall be default under any bond, debenture, or other
evidence of Indebtedness of the Company or any Guarantor, or under any mortgage,
security agreement, indenture or other instrument under which there may be
issued or by which there may be secured or evidenced any such Indebtedness,
whether such Indebtedness now exists or shall hereafter be created, if such
default either (A) results from the failure to pay principal or interest on any
Indebtedness or (B) relates to an obligation other than the obligation to pay
principal or interest on any Indebtedness and results in the holder or holders
of such Indebtedness causing such Indebtedness to become due prior to its stated
maturity;
- --------
1 All Capitalized terms used in this Item 8 shall have the same meaning,
unless otherwise defined, as that provided in the Senior Note
Indenture. Company shall mean Golden Books Publishing Company, Inc.
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(v) any Guarantee required to be in full force and effect by the
terms of the Senior Note Indenture ceases to be in full force and effect or is
declared null and void or otherwise not enforceable against any Guarantor in
accordances with its terms, or any of the Guarantors repudiates its obligations
under its Guarantee or denies that it has any further liability under the
Guarantee or gives notice to such effect (other than by reason of the
termination of the Senior Note Indenture or the release of any such Guarantee in
accordance with the Senior Note Indenture); or any Guarantor repudiates its
obligations under its Guarantee of the Senior Notes or if a final judicial
determination is made that such;
(vi) The Company or any Guarantor pursuant to or within the
meaning of any Bankruptcy Law:
(a) admits in writing its inability to pay its debts
generally as they become due;
(b) commences a voluntary case or proceeding;
(c) consents to the entry of a judgment, decree or order for
relief against it in an involuntary case or proceeding;
(d) consents to the appointment of a Custodian of it or for
all or substantially all of its property;
(e) consents to or acquiesces in the institution of a
bankruptcy or an insolvency proceeding against it;
(f) makes a general assignment for the benefit of its
creditors; or
(g) takes any corporate action to authorize or effect any of
the foregoing;
(vii) a court of competent jurisdiction enters a judgment, decree
or order under any Bankruptcy Law that is for relief against the Company or any
Guarantor, in an involuntary case or proceeding which shall (A) approve a
petition seeking reorganization, arrangement, adjustment or composition in
respect of the Company or any Guarantor, (B) appoint a Custodian of the Company
or any Guarantor, or for substantially all of its property, or (C) order the
winding-up or liquidation of its affairs, and in each case the judgment, order
or decree remains unstayed and in effect for 60 days; or
(viii) any warrant of attachment is issued against any property
of the Company or any Guarantor having a value of at least $1 million, which
warrant is not
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released, stayed or bonded against within 60 days after service of process with
respect thereto, or final judgments not covered by insurance for the payment of
money which in the aggregate at any one time exceeds $1 million shall be
rendered against the Company or any Guarantor by a court of competent
jurisdiction and shall remain undischarged for 60 days after judgment becomes
final and nonappealable.
(ix) any final judgments or orders are rendered against Parent,
the Company or any of their Guarantors or Subsidiaries which require the payment
in money, either individually or in an aggregate amount, that is more than $5
million, which remain unstayed, undischarged or unbonded for a period of 60 days
thereafter; or
(x) there shall be any failure to procure and maintain property
and liability insurance in accordance with the provisions of Section 4.07
continuing, in the case of failure to maintain such insurance, until the earlier
of (A) 30 days after notice to Parent, the Company or their Subsidiaries or the
Trustee of the lapse or cancellation of such insurance, and (B) the date such
lapse or cancellation is effective as to the Trustee; or
(xi) except as provided in the Senior Note Indenture, the Trustee
does not have at all times a first priority perfected security interest in the
First Lien Collateral and a second priority perfected security interest in the
Second Lien Collateral, subject only to Permitted Liens, or the Company or any
guarantor asserts in writing that the security arrangements under the Senior
Note Indenture or any collateral Agreement are not in full force and effect.
A Default under clause (iii) above (other than any default under
Sections 4.03, 4.04, 4.12, 4.13, 4.14, 4,15, 4.16, 4.17, 4.18, 4.19, 4.20, 4.21,
4.22 and 5.01, which Defaults shall be Events of Default with the notice
specified in this paragraph but without the passage of time specified in this
paragraph) is not an Event of Default until the Trustee notifies the Company, or
the Holders of at least 25% in principal amount of the outstanding Senior Notes
notify the Company and the Trustee, of the Default, and the Company does not
cure the Default within 30 days after receipt of the notice. The notice must
specify the Default, demand that it be remedied and state that the notice is a
"Notice of Default." Such notice shall be given by the Trustee if so requested
by the Holders of at least 25% in principal amount of the Senior Notes then
outstanding. When a Default is cured, it ceases.
If a Default or an Event of Default occurs and is continuing and
if it is known to the Trustee, the Trustee shall mail to each Holder notice of
the uncured Default or Event of Default within 90 days after such Default or
Event of Default occurs. Except in the case of a Default or an Event of Default
in payment of principal of, or interest on, any Senior Note, including the
failure to make payment of a Deficiency Repurchase Amount pursuant to a
Deficiency Offer, the failure to make
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payment on the Change of Control Payment Date pursuant to a Change of Control
Offer, and the failure to make payment upon a mandatory redemption, the Trustee
may withhold the notice if and so long as its board of directors, the executive
committee of its board of directors or a committee of its directors and/or Trust
Officers in good faith determines that withholding the notice is in the interest
of the Holders.
B) Authentication and Delivery of the Senior Notes and the
Application of Proceeds Thereof.
A Senior Note shall not be valid until authenticated by the manual
signature of an authorized signatory of the Trustee. The signature shall be
conclusive evidence that the Senior Note has been authenticated under the Senior
Note Indenture. The Trustee shall, upon receipt of a written order of the
Company in the form of an Officers' Certificate, authenticate the Senior Notes
for original issue in the aggregate principal amount of $87,000,000. The Trustee
may appoint an authenticating agent reasonably acceptable to the Company to
authenticate Senior Notes. Unless otherwise provided in the appointment, an
authenticating agent may authenticate Senior Notes whenever the Trustee may do
so. Each reference in the Senior Note Indenture to authentication by the Trustee
includes authentication by such agent. An authenticating agent has the same
rights as an Agent to deal with the Company or Affiliates of the Company.
The Senior Notes shall be issuable only in registered form without
coupons, in denominations of $1,000, and any integral multiple thereof.
There will be no proceeds (and therefore no application of such
proceeds) from the issuance of the Senior Notes because the Senior Notes will be
issued, as part of an exchange, as provided in the Plan of Reorganization.
(C) Release of Property Subject to the Lien of the Senior Note
Indenture.
The Company's obligations under the Senior Notes issued under the
Senior Note Indenture are secured by a lien on the Company's interest in the
Collateral. The obligations of the Company to pay the principal of and interest
on the Senior Notes are further secured by the pledge by the Guarantors of their
respective interests in the Collateral.
Subject to Section 4.18 of the Senior Note Indenture (Limitation on
Asset Sales) and clauses (i) and (ii) below, the Collateral may be released from
the Lien and security interest created by the Security Agreements on the terms
set forth in such Security Agreements.
(i) At any time when a Default or Event of Defaults shall have
occurred and be continuing and the maturity of the Senior Notes shall have been
accelerated (whether by declaration or otherwise) and the Trustee shall have
delivered
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a notice of acceleration to the Collateral Agent, no release of Collateral
pursuant to the provisions of the Collateral Agreement shall be effective as
against the Holders of Senior Notes.
(ii) The release of any collateral from the terms of the Senior Note
Indenture and the Collateral Agreements shall not be deemed to impair the
security under the Senior Note Indenture in contravention of the provisions
thereof if and to the extent the Collateral is released pursuant to the terms of
such Collateral Agreement. To the extent applicable, the Company shall cause TIA
Section 314(d) relating to the release of property or securities from the Liens
and security interest of the Collateral Agreements and relating to the
substitution therefor of any property or securities to be subjected to the Liens
and security interest of the Collateral Agreement to be complied with. Any
certificate or opinion required by TIA Section 314(d) may be made by an Officer
of the Company except in cases where TIA Section 314(d) requires that such
certificate or opinion be made by an independent Person, which Personal shall be
an independent engineer, appraiser or other expert selected or approved by the
Trustee and the Collateral Agent in the exercise of reasonable care.
(D) Satisfaction and Discharge of the Senior Note Indenture.
The Company may, at the option of its and Parent's Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any time,
elect to have either Section 8.02 (Legal Defeasance) or 8.03 (Covenant
Defeasance) of the Senior Note Indenture applied to all outstanding Senior Notes
upon compliance with the following conditions:
(i) the Company must irrevocably deposit or cause to be deposited
with the Trustee or Paying Agent for the benefit of the Holders, (A) U.S. Legal
Tender or (B) Government Obligations, or (C) a combination thereof, in each
case, in such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal of,
premium, if any, and interest on the Senior Notes on the stated date for payment
thereof or on the applicable redemption date, as the case may be, of such
principal or installment of principal of, premium, if any, or interest on the
Senior Notes;
(ii) in the case of an election under Section 8.02 of the Senior
Note Indenture, the Company shall have delivered to the Trustee an Opinion of
Counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such Opinion of Counsel shall confirm that,
the Holders of the Senior Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts,
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in the same manner and at the same times as would have been the case if such
Legal Defeasance had not occurred;
(iii) in the case of an election under Section 8.03 of the Senior
Note Indenture, the Company shall have delivered to the Trustee an Opinion of
Counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders of the Senior Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Covenant Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Covenant Defeasance had not
occurred;
(iv) no Default or Event of Default shall have occurred and be
continuing (1) on the date of such deposit (other than a Default or Event of
Default resulting from the incurrence of Indebtedness all or a portion of the
proceeds of which will be used to defease the Senior Notes pursuant to Article
Eight of the Indenture concurrently with such incurrence) or (2) insofar as
Section 6.01(6) or Section 6.01(7) of the Indenture is concerned, at any time
during the period ending on the 91st day after the date of deposit (it being
understood that the condition in this clause (2) is a condition subsequent and
shall not be deemed satisfied until the expiration of such period);
(v) such Legal Defeasance or Covenant Defeasance shall not result
in a breach or violation of, or constitute a default under, the Senior Note
Indenture or a default under the New Credit Facility or any other material
agreement or instrument to which the Company or any of its Subsidiaries is a
party or by which the Company or any of its Subsidiaries is bound;
(vi) the Company shall have delivered to the Trustee an Opinion of
Counsel to the effect that after the 91st day following the deposit, the trust
funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally;
(vii) the Company shall have delivered to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders over any other creditors of the Company or with the
intent of defeating, hindering, delaying or defrauding any other creditors of
the Company; and
(viii) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
(E) Evidence as to Compliance with Conditions and Covenants.
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(i) Each of Parent and the Company shall deliver to the Trustee,
within 120 days after the end of the Company's fiscal year, an Officers'
Certificate, complying with Section 314(a)(4) of the TIA, stating that a review
of its activities and the activities of its Subsidiaries during the preceding
fiscal year has been made under the supervision of the signing Officers with a
view to determining whether each has kept, observed, performed and fulfilled its
obligations under the Senior Note Indenture, and further stating, as to each of
such Officer signing such certificate, that to the best of his or her knowledge
each of Parent and Publishing and their Subsidiaries during such preceding
fiscal year has kept, observed, performed and fulfilled each and every covenant
contained in the Senior Note Indenture and no event of default under the New
Credit Facility, Default or Event of Default occurred during such year or, if
such signers do know of such an event of default, Default or Event of Default,
the certificate shall describe the event of default, Default or Event of Default
and its status with particularity. The Officers' Certificate shall also notify
the Trustee should the Company elect to change the manner in which it fixes its
fiscal year.
(ii) The Company shall deliver to the Trustee within 120 days
after the end of each fiscal year a written statement by the Company's
independent certified public accountants stating (A) that their audit
examination has included a review of the terms of the Senior Note Indenture and
the Senior Notes as they related to accounting matters, and (B) whether in
connection with their audit examination, any Default has come to their attention
and if such Default has come to their attention, specifics regarding the nature
and period of existence thereof.
(iii) Each of Parent and the Company shall and shall cause each of
their Subsidiaries to deliver to the Trustee, forthwith upon becoming aware, and
in any event within 5 days after the occurrence of (A) any Default or Event of
Default in the performance of any covenant, agreement or condition contained in
the Senior Note Indenture; (B) any event of default under the New Credit
Facility or any event of Default under any other bond, debenture, note or other
evidence of Indebtedness of Parent, the Company or any of their respective
Subsidiaries, or under any mortgage, indenture or other instrument (as that term
is used in Section 6.01(4)); and (C) any decline in Net Worth such that the Net
Worth is equal to or less than the Minimum Net Worth at the end of any fiscal
quarter or any subsequent increase in Net Worth above such amount at the end of
any fiscal quarter, an Officers' Certificate specifying with particularity such
event.
9. Other Obligors. Give the name and complete mailing address of any
person, other than the applicant, who is an obligor upon the indenture
securities.
See Item 8(C) generally. The Debtor and its direct and indirect
subsidiaries and affiliates are guarantors under the Senior Note Indenture.
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Contents of application for qualification. This application for
qualification comprises:
(a) Pages numbered 1 to 14, consecutively.
(b) The statement of eligibility and qualification of each
trustee under the indenture or to be qualified.
(c) The following exhibits in addition to those filed as a part
of the statement of eligibility and qualification of each trustee.
Exhibit 1 Certificate of Incorporation of the Company. The
Certificate of Incorporation will be amended in
connection with the Plan of Reorganization. The form of
Amended and Restated Certificate of Incorporation of
the Company is attached as Exhibit 6 to the Disclosure
Statement (Exhibit 4).
Exhibit 2 By-Laws of the Company. The By-Laws will be amended in
connection with the Plan of Reorganization. The form of
Restated By-Laws of the Company is attached as Exhibit
7 to the Disclosure Statement (Exhibit 4).
Exhibit 3 Form of the Senior Note Indenture between the Company,
the Guarantors named therein and HSBC Bank USA.
Exhibit T3D. Not applicable.
Exhibit 4 A copy of the Amended Disclosure Statement regarding
the Amended Joint Plan of Reorganization, with certain
exhibits thereto to be sent or given to security
holders in connection with the issuance or distribution
of the Senior Notes.
Exhibit 5 A cross reference sheet showing the location in the
Senior Note Indenture of the provisions inserted
therein pursuant to Sections 310 through 318(a),
inclusive, of the Trust Indenture Act of 1939, included
in Exhibit 3.
Exhibit 8 Statement of Eligibility on Form T-1.
[END OF TEXT]
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SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
applicant, Golden Books Publishing Company, Inc., a corporation organized and
existing under the laws of Delaware, has duly caused this application to be
signed on its behalf by the undersigned, thereunto duly authorized, and its seal
to be hereunto affixed and attested, all in the city of New York, and State of
New York, on the 6th day of July, 1999.
GOLDEN BOOKS PUBLISHING COMPANY, INC.
[Seal] By/s/Richard E. Snyder
------------------------------------
Richard E. Snyder
Chairman and Chief Executive
Officer
Attest/s/ Philip Galanes
--------------------------------
Philip Galanes
Chief Administrative Officer
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RESTATED
CERTIFICATE OF INCORPORATION
OF
WESTERN PUBLISHING COMPANY, INC.
Pursuant to Sections 245 and 242 of the General Corporation Law
of the State of Delaware
The undersigned, the President of Western Publishing Company, Inc. (the
"Corporation"), certifies that:
1. The Corporation was originally incorporated under the name of WPC, Inc.
and the Corporation's original certificate of incorporation was filed with the
Delaware Secretary of State on March 1, 1979.
2. The certificate of incorporation is hereby amended to effect the
following amendments:
(a) To change the name of the Corporation.
(b) To change the par value of the Common Stock of the Corporation.
(c) To change the address of the registered office of the Corporation.
3. The certificate of incorporation, as amended heretofore, is hereby
amended and, as so amended, restated to read in its entirety as set forth below:
ARTICLE 1
The name of the corporation is Golden Books Publishing Company, Inc.
ARTICLE 2
The address of its registered office in the State of Delaware is 1309
Orange Street, Wilmington, Delaware 19801, County of New Castle. The name of its
registered agent at such address is The Corporation Trust Company.
ARTICLE 3
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
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ARTICLE 4
The total number of shares of stock which the corporation shall have
authority to issue is one hundred (100) consisting of one class only, designated
Common Stock, of the par value of $.01 per share.
ARTICLE 5
The number of directors which shall constitute the whole Board of Directors
shall be fixed by or in the same manner provided in the by-laws of the
corporation.
ARTICLE 6
Elections of directors need not be by written ballot unless the by-laws of
the corporation shall so provide.
ARTICLE 7
The by-laws of the corporation may be adopted, amended or repealed by the
Board of Directors or the stockholders, but no by-laws adopted by the
stockholders shall be amended or repealed by the Board of Directors, unless the
by-laws adopted by the stockholders have conferred such authority upon the Board
of Directors. Any by-law adopted by the Board of Directors shall be subject to
amendment or repeal by the stockholders as well as by the Board of Directors.
Dated as of May 8, 1996
/s/
--------------------------------------
Richard E. Snyder
President
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BY-LAWS
of
GOLDEN BOOKS PUBLISHING COMPANY, INC.
1. MEETINGS OF STOCKHOLDERS.
1.1. Annual Meeting. The annual meeting of stockholders shall be
held on the day established for the annual meeting of stockholders of Western
Publishing Group, Inc., a Delaware corporation, or as soon thereafter as
practicable, and shall be held at a place and time determined by the board of
directors (the "Board").
1.2. Special Meetings. Special meetings of the stockholders may be
called by resolution of the Board or by the chairman of the board. Special
meetings of the stockholders shall be called by the chairman of the board or
secretary upon the written request (stating the purpose or purposes of the
meeting) of a majority of the directors then in office or of the holders of a
majority of the outstanding shares entitled to vote. Only business related to
the purposes set forth in the notice of the meeting may be transacted at a
special meeting.
1.3. Place and Time of Meetings. Meetings of the stockholders may
be held in or outside Delaware at the place and time specified by the Board or
the directors or stockholders requesting the meeting.
1.4. Notice of Meetings; Waiver of Notice. Written notice of each
meeting of stockholders shall be given to each stockholder entitled to vote at
the meeting, except that (a) it shall not be necessary to give notice to any
stockholder who submits a signed waiver of notice before or after the meeting,
and (b) no notice of an adjourned meeting need be given except when
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required under Section 1.5 of these by-laws or by-law. Each notice of a meeting
shall be given, personally or by mail, not less than 10 nor more than 60 days
before the meeting and shall state the time and place of the meeting, and unless
it is the annual meeting, shall state at whose direction or request the meeting
is called and the purposes for which it is called. If mailed, notice shall be
considered given when mailed to a stockholder at his address on the
corporation's records. The attendance of any stockholder at a meeting, without
protesting at the beginning of the meeting that the meeting is not lawfully
called or convened, shall constitute a waiver of notice by that stockholder.
1.5. Quorom. At any meeting of stockholders, the presence in
person or by proxy of the holders of a majority of the shares entitled to vote
shall constitute a quorum for the transaction of any business. In the absence of
a quorum, a majority in voting interest of those present or, if no stockholders
are present, any officer entitled to preside at or to act as secretary of the
meeting, may adjourn the meeting until a quorum is present. At any adjourned
meeting at which a quorum is present, any action may be taken which might have
been taken at the meeting as originally called. No notice of an adjourned
meeting need be given if the time and place are announced at the meeting at
which the adjournment is taken except that, if adjournment is for more than
thirty days or if, after the adjournment, a new record date is fixed for the
meeting, notice of the adjourned meeting shall be given pursuant to Section 1.4.
1.6. Voting; Proxies. Each stockholder of record shall be entitled
to one vote for every share registered in his name. Corporate action to be taken
by stockholder vote, other than the election of directors, shall be authorized
by a majority of the votes cast at a meeting of
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stockholders, except as otherwise provided by law or by Section 1.8 of these
by-laws. Directors shall be elected in the manner provided in Section 2.1 of
these by-laws. Voting need not be by ballot unless requested by a majority of
the stockholders entitled to vote at the meeting or ordered by the chairman of
the meeting. Each stockholder entitled to vote at any meeting of stockholders or
to express consent to or dissent from corporate action in writing without a
meeting may authorize another person to act for him by proxy. Every proxy must
be signed by the stockholder or his attorney-in-fact. No proxy shall be valid
after three years from its date unless it provides otherwise.
1.7. List of Stockholders. Not less than 10 days prior to the date
of any meeting of stockholders, the secretary of the corporation shall prepare a
complete list of stockholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in his name. For a period of not less than 10 days prior to
the meeting, the list shall be available during ordinary business hours for
inspection by any stockholder for any purpose germane to the meeting. During
this period, the list shall be kept either (a) at a place specified in the
notice of the meeting which is within the city where the meeting is to be held
or (b) at the place where the meeting is to be held. The list shall also be
available for inspection by stockholders at the time and place of the meeting.
1.8. Action by Consent Without a Meeting. Any action required or
permitted to be taken at any meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be
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necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voting. Prompt notice of the taking of
any such action shall be given to those stockholders who did not consent in
writing.
2. BOARD OF DIRECTORS.
2.1. Number, Qualification, Election and Term of Directors. The
business of the corporation shall be managed by the entire Board, which shall
consist of four directors. The number of directors may be changed by resolution
of a majority of the Board or by a majority of the stockholders, but no decrease
may shorten the term of any incumbent director. Directors shall be elected at
each annual meeting of stockholders by a plurality of the votes cast and shall
hold office until the next annual meeting of stockholders and until the election
and qualification of their respective successors, subject to the provisions of
Section 2.9. As used in these by-laws, the term "entire Board" means the total
number of directors which the corporation would have if there were no vacancies
on the Board.
2.2. Quorum and Manner of Acting. A majority of the entire Board
shall constitute a quorum for the transaction of business at any meeting, except
as provided in Section 2.10 of these by-laws. Action of the Board shall be
authorized by the vote of a majority of the directors present at the time of the
vote if there is a quorum, unless otherwise provided by law or these by-laws. In
the absence of a quorum a majority of the directors present may adjourn any
meeting from time to time until a quorum is present.
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2.3. Place of Meetings. Meetings of the Board may be held in or
outside Delaware.
2.4. Annual and Regular Meetings. Annual meetings of the Board,
for the election of officers and consideration of other matters, shall be held
either (a) without notice immediately after the annual meeting of stockholders
and at the same place, or (b) as soon as practicable after the annual meeting of
stockholders, on notice as provided in Section 2.6 of these by-laws. Regular
meetings of the Board may be held without notice at such times and places as the
Board determines. If the day fixed for a regular meeting is a legal holiday, the
meeting shall be held on the next business day.
2.5. Special Meetings. Special meetings of the Board may be called
by the chairman of the board, or by a majority of the directors.
2.6. Notice of Meetings: Waiver of Notice. Notice of the time and
place of each special meeting of the Board, and of each annual meeting not held
immediately after the annual meeting of stockholders and at the same place,
shall be given to each director by mailing it to him at his residence or usual
place of business at least two days before the meeting, or by delivering or
telephoning or telegraphing it to him at least one day before the meeting.
Notice of a special meeting shall also state the purpose or purposes for which
the meeting is called. Notice need not be given to any director who submits a
signed waiver of notice before or after the meeting or who attends the meeting
without protesting at the beginning of the meeting the transaction of any
business because the meeting was not lawfully called or convened. Notice of
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any adjourned meeting need not be given, other than by announcement at the
meeting at which the adjournment is taken.
2.7. Board or Committee Action Without a Meeting. Any action
required or permitted to be taken by the Board or by any committee of the Board
may be taken without a meeting if all of the members of the Board or of the
committees consent in writing to the adoption of a resolution authorizing the
action. The resolution and the written consents by the members of the Board or
the committee shall be filed with the minutes of the proceeding of the Board or
of the committee.
2.8. Participation in Board or Committee Meetings by Conference
Telephone. Any or all members of the Board or of any committee of the Board may
participate in a meeting of the Board or of the committee by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at the meeting.
2.9. Resignation and Removal of Directors. Any director may resign
at any time by delivering his resignation in writing to the chairman of the
board or the secretary of the corporation, to take effect at the time specified
in the resignation; the acceptance of a resignation, unless required by its
terms, shall not be necessary to make it effective. Any or all of the directors
may be removed at any time, either with or without cause, by vote of the
stockholders.
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2.10. Vacancies. Any vacancy in the Board, including one created
by an increase in the number of directors, may be filled for the unexpired term
by a majority vote of the remaining directors, though less than a quorum.
2.11. Compensation. Directors shall receive such compensation as
the Board determines, together with reimbursement of their reasonable expenses
in connection with the performance of their duties. A director may also be paid
for serving the corporation, its affiliates or subsidiaries in other capacities.
3. COMMITTEES.
3.1. Executive Committee. The Board, by resolution adopted by a
majority of the entire Board, may designate an Executive Committee of one or
more directors which shall have all the powers and authority of the Board,
except as otherwise provided in the resolution, section 141(c) of the Delaware
General Corporation Law, or any other applicable law. The members of the
Executive Committee shall serve at the pleasure of the Board. All action of the
Executive Committee shall be reported to the Board at its next meeting.
3.2. Other Committees. The Board, by resolution adopted by a
majority of the entire Board, may designate other committees of directors of one
or more directors, which shall serve at the Board's pleasure and have such
powers and duties as the Board determines.
3.3. Rules Applicable to Committees. The Board may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence or
disqualification of any member of a
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committee, the member or members present at a meeting of the committee and not
disqualified, whether or not a quorum, may unanimously appoint another director
to act at the meeting in place of the absent or disqualified member. All action
of a committee shall be reported to the Board at its next meeting. Each
committee shall adopt rules of procedure and shall meet as provided by those
rules or by resolutions of the Board.
4. OFFICERS.
4.1. Number; Security. The executive officers of the corporation
shall be the chairman of the board, the president, one or more vice presidents
(including one or more executive vice presidents, if the Board so determines), a
secretary and a treasurer. Any two or more offices may be held by the same
person. The Board may require any officer, agent or employee to give security
for the faithful performance of his duties.
4.2. Election; Term of Office. The executive officers of the
corporation shall be elected annually by the Board, and each such officer shall
hold office until the next annual meeting of the Board and until the election of
his successor, subject to the provisions of Section 4.4.
4.3. Subordinate Officers. The Board may appoint subordinate
officers (including assistant secretaries and assistant treasurers), agents or
employees, each of whom shall hold office for such period and have such powers
and duties as the Board determines. The Board may delegate to any executive
officer or to any committee the power to appoint and define the powers and
duties of any subordinate officers, agents or employees.
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4.4. Resignation and Removal of Officers. Any officer may resign
at any time by delivering his resignation in writing to chairman of the board,
the president or secretary of the corporation, to take effect at the time
specified in the resignation; the acceptance of a resignation, unless required
by its terms, shall not be necessary to make it effective. Any officer elected
or appointed by the Board or appointed by an executive officer or by a committee
may be removed by the Board either with or without cause, and in the case of an
officer appointed by an executive officer or by a committee, by the officer or
committee which appointed him or by the chairman of the board.
4.5. Vacancies. A vacancy in any office may be filled for the
unexpired term in the manner prescribed in Sections 4.2 and 4.3 of these by-laws
for election or appointment to the office.
4.6. Chairman of the Board. The chairman of the board shall
preside at all meetings of the Board and of the stockholders, and shall have
such powers and duties as the Board assigns to him.
4.7. The President. The president shall serve as the chief
executive and operating officer of the corporation, subject to the control of
the Board, and the chairman of the board.
4.8. Vice President. Each vice president shall have such powers
and duties as the Board or the chairman of the board assigns to him.
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4.9. The Treasurer. The treasurer shall be the chief financial
officer of the corporation and shall be in charge of the corporation's books,
and accounts. Subject to the control of the Board, he shall have such other
powers and duties as the Board or the chairman of the board assigns to him.
4.10. The Secretary. The secretary shall be the secretary of, and
keep the minutes of, all meetings of the Board and of the stockholders, shall be
responsible for giving notice of all meetings of stockholders and of the Board,
and shall keep the seal and, when authorized by the Board, apply it to any
instrument requiring it. Subject to the control of the Board, he shall have such
powers and duties as the Board or the chairman of the board assigns to him. In
the absence of the secretary from any meeting, the minutes shall be kept by the
person appointed for that purpose by the presiding officer.
4.11. Salaries. The Board may fix the officers' salaries, if any,
or it may authorize the chairman of the board to fix the salary of any other
officer.
5. SHARES.
5.1. Certificates. The corporation's shares shall be represented
by certificates in the form approved by the Board. Each certificate shall be
signed by the chairman of the board, the president or an executive vice
president, and by the secretary or the treasurer, and shall be sealed with the
corporation's seal or a facsimile of the seal. Any or all of the signatures on
the certificate may be a facsimile.
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5.2. Transfers. Shares shall be transferable only on the
corporation's books, upon surrender of the certificate for the shares, properly
endorsed. The Board may require satisfactory surety before issuing a new
certificate to replace a certificate claimed to have been lost or destroyed.
5.3. Determination of Stockholders of Record. The Board may fix,
in advance, a date as the record date for the determination of stockholders
entitled to notice of or to vote at any meeting of the stockholders, or to
express consent to or dissent from any proposal without a meeting, or to receive
payment of any dividend or the allotment of any rights, or for the purpose of
any other action. The record date may not be more than 60 or less than 10 days
before the date of the meeting or more than 60 days before any other action.
6. INDEMNIFICATION.
The corporation shall indemnify and advance litigation expenses to
the fullest extent permitted by Section 145 of the General Corporation Law of
Delaware, as amended from time to time, to each person who is or was an officer
or director of the corporation and is or was a party or is threatened to be made
a party to any action, suit or proceeding by reason of the fact that such
officer or director is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise.
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7. MISCELLANEOUS.
7.1. Seal. The Board shall adopt a corporate seal, which shall be
in the form of a circle and shall bear the corporation's name and the year and
state in which it was incorporated.
7.2. Fiscal Year. The Board may determine the corporation's fiscal
year. Until changed by the Board, the last day of the corporation's fiscal year
shall be the Saturday nearest the last day in January in each year, and the
following fiscal year shall begin on the next day.
7.3. Voting of Shares in Other Corporations. Shares in other
corporations which are held by the corporation may be represented and voted by
the chairman of the board, the president or an executive vice president of this
corporation or by a proxy or proxies appointed by one of them. The Board may,
however, appoint some other person to vote the shares.
7.4. Amendments. By-laws may be amended, repealed or adopted by
the stockholders or by a majority of the entire Board, but any by-law adopted by
the Board may be amended or repealed by the stockholders.
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GOLDEN BOOKS PUBLISHING COMPANY, INC., as issuer
AND
THE GUARANTORS NAMED HEREIN
AND
HSBC BANK USA, as Trustee
-------------------
INDENTURE
Dated as of , 1999
----------
-------------------
$87,000,000
10% Senior Secured Notes Due 2004
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CROSS-REFERENCE TABLE
TIA Section Indenture Section
- ----------- -----------------
310 (a) (1)...............................................................7.10
(a) (2)...................................................................7.10
(a) (3)...................................................................N.A.
(a) (4)...................................................................N.A.
(a) (5)...................................................................7.10
(b)..........................................................7.08; 7.10; 13.02
(c).......................................................................N.A.
311 (a)...................................................................7.11
(b).......................................................................7.11
(c).......................................................................N.A.
312 (a)...................................................................2.05
(b)......................................................................13.03
(c)......................................................................13.03
313 (a)...................................................................7.06
(b) (1)..................................................................12.03
(b) (2)...................................................................7.06
(c)................................................................7.06; 13.02
(d).......................................................................7.06
314 (a)............................................................4.10; 13.02
(b)......................................................................12.02
(c) (1)............................................................7.02; 13.04
(c) (2)............................................................7.02; 13.04
(c) (3)...................................................................N.A.
(d)........................................................12.03, 12.04, 12.05
(e).......................................................................N.A.
(f).......................................................................N.A.
315(a).................................................................7.01(b)
(b)................................................................7.05; 12.02
(c)....................................................................7.01(a)
(d)....................................................................7.01(c)
(e).......................................................................6.11
316(a) (last sentence)....................................................2.09
(a) (1) (A)...............................................................6.05
(a) (1) (B)...............................................................6.04
(a) (2)...................................................................N.A.
(b).......................................................................6.07
317 (a) (1)...............................................................6.08
(a) (2)...................................................................6.09
(b).......................................................................2.04
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318 (a)..................................................................13.01
(c)......................................................................13.01
- -------------------------
N.A. means Not Applicable
NOTE: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture.
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TABLE OF CONTENTS
Page
ARTICLE ONE DEFINITIONS AND INCORPORATION BY REFERENCE.................1
SECTION 1.01. Definitions..........................................1
SECTION 1.02. Incorporation by Reference of TIA...................13
SECTION 1.03. Rules of Construction...............................13
ARTICLE TWO THE SENIOR NOTES..........................................14
SECTION 2.01. Form and Dating.....................................14
SECTION 2.02. Execution and Authentication........................14
SECTION 2.03. Registrar and Paying Agent..........................15
SECTION 2.04. Paying Agent to Hold Assets in Trust................16
SECTION 2.05. Securityholder Lists................................16
SECTION 2.06. Transfer and Exchange...............................16
SECTION 2.07. Replacement Senior Notes............................17
SECTION 2.08. Outstanding Senior Notes............................17
SECTION 2.09. Treasury Senior Notes...............................18
SECTION 2.10. Temporary Senior Notes..............................18
SECTION 2.11. Cancellation........................................18
SECTION 2.12. Defaulted Interest..................................19
SECTION 2.13. CUSIP Number........................................19
ARTICLE THREE REDEMPTION................................................19
SECTION 3.01. Notices to Trustee..................................19
SECTION 3.02. Selection of Senior Notes to Be Redeemed............20
SECTION 3.03. Notice of Redemption................................20
SECTION 3.04. Effect of Notice of Redemption......................21
SECTION 3.05. Deposit of Redemption Price.........................21
SECTION 3.06. Senior Notes Redeemed in Part.......................21
SECTION 3.07. Optional Redemption.................................22
SECTION 3.08. Mandatory Redemption................................22
SECTION 3.09. Mandatory Redemption Upon Asset Sale................22
ARTICLE FOUR COVENANTS.................................................22
SECTION 4.01. Payment of Senior Notes.............................22
SECTION 4.02. Maintenance of Office or Agency.....................23
SECTION 4.03. Limitation on Restricted Payments...................23
SECTION 4.04. Maintenance of Net Worth............................23
SECTION 4.05. Corporate Existence.................................26
SECTION 4.06. Payment of Taxes and Other Claims...................26
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SECTION 4.07. Maintenance of Properties and Insurance.............27
SECTION 4.08. Compliance Certificate; Notice of Default...........27
SECTION 4.09. Compliance with Laws................................28
SECTION 4.10. Commission Reports..................................29
SECTION 4.11. Waiver of Stay, Extension or Usury Laws.............29
SECTION 4.12. Limitation on Transactions with Affiliates..........29
SECTION 4.13. Limitation on Incurrences of Additional Indebtedness30
SECTION 4.14. Limitation on Payment Restrictions Affecting
Subsidiaries.......................................31
SECTION 4.15. Limitation on Liens.................................31
SECTION 4.16. Restrictions on Sale and Ownership of Subsidiaries..31
SECTION 4.17. Limitation on Change of Control.....................32
SECTION 4.18. Limitation on Asset Sales...........................33
SECTION 4.19. Guarantees of Certain Indebtedness..................34
SECTION 4.20. Limitation on License Agreements and
Distribution Agreements.............................35
SECTION 4.21. Subsidiaries........................................35
SECTION 4.22. After Acquired Collateral...........................35
ARTICLE FIVE SUCCESSOR CORPORATION.....................................36
SECTION 5.01. Limitation on Merger, Etc...........................36
SECTION 5.02. Successor Corporation Substituted...................37
ARTICLE SIX DEFAULT AND REMEDIES......................................38
SECTION 6.01. Events of Default...................................38
SECTION 6.02. Acceleration........................................40
SECTION 6.03. Other Remedies......................................41
SECTION 6.04. Waiver of Past Defaults.............................41
SECTION 6.05. Control by Majority.................................41
SECTION 6.06. Limitation on Suits.................................42
SECTION 6.07. Rights of Holders to Receive Payment................42
SECTION 6.08. Collection Suit by Trustee..........................42
SECTION 6.09. Trustee May File Proofs of Claim....................43
SECTION 6.10. Priorities..........................................43
SECTION 6.11. Undertaking for Costs...............................43
SECTION 6.12. Event of Default from Willful Action................44
SECTION 6.13. Rights and Remedies Cumulative......................44
SECTION 6.14. Delay or Omission Not Waiver........................44
ARTICLE SEVEN TRUSTEE...................................................44
SECTION 7.01. Duties of Trustee...................................45
SECTION 7.02. Rights of Trustee...................................46
SECTION 7.03. Individual Rights of Trustee........................46
SECTION 7.04. Trustee's Disclaimer................................47
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SECTION 7.05. Notice of Default...................................47
SECTION 7.06. Reports by Trustee to Holders.......................47
SECTION 7.07. Compensation and Indemnity..........................47
SECTION 7.08. Replacement of Trustee..............................48
SECTION 7.09. Successor Trustee by Merger, Etc....................49
SECTION 7.10. Eligibility; Disqualification.......................49
SECTION 7.11. Preferential Collection of Claims Against
Publishing..........................................49
ARTICLE EIGHT LEGAL DEFEASANCE AND COVENANT DEFEASANCE..................50
SECTION 8.01. Option to Effect Legal Defeasance or Covenant
Defeasance..........................................50
SECTION 8.02. Legal Defeasance and Discharge......................50
SECTION 8.03. Covenant Defeasance.................................50
SECTION 8.04. Conditions to Legal or Covenant Defeasance..........51
SECTION 8.05. Deposited U.S. Legal Tender and U.S. Government
Obligations to be Held in Trust; Other
Miscellaneous Provisions............................52
SECTION 8.06. Repayment to Publishing.............................53
SECTION 8.07. Reinstatement.......................................53
ARTICLE NINE AMENDMENTS, SUPPLEMENTS AND WAIVER........................54
SECTION 9.01. Without Consent of Holders..........................54
SECTION 9.02. With Consent of Holders.............................55
SECTION 9.03. Compliance with TIA.................................56
SECTION 9.04. Revocation and Effect of Consents...................57
SECTION 9.05. Notation on or Exchange of Senior Notes.............57
SECTION 9.06. Trustee to Sign Amendments, Etc.....................58
ARTICLE TEN MEETINGS OF SECURITYHOLDERS...............................58
SECTION 10.01. Purposes for Which Meetings May Be Called...........58
SECTION 10.02. Manner of Calling Meetings..........................58
SECTION 10.03. Call of Meetings by Publishing or Holders...........59
SECTION 10.04. Who May Attend and Vote at Meetings.................59
SECTION 10.05. Regulations May Be Made by Trustee; Conduct of the
Meeting; Voting Rights; Adjournment.................59
SECTION 10.06. Voting at the Meeting and Record to Be Kept.........60
SECTION 10.07. Exercise of Rights of Trustee or Securityholders
May Not Be Hindered or Delayed by Call of Meeting...61
ARTICLE ELEVEN GUARANTEE OF SENIOR NOTES.................................61
SECTION 11.01. Unconditional Guarantee.............................61
SECTION 11.02. Seniority of Guarantee..............................62
SECTION 11.03. Severability........................................62
SECTION 11.04. Release of a Guarantor..............................63
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SECTION 11.05. Limitation of Guarantor's Liability.................63
SECTION 11.06. Guarantors May Consolidate, etc., on Certain Terms..63
SECTION 11.07. Contribution........................................64
SECTION 11.08. Waiver of Subrogation...............................64
SECTION 11.09. Execution of Guarantee..............................65
SECTION 11.10. Guarantee Unconditional, Etc........................65
SECTION 11.11. Additional Guarantors...............................66
SECTION 11.12. Waiver of Stay, Extension or Usury Laws.............66
ARTICLE TWELVE COLLATERAL AND SECURITY...................................67
SECTION 12.01. Collateral Agreements...............................67
SECTION 12.02. Recording and Opinions..............................67
SECTION 12.03. Release of Collateral...............................68
SECTION 12.04. Certificates of Publishing..........................69
SECTION 12.05. Certificates of the Trustee.........................69
SECTION 12.06. Authorization of Actions to be Taken by the Trustee
Under the Collateral Agreement......................69
SECTION 12.07. Authorization of Receipt of Funds by the Trustee
Under the Collateral Agreement......................70
SECTION 12.08. Termination of Security Interest....................70
ARTICLE THIRTEEN MISCELLANEOUS.......................................70
SECTION 13.01. TIA Controls........................................70
SECTION 13.02. Notices.............................................70
SECTION 13.03. Communications by Holders with Other Holders........71
SECTION 13.04. Certificate and Opinion as to Conditions Precedent..72
SECTION 13.05. Statements Required in Certificate or Opinion.......72
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar...........72
SECTION 13.07. Legal Holidays......................................73
SECTION 13.08. Governing Law.......................................73
SECTION 13.09. No Adverse Interpretation of Other Agreements.......73
SECTION 13.10. No Recourse Against Others..........................73
SECTION 13.11. Successors..........................................73
SECTION 13.12. Duplicate Originals.................................73
SECTION 13.13. Severability........................................74
SECTION 13.14. Table of Contents, Headings, Etc....................74
SIGNATURES..................................................................75
Exhibit A - Form of Note...................................................A-1
Note: This Table of Contents shall not, for any purpose, be deemed to be
part of the Indenture.
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INDENTURE dated as of _________________, 1999 among GOLDEN BOOKS
PUBLISHING COMPANY, INC., a Delaware corporation ("Publishing"), the GUARANTORS
(as defined below), and HSBC BANK USA, as Trustee (the "Trustee").
Publishing has duly authorized the creation of an issue of 10%
Senior Secured Notes due __________, 2004 (the "Senior Notes"), and, to provide
therefor, Publishing has duly authorized the execution and delivery of this
Indenture. The Senior Notes will be secured by a lien and security interest in
the Collateral (as defined) maintained with the Collateral Agent (as defined)
pursuant to the terms of the Collateral Agreements (as defined). The Senior
Notes will be jointly and severally guaranteed, on an unconditional senior
secured basis, by the Guarantors (as defined). All things necessary to make the
Senior Notes, when duly issued and executed by Publishing, and authenticated and
delivered hereunder, the valid obligations of Publishing and the Guarantors and
to make this Indenture a valid and binding agreement of Publishing and the
Guarantors, have been done.
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of Publishing's 10%
Senior Secured Notes due 2004 and any additional Senior Notes issued pursuant to
this Indenture:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
"ADJUSTED NET ASSETS" of a Person at any date shall mean the lesser
of the amount by which (i) the fair value of the property of such Person exceeds
the total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date and calculated in accordance with the
definition of Indebtedness), but excluding liabilities under the Guarantee, of
such Person at such date and (ii) the present fair salable value of the assets
of such Person at such date exceeds the amount that will be required to pay the
probable liability of such Person on its debts (after giving effect to all other
fixed and contingent liabilities incurred or assumed on such date and after
giving effect to any collection from any Subsidiary of such Person in respect of
the obligations of such Subsidiary under the Guarantee), excluding debt in
respect of the Guarantee, as they become absolute and matured.
"AFFILIATE" of any specified Person means any other Person directly
or indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the
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terms "affiliated," "controlling" and "controlled" have meanings correlative to
the foregoing. For purposes of Section 4.12 hereof, the term "Affiliate" shall
include any Person who, as a result of any transaction described therein, would
become an Affiliate.
"AFFILIATE TRANSACTION" shall have the meaning provided in Section
4.12.
"AGENT" means any Registrar, Paying Agent or co-Registrar.
"ASSET SALE" means, for any Person, any direct or indirect sale,
transfer, issuance, conveyance, lease (other than operating leases entered into
in the ordinary course of business), assignment, or other disposition or series
of sales, transfers or other dispositions (including, without limitation, by
merger or consolidation, pursuant to any sale and leaseback transaction or by
exchange of assets and whether by operation of law or otherwise) made by such
Person or any of its Subsidiaries to any Person of any assets of such Person or
any of its Subsidiaries including, without limitation, assets consisting of any
Capital Stock, Partnership Interest or other securities held by such Person or
any of its Subsidiaries, and any Capital Stock or Partnership Interest issued by
any Subsidiary of such Person (but not including any Capital Stock or
Partnership Interest issued by such Person). Notwithstanding the foregoing,
"Asset Sale" shall not include (i) sales of products and services in the
ordinary course of business or (ii) with respect to Parent or any of its
Subsidiaries, sales or other dispositions of capital assets which are obsolete
or otherwise no longer necessary for the business of any such Person, but only
to the extent that the aggregate proceeds received from the sale or other
disposition of any such assets do not exceed $250,000 in any Yearly Period.
"ASSET SALE CLOSING DATE" shall have the meaning provided in Section
4.18.
"BANKRUPTCY LAW" means Title 11, U.S. Code or any similar Federal,
state or foreign law for the relief of debtors.
"BOARD OF DIRECTORS" means, with respect to any Person, the Board of
Directors of such Person or any committee of the Board of Directors of such
Person duly authorized, with respect to any particular matter, to exercise the
power of the Board of Directors of such Person.
"BOARD RESOLUTION" means, with respect to any Person, a duly adopted
resolution of the Board of Directors of such Person.
"BUSINESS DAY" means a day that is not a Saturday, Sunday or a day
on which banking institutions in New York City are not required to be open.
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"CAPITAL STOCK" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
corporate stock, including each class of common stock and preferred stock of
such Person, including Preferred Stock.
"CAPITALIZED LEASE OBLIGATION" means obligations under a lease that
is required to be capitalized for financial reporting purposes in accordance
with GAAP, and the amount of Indebtedness represented by such obligations shall
be the capitalized amount of such obligations determined in accordance with
GAAP.
"CASH EQUIVALENTS" means (i) obligations issued or unconditionally
guaranteed by the United States of America or any agency thereof, or obligations
issued by any agency or instrumentality thereof and backed by the full faith and
credit of the United States of America, (ii) commercial paper rated the highest
grade by Moody's Investors Service, Inc. and Standard & Poor's Ratings Service
and maturing not more than one year from the date of creation thereof, (iii)
time deposits with, and certificates of deposit and banker's acceptances issued
by, any bank having capital surplus and undivided profits aggregating at least
$500 million and maturing not more than one year from the date of creation
thereof, (iv) repurchase agreements that are secured by a perfected security
interest in an obligation described in clause (i) and are with any bank
described in clause (iii) and (v) readily marketable direct obligations issued
by any state of the United States of America or any political subdivision
thereof having one of the two highest rating categories obtainable from either
Moody's Investors Service, Inc. or Standard & Poor's Ratings Service.
"CHANGE OF CONTROL" means one of (i) the acquisition after the Issue
Date, in one or more transactions, of beneficial ownership (within the meaning
of Rule 13d-3 under the Exchange Act) by any Person or entity or any group of
Persons or entities who constitute a group (within the meaning of Section
13(d)(3) of the Exchange Act) of any securities of Publishing or Parent such
that, as a result of such acquisition, such Person, entity or group either (a)
beneficially owns (within the meaning of Rule 13d-3 under the Exchange Act),
directly or indirectly, more than 50% of Publishing's or Parent's then
outstanding voting securities entitled to vote on a regular basis for a majority
of the Board of Directors of Publishing or Parent (or in the event of a merger
or consolidation of Publishing or Parent with or into any Person, more than 50%
of the surviving entity's then outstanding voting securities entitled to vote on
a regular basis for a majority of the Board of Directors of such surviving
entity) or (b) otherwise has the ability to elect, directly or indirectly, a
majority of the members of Publishing's or Parent's Board of Directors; or (ii)
a change in the composition of the Board of Directors of Publishing or Parent
such that a majority of the members of the Board of Directors of Publishing or
Parent are not Continuing Directors; or (iii) an Asset Sale of all or
substantially all of the assets of Parent, Publishing and their Subsidiaries
(taken as a whole) to any Person that is not either Publishing or Parent.
"CHANGE OF CONTROL OFFER" shall have the meaning provided in Section
4.17.
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"CHANGE OF CONTROL PAYMENT" shall have the meaning provided in
Section 4.17.
"CHANGE OF CONTROL PAYMENT DATE" shall have the meaning provided in
Section 4.17.
"COLLATERAL" shall mean the First Lien Collateral and Second Lien
Collateral.
"COLLATERAL AGREEMENTS" means, collectively, the Security Agreement,
the Copyright Assignment, the Trademark Assignment, the Mortgage and any other
document or instrument executed or delivered in connection with any of the
foregoing, in each case, as the same may be in force from time to time.
"COLLATERAL AGENT" shall have the meaning set forth in the Security
Agreement.
"COMMISSION" means the Securities and Exchange Commission.
A "CONTINUING DIRECTOR" means, as of any date of determination, any
member of the Board of Directors (not including, for purposes of this
definition, any committee of the full Board of Directors) of Publishing or
Parent who (i) was a member of such Board of Directors on the Issue Date or (ii)
was nominated for election or elected to such Board of Directors with the
affirmative vote of a majority of the Continuing Directors who were members of
such Board at the time of such nomination or election or, in the case of
Publishing's Board of Directors (so long as Publishing is a Wholly-Owned
Subsidiary of Parent), with the approval of a majority of the Continuing
Directors of Parent.
"COPYRIGHT ASSIGNMENT" means the Copyright Security Interest
Agreement, dated as of the Issue Date, by Publishing and the Guarantors in favor
of the Collateral Agent, in the form of Exhibit [___],as amended and
supplemented from time to time in accordance with its terms.
"CUSTODIAN" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"DEFAULT" means any event which is, or after notice or passage of
time or both would be, an Event of Default.
"DEFICIENCY DATE" shall have the meaning provided in Section 4.04.
"DEFICIENCY OFFER" shall have the meaning provided in Section 4.04.
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"DEFICIENCY REPURCHASE AMOUNT" shall have the meaning provided in
Section 4.04.
"DEFICIENCY REPURCHASE DATE" shall have the meaning provided in
Section 4.04.
"DISQUALIFIED CAPITAL STOCK" means, with respect to any Person, any
Capital Stock of such Person or its Subsidiaries that, by its terms, by the
terms of any agreement related thereto or by the terms of any security into
which it is convertible, puttable or exchangeable, is, or upon the happening of
an event or the passage of time would be, required to be redeemed or repurchased
by such Person or its Subsidiaries, including at the option of the holder, in
whole or in part, or has, or upon the happening of an event or passage of time
would have, a redemption or similar payment due, in each instance on or prior to
the Maturity Date.
"EVENT OF DEFAULT" shall have the meaning provided in Section 6.01.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the Commission thereunder.
"FIRST LIEN COLLATERAL" shall mean all right, title and interest of
Publishing, Parent or any of their respective Subsidiaries in First Lien
Collateral (as defined in the Security Agreement).
"FOREIGN EXCHANGE AGREEMENT" means any foreign exchange contract,
currency swap agreement or other similar agreement designed to protect against
fluctuations in currency values.
"GAAP" means generally accepted accounting principles as in effect
in the United States of America as of the date of this Indenture.
"GUARANTEE" means the Guarantee set forth in Article 11 and any
additional guarantee of Senior Notes.
"GUARANTOR" means Parent, Golden Books Home Video, Inc., LRM
Acquisition Corp., and Golden Books Publishing (Canada) Inc., Chunky Monkey
Music, LLC, Magnolia Hill Music, LLC, McSpadden Music, LLC, McSpadden-Smith
Publishing, LLC, McSpadden-Smith, Inc., McSpadden-Smith Music, LLC, SLE
Productions, Inc., Summerdawn Music, LLC, Shari Lewis Enterprises, Inc. and any
other Subsidiary of Parent that may be organized from time to time, and their
successors.
"HOLDER" or "SECURITYHOLDER" means the Person in whose name a Senior
Note is registered on the Registrar's books.
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"INDEBTEDNESS" means with respect to any Person, without
duplication: (i) all liabilities, contingent or otherwise, of such Person (a)
for borrowed money (whether or not the recourse of the lender is to the whole of
the assets of such Person or only to a portion thereof), (b) evidenced by bonds,
notes, debentures, drafts accepted or similar instruments or letters of credit
or representing the balance deferred and unpaid of the purchase price of any
property (other than any such balance that represents an account payable or any
other monetary obligation to a trade creditor created, incurred, assumed or
guaranteed by such Person in the ordinary course of business of such Person in
connection with obtaining goods, materials or services, which account is not
overdue by more than 90 days, according to the original terms of sale), or (c)
for the payment of money relating to a Capitalized Lease Obligation; (ii)
reimbursement obligations of such Person with respect to letters of credit;
(iii) obligations of such Person with respect to Interest Swap Obligations and
Foreign Exchange Agreements; (iv) all liabilities of others of the kind
described in the preceding clause (i), (ii) or (iii) that such Person has
guaranteed, that have been incurred by a partnership in which it is a general
partner (to the extent such Person is liable, contingently or otherwise,
therefor) or that is otherwise its legal liability (other than endorsements for
collection in the ordinary course of business); and (v) all obligations of
others secured by a Lien to which any of the properties or assets (including,
without limitation, leasehold interests and any other tangible or intangible
property rights) of such Person are subject, whether or not the obligations
secured thereby shall have been assumed by such Person or shall otherwise be
such Person's legal liability (provided that if the obligations so secured have
not been assumed by such Person or are not otherwise such Person's legal
liability, such obligations shall be deemed to be in an amount equal to the
lesser of the fair market value of such properties or assets or the amount
necessary to discharge such Lien, as determined in good faith by the Board of
Directors of such Person, which determination shall be evidenced by a Board
Resolution). The amount of Indebtedness of any Person at any date shall be the
outstanding principal amount of all unconditional obligations described above,
as such amount would be reflected on a balance sheet prepared in accordance with
GAAP, and the maximum liability at such date of such Person for any contingent
obligations described above.
"INDENTURE" means this Indenture, as amended or supplemented from
time to time in accordance with the terms hereof.
"INDEPENDENT FINANCIAL ADVISOR" means Houlihan Lokey Howard and
Zukin or any successor thereto; provided, however, that if Houlihan Lokey Howard
and Zukin or any successor thereto shall not be reasonably available to perform
the function called for by such definition, Independent Financial Advisor shall
mean an investment banking, accounting or appraisal firm of national standing
(i) which does not, and whose directors, officers and employees or Affiliates do
not, have a direct or indirect ownership interest or material direct or indirect
financial interest in the Parent or any of its Subsidiaries or Affiliates,
provided that ownership of three percent (3%) or less of the issued and
outstanding shares of capital stock of the Parent shall not constitute having a
direct or indirect financial interest in the Parent or any of its Subsidiaries
or Affiliates, and (ii) which, in the judgment of the disinterested members of
the
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Board of Directors of the Parent, is independent and qualified to perform the
task for which it is to be engaged.
"INTEREST PAYMENT DATE" means the stated maturity of an installment
of interest on the Senior Notes.
"INTEREST SWAP OBLIGATION" means any obligation of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a fixed or floating rate of interest on a
stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or floating rate of interest on the same notional
amount; provided that the term "Interest Swap Obligation" shall also include
interest rate exchange, collar, cap, swap option or similar agreements providing
interest rate protection.
"INVESTMENT" by any Person means any investment or acquisition by
such Person, in any transaction or series of related transactions, whether by a
purchase of assets, share purchase, capital contribution, loan, advance (other
than reasonable loans and advances to employees for moving and travel expenses,
as salary advances, incurred, in each case, in the ordinary course of business
consistent with past practice) or similar credit extension constituting
Indebtedness of another Person, and any guarantee of Indebtedness of any other
Person (other than a guarantee under the New Credit Facility or this Indenture).
"ISSUE DATE" means the date of first issuance of the Senior Notes
under this Indenture.
"LENDER" means the lender under the New Credit Facility.
"LIEN" means any mortgage, pledge, lien, encumbrance, charge or
adverse claim affecting title or resulting in an encumbrance against real or
personal property, or a security interest of any kind (including any conditional
sale or other title retention agreement, any lease in the nature thereof, any
option or other agreement to sell which is intended to constitute or create a
security interest, mortgage, pledge or lien (other than bona fide options and
agreements for the sale of assets), and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction).
"MATURITY DATE" means , 2004.
---------------------
"MINIMUM NET WORTH" means $
----------------.
"MORTGAGE" means the Real Estate Mortgage, Assignment of Rents and
Security Agreement, dated as of the Issue Date between Publishing and Trustee,
creating Liens on and related to the Premises (as defined in the Mortgage),
including the Mortgaged Property (as defined in the Mortgage) secured by and
described in the Real Estate Mortgage, Assignment
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and Rents and Security Agreement, and any other similar document or instrument
executed in connection therewith.
"NET CASH PROCEEDS" means Net Proceeds in the form of cash or Cash
Equivalents.
"NET PROCEEDS" means with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
received by Publishing, Parent or any of their respective Subsidiaries from such
Asset Sale.
"NET PROCEEDS REDEMPTION" shall have the meaning provided in Section
4.18.
"NET WORTH" as of any date means, with respect to any Person, the
lesser of (i) the amount of the equity of the holders of Capital Stock of such
Person that would appear on the balance sheet of such Person as of such date,
determined in accordance with GAAP, adjusted to exclude (to the extent included
in such equity) the amount of equity attributable to any Disqualified Capital
Stock or (ii) the Adjusted Net Assets of such Person.
"NEW CREDIT FACILITY" means the New Credit Facility, dated as of the
Issue Date by and among Publishing, [certain of its Subsidiaries] and Lender,
together with the notes, security agreements, guarantees and other documents
related thereto, as the same may be amended, extended, renewed, restated,
supplemented or otherwise modified from time to time, pursuant to which Lender
may loan up to $45 million to [Publishing], [which amount may be increased to
$60 million in accordance with Section 4.13(b)(ii) during such periods in which
the New Credit Facility Increase Test is met], and any agreement governing
Indebtedness incurred to refund or refinance the entirety of the borrowings and
commitments then outstanding or permitted to be outstanding under such New
Credit Facility or such agreement. Publishing shall promptly notify the Trustee
of any such refunding or refinancing of the New Credit Facility.
"OBLIGATIONS" means any principal, interest, penalties, fees,
indemnifications, reimbursement obligations, damages and other liabilities
payable under the documentation governing any Indebtedness.
"OFFICER" means, with respect to any Person, the Chairman of the
Board, the President, any Vice President, the Chief Financial Officer, the
Controller, or the Secretary of such Person.
"OFFICERS' CERTIFICATE" means, with respect to any Person, a
certificate signed by two Officers or by an officer and either an Assistant
Treasurer or an Assistant Secretary of such Person and otherwise complying with
the requirements of Sections 13.04 and 13.05.
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"OPINION OF COUNSEL" means a written opinion from legal counsel who
is reasonably acceptable to the Trustee complying with the requirements of
Sections 13.04 and 13.05. Unless otherwise required by the Trustee, the legal
counsel may be an employee of or counsel to Parent or the Trustee.
"PARENT" shall mean Golden Books Family Entertainment, Inc.
"PARTNERSHIP INTEREST" means any general or limited partnership
interest and any interest as a member of a limited liability company.
"PAYING AGENT" means the office or agency maintained by Publishing
where Senior Notes may be presented or surrendered for payment, except that, for
the purposes of Articles Three and Eight of this Indenture relating to
redemption of the Senior Notes and satisfaction and discharge of this Indenture,
respectively, and Sections 4.04, 4.17 and 4.18 hereof, the Paying Agent shall
not be Publishing or any Subsidiary.
"PAYMENT RESTRICTION" means, with respect to a Subsidiary of any
Person, any encumbrance, restriction or limitation, whether by operation of the
terms of its charter or by reason of any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation, on the ability of (i)
such Subsidiary to (a) pay dividends or make other distributions on its Capital
Stock or make payments on any obligation, liability or Indebtedness owed to such
Person or any other Subsidiary of such Person, (b) make loans or advances to
such Person or any other Subsidiary of such Person, or (c) transfer any of its
properties or assets to such Person or any other Subsidiary of such Person, or
(ii) such Person or any other Subsidiary of such Person to receive or retain any
such (a) dividends, distributions or payments, (b) loans or advances, or (c)
transfer of properties or assets.
"PERMITTED BUSINESS INVESTMENT" means any capital expenditure or
Investment in each case directly related to the business of Parent or any of its
Subsidiaries as it is conducted as of the Issue Date (as any such business may
be extended or expanded in the ordinary course of business (including pursuant
to prior Permitted Business Investments) following the Issue Date to similar or
related businesses); provided, however, that any Investment in the capital stock
of another Person shall only be a Permitted Business Investment hereunder if
such Person is, or as a result of such Investment becomes, a Wholly-Owned
Subsidiary and a Guarantor and provided further that the aggregate of all
Permitted Business Investments in any Yearly Period shall not exceed $[5]
million.
"PERMITTED INVESTMENT" by any Person means (i) any Permitted
Business Investment, (ii) cash and Cash Equivalents, (iii) Investments existing
on the Issue Date, and (iv) Investments by Parent or any Wholly-Owned Subsidiary
of Parent in Parent or Publishing (other than any such Investments which would
constitute Stock Payments or Restricted Debt Prepayments).
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"PERMITTED LIENS" shall mean (i) Liens for taxes, assessments, and
governmental charges to the extent not required to be paid under this Indenture;
(ii) statutory Liens of landlords and carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen, or other like Liens arising in the ordinary
course of business and with respect to amounts not yet delinquent or being
contested in good faith by appropriate process of law, and for which a reserve
or other appropriate provision, if any, as shall be required by GAAP shall have
been made; (iii) pledges or deposits in the ordinary course of business to
secure lease obligations or nondelinquent obligations under workers'
compensation, unemployment insurance or similar legislation; (iv) Liens to
secure the performance of public statutory obligations that are not delinquent,
appeal bonds, performance bonds or other obligations of a like nature (other
than for borrowed money); (v) Liens arising under government contracts in the
ordinary course of business that do not secure any Indebtedness; (vi) easements,
rights-of-way, restrictions, minor defects or irregularities in title and other
similar charges or encumbrances not interfering in any material respect with the
business of Parent or any Subsidiary of Parent incurred or arising in the
ordinary course of business; (vii) rights of banks to set off deposits against
debts owed to said banks; (viii) any interest or title of a lessor in the
property subject to any lease, other than any such interest or title resulting
from or arising out of a default by Parent or any Subsidiary of Parent of its
obligations under such lease; (ix) any other Liens imposed by operation of law
which do not materially affect Parent's or any of its Subsidiaries' ability to
perform its obligations under this Indenture; (x) any Liens arising under this
Indenture, (xi) with respect to First Lien Collateral, Liens arising under the
New Credit Facility which are junior in all respects to all Liens arising under
this Indenture, at least to the extent provided on Exhibit [___] hereto, and
(xii) with respect to Second Lien Collateral, Liens arising under the New Credit
Facility.
"PERSON" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
"PLAN OF LIQUIDATION" means, with respect to any Person, a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise) (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such Person otherwise than as an entirety or
substantially as an entirety and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such Person to holders of
Capital Stock of such Person.
"PREFERRED STOCK" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred or preference stock, whether outstanding on the date
hereof or issued after the date of this Indenture, and including, without
limitation, all classes and series of preferred or preference stock of such
Person.
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"PUBLISHING" means Golden Books Publishing Company, Inc. until a
successor replaces it pursuant to this Indenture and thereafter means such
successor.
"QUALIFIED CAPITAL STOCK" means, with respect to any Person, any
Capital Stock of such Person that is not Disqualified Capital Stock.
"RECORD DATE" means the Record Dates specified in the Senior Notes;
provided that if any such date is not a Business Day, the Record Date shall be
the first day immediately preceding such specified day that is a Business Day.
"REDEMPTION DATE," when used with respect to any Senior Note to be
redeemed, means the date fixed for such redemption pursuant to this Indenture
and the Senior Notes.
"REDEMPTION PRICE," when used with respect to any Senior Note to be
redeemed, means the price fixed for such redemption pursuant to this Indenture
and the Senior Notes.
"REGISTRAR" shall have the meaning provided in Section 2.03.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights
Agreement dated as of the Issue Date, between Publishing and certain Holders, in
the form of Exhibit [___].
"RESTRICTED DEBT PREPAYMENT" means any purchase, redemption,
defeasance (including, but not limited to, in substance or legal defeasance) or
other acquisition or retirement for value, directly or indirectly, by Parent or
any of its Subsidiaries, prior to the scheduled maturity or prior to any
scheduled repayment of principal or sinking fund payment, as the case may be, in
respect of Indebtedness of Parent or any of its Subsidiaries that is subordinate
in right of payment to the Senior Notes.
"RESTRICTED PAYMENT" means any (i) Stock Payment, (ii) Investment
(other than a Permitted Investment) or (iii) Restricted Debt Prepayment.
"SECOND LIEN COLLATERAL" shall have the meaning provided in the
Security Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"SECURITY AGREEMENT" means that certain Security Agreement, dated as
of the date of this Indenture and substantially in the form attached as Exhibit
B hereto, as such agreement may be amended, modified or supplemented from time
to time.
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"SENIOR NOTES" means Publishing's 10% Senior Secured Notes due ____,
2004, as amended or supplemented from time to time in accordance with the terms
hereof, that are issued pursuant to this Indenture.
"STOCK PAYMENT" means, with respect to any Person, (i) the
declaration or payment by such Person, directly or indirectly, either in cash or
in property, of any dividend on (except, in the case of Parent, dividends
payable solely in Qualified Capital Stock of Parent), or the making by such
Person or any of its Subsidiaries of any other distribution in respect of, such
Person's Capital Stock or any warrants, rights or options to purchase or acquire
shares of any class of such Capital Stock, or (ii) the redemption, repurchase,
retirement or other acquisition for value by such Person or any of its
Subsidiaries, directly or indirectly, of such Person's or any of its
Subsidiaries' Capital Stock or any warrants, rights or options to purchase or
acquire shares of any class of such Capital Stock other than, in the case of
Parent, through the issuance in exchange therefor solely of Qualified Capital
Stock of Parent; provided, however, that in the case of a Subsidiary of Parent,
the term "Stock Payment" shall not include any such payment with respect to its
Capital Stock or warrants, rights or options to purchase or acquire shares of
any class of its Capital Stock if such payment is made to Parent or a
Wholly-Owned Subsidiary of Parent that is a Guarantor as of the Issue Date.
"SUBSIDIARY" means, with respect to any Person, (i) a corporation a
majority of whose Capital Stock with voting power, under ordinary circumstances,
to elect directors is, at the date of determination, directly or indirectly,
owned by such Person, by one or more subsidiaries of such Person or by such
Person and one or more subsidiaries of such Person or (ii) a partnership in
which such Person or a subsidiary of such Person is, at the date of
determination, a general partner of such partnership, or if such Person or its
subsidiary is entitled to receive more than 50% of the assets of such
partnership upon its dissolution, or (iii) any limited liability company or any
other Person (other than a corporation or a partnership) in which such Person, a
subsidiary of such Person or such Person and one or more subsidiaries of such
Person, directly or indirectly, at the date of determination, has (a) at least a
majority ownership interest or (b) the power to elect or direct the election of
a majority of the directors or other governing body of such Person.
"SURVIVING PERSON" shall have the meaning provided in Section 5.01.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Sections
77aaa-77bbbb), as amended, as in effect on the date of the execution of this
Indenture.
"TRADEMARK ASSIGNMENT" means the Trademark Security Interest
Agreement, dated as of the Issue Date, by Publishing in favor of the Collateral
Agent, in the form of Exhibit [___], as amended and supplemented from time to
time in accordance with its terms.
"TRUST OFFICER" means any officer of the Trustee assigned by the
Trustee to administer its corporate trust matters.
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"TRUSTEE" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"U.S. GOVERNMENT OBLIGATIONS" means direct non-callable obligations
of, or non-callable obligations guaranteed by, the United States of America for
the payment of which obligation or guarantee the full faith and credit of the
United States of America is pledged.
"U.S. LEGAL TENDER" means such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts.
"WHOLLY-OWNED SUBSIDIARY" means a subsidiary of a specified Person
all of the shares of Capital Stock, or, if applicable, all of the Partnership
Interests, of which (other than directors' qualifying shares) are at the time
directly or indirectly owned by the specified Person or owned by a Wholly-Owned
Subsidiary of the specified Person.
"YEARLY PERIOD" means each fiscal year (consisting of not less than
four fiscal quarters) of Parent and Publishing; provided that the first Yearly
Period shall begin on the Issue Date and shall end on December 31, 1999.
SECTION 1.02. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"indenture securities" means the Senior Notes.
"obligor" on the indenture securities means Publishing, any
Guarantor, or any other obligor on the Senior Notes or the Guarantee.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
and not otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction.
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
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(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions;
(6) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article,
Section or other subdivision; and
(7) "including" is not intended to be a limiting term.
ARTICLE TWO
THE SENIOR NOTES
SECTION 2.01. Form and Dating.
The Senior Notes, the notations thereon relating to the Guarantee
and the Trustee's certificate of authentication shall be substantially in the
form of Exhibit A. The Senior Notes may have notations, legends or endorsements
required by law, stock exchange rule or usage. Publishing and the Trustee shall
approve the form of the Senior Notes and any notation, legend or endorsement on
them. Each Senior Note shall be dated the date of its authentication.
The terms and provisions contained in the Senior Notes and the
Guarantee shall constitute, and are hereby expressly made, a part of this
Indenture and, to the extent applicable, Publishing, the Guarantors and the
Trustee, by their execution and delivery of this Indenture, expressly agree to
such terms and provisions and to be bound thereby.
SECTION 2.02. Execution and Authentication.
Two Officers, or an Officer and an Assistant Secretary, shall sign,
or one Officer shall sign and one Officer or an Assistant Secretary (each of
whom shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to, the Senior Notes for Publishing by manual or facsimile
signature. Each Guarantor shall execute the Guarantee in the manner set forth in
Section 11.09.
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If an Officer whose signature is on a Senior Note was an Officer at
the time of such execution but no longer holds that office at the time the
Trustee authenticates the Senior Note, the Senior Note shall be valid
nevertheless.
A Senior Note shall not be valid until an authorized signatory of
the Trustee manually signs the certificate of authentication on the Senior Note.
The signature shall be conclusive evidence that the Senior Note has been
authenticated under this Indenture.
The Trustee shall authenticate Senior Notes for original issue in
the aggregate principal amount of up to $87,000,000 upon a written order of
Publishing in the form of an Officers' Certificate. The Officers' Certificate
shall specify the amount of Senior Notes to be authenticated and the date on
which the Senior Notes are to be authenticated. The aggregate principal amount
of Senior Notes outstanding at any time may not exceed $87,000,000, except as
provided in Section 2.07 and except as provided in Section 4.01 with respect to
payment of interest by the issuance of additional Senior Notes. Upon the written
order of Publishing in the form of an Officers' Certificate, the Trustee shall
authenticate Senior Notes in substitution of Senior Notes originally issued to
reflect any name change of Publishing.
The Trustee may appoint an authenticating agent reasonably
acceptable to Publishing to authenticate Senior Notes. Unless otherwise provided
in the appointment, an authenticating agent may authenticate Senior Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with Publishing and
Affiliates of Publishing.
The Senior Notes shall be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof.
SECTION 2.03. Registrar and Paying Agent.
Publishing shall maintain an office or agency in New York, New York
where (a) Senior Notes may be presented or surrendered for registration of
transfer or for exchange ("Registrar"), (b) Senior Notes may be presented or
surrendered for payment ("Paying Agent") and (c) notices and demands to or upon
Publishing in respect of the Senior Notes and this Indenture may be served.
Publishing may also from time to time designate one or more other offices or
agencies where the Senior Notes may be presented or surrendered for any or all
such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve
Publishing of its obligation to maintain an office or agency in New York, New
York for such purposes. Publishing may act as its own Registrar or Paying Agent
except that for the purposes of Articles Three and Eight and Sections 4.04, 4.17
and 4.18, neither Parent nor any of its Subsidiaries or Affiliates shall act as
Paying Agent. The Registrar shall keep a register of the Senior Notes and of
their transfer and exchange. Publishing, upon notice to the Trustee, may have
one or more co-Registrars and one or more
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additional paying agents reasonably acceptable to the Trustee. The term "Paying
Agent" includes any additional paying agent. Publishing initially appoints the
Trustee as Registrar and Paying Agent until such time as the Trustee has
resigned or a successor has been appointed.
Publishing shall enter into an appropriate agency agreement with any
Agent not a party to this Indenture, which agreement shall incorporate
provisions of the TIA and implement the provisions of this Indenture that relate
to such Agent. Publishing shall notify the Trustee, in advance, of the name and
address of any such Agent. If Publishing fails to maintain a Registrar or Paying
Agent, the Trustee shall act as such.
SECTION 2.04. Paying Agent to Hold Assets in Trust.
Publishing shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all assets held by the Paying Agent for the payment of
principal of, or interest on, the Senior Notes (whether such assets have been
distributed to it by Publishing or any other obligor on the Senior Notes), and
shall notify the Trustee of any Default by Publishing (or any other obligor on
the Senior Notes) in making any such payment. If Parent or its Subsidiary or
Affiliate acts as Paying Agent, it shall segregate such assets and hold them as
a separate trust fund. Publishing at any time may require a Paying Agent to
distribute all assets held by it to the Trustee and account for any assets
disbursed and the Trustee may at any time during the continuance of any payment
Default, upon written request to a Paying Agent, require such Paying Agent to
distribute all assets held by it to the Trustee and to account for any assets
distributed. Upon distribution to the Trustee of all assets that shall have been
delivered by Publishing (or other obligor or guarantor on the Senior Notes) to
the Paying Agent, the Paying Agent shall have no further liability for such
assets.
SECTION 2.05. Securityholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, Publishing shall furnish to the
Trustee on or before each Interest Payment Date and at such other times as the
Trustee may request in writing a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Holders, which list
may be conclusively relied upon by the Trustee.
SECTION 2.06. Transfer and Exchange.
When Senior Notes are presented to the Registrar or a co-Registrar
with a request to register the transfer of such Senior Notes or to exchange such
Senior Notes for an equal principal amount of Senior Notes of other authorized
denominations, the Registrar or coRegistrar shall register the transfer or make
the exchange as requested if its requirements for such transaction are met;
provided, however, that the Senior Notes surrendered for transfer or
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exchange shall be duly endorsed or accompanied by a written instrument of
transfer in form satisfactory to Publishing and the Registrar or co-Registrar,
duly executed by the Holder thereof or his attorney duly authorized in writing.
To permit registrations of transfers and exchanges, Publishing shall execute and
the Trustee shall authenticate Senior Notes at the Registrar's or coRegistrar's
request. No service charge shall be made for any registration of transfer or
exchange, but Publishing may require payment of a sum sufficient to cover any
transfer tax or similar governmental charge payable in connection therewith
(other than any such transfer taxes or similar governmental charge payable upon
exchanges or transfers pursuant to Sections 2.02, 2.07, 2.10, 3.03, 3.06, 4.04,
4.17, 4.18 or 9.05). The Registrar or co-Registrar shall not be required to
register the transfer of or exchange of any Senior Note (i) during a period
beginning at the opening of business 15 days before the day of any selection of
Senior Notes for redemption under Section 3.02 and ending at the close of
business on such day of selection and (ii) selected for redemption in whole or
in part pursuant to Article Three, except the unredeemed portion of any Senior
Note being redeemed in part.
SECTION 2.07. Replacement Senior Notes.
If a mutilated Senior Note is surrendered to the Trustee or if the
Holder of a Senior Note claims that the Senior Note has been lost, destroyed or
wrongfully taken, Publishing shall issue and the Trustee shall authenticate a
replacement Senior Note if the Trustee's requirements are met. If required by
the Trustee or Publishing, such Holder must provide an indemnity bond or other
indemnity, sufficient in the judgment of both Publishing and the Trustee, to
protect Publishing, the Trustee or any Agent from any loss which any of them may
suffer if a Senior Note is replaced. Publishing may charge such Holder for its
reasonable, out-of-pocket expenses in replacing a Senior Note, including
reasonable fees and expenses of counsel.
Every replacement Senior Note is an additional obligation of
Publishing and is guaranteed by each Guarantor in the same manner as other
Senior Notes duly issued hereunder.
SECTION 2.08. Outstanding Senior Notes.
Senior Notes outstanding at any time are all the Senior Notes that
have been authenticated by the Trustee except those canceled by it, those
delivered to it for cancellation and those described in this Section as not
outstanding. A Senior Note does not cease to be outstanding because Publishing,
the Guarantors or any of their respective Affiliates holds the Senior Note.
If a Senior Note is replaced pursuant to Section 2.07 (other than a
mutilated Senior Note surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Senior
Note is held by a bona fide purchaser. A mutilated Senior Note ceases to be
outstanding upon surrender of such Senior Note and replacement thereof pursuant
to Section 2.07.
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If on a Redemption Date or the Maturity Date the Paying Agent (other
than Parent or its Subsidiary or Affiliate) holds U.S. Legal Tender or U.S.
Government Obligations sufficient to pay all of the principal and interest due
on the Senior Notes payable on that date, then on and after that date such
Senior Notes (to the extent of the principal amount redeemed, in the case of a
partial redemption) cease to be outstanding and interest on them ceases to
accrue.
SECTION 2.09. Treasury Senior Notes.
In determining whether the Holders of the required principal amount
of Senior Notes have concurred in any direction, waiver or consent, Senior Notes
owned by Publishing, the Guarantors or any of their respective Affiliates shall
be disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Senior Notes that the Trustee knows or has reason to know are so owned shall be
disregarded.
Publishing shall notify the Trustee, in writing (which notice shall
constitute actual notice for purposes of the foregoing sentence), when it, the
Guarantors or any of their respective Affiliates repurchases or otherwise
acquires Senior Notes, of the aggregate principal amount of such Senior Notes so
repurchased or otherwise acquired and such other information as the Trustee may
reasonably request and the Trustee shall be entitled to rely thereon.
SECTION 2.10. Temporary Senior Notes.
Until definitive Senior Notes are ready for delivery, Publishing may
prepare and the Trustee shall authenticate temporary Senior Notes. Temporary
Senior Notes shall be substantially in the form of definitive Senior Notes but
may have variations that Publishing considers appropriate for temporary Senior
Notes. Without unreasonable delay, Publishing shall prepare and the Trustee
shall authenticate definitive Senior Notes in exchange for temporary Senior
Notes, without charge to the Holder. Until so exchanged, the temporary Senior
Notes shall be entitled to the same benefits under this Indenture as definitive
Senior Notes.
SECTION 2.11. Cancellation.
Publishing at any time may deliver Senior Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Senior Notes surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent
(other than Parent or its Subsidiary or Affiliate), and no one else, shall
cancel and, at the written direction of Publishing, shall dispose of all Senior
Notes surrendered for transfer, exchange, payment or cancellation. Subject to
Section 2.07, Publishing may not issue new Senior Notes to replace Senior Notes
that it has paid or delivered to the Trustee for cancellation. If Parent or any
of its Subsidiaries shall acquire any of the Senior Notes, such acquisition
shall not operate as a redemption or satisfaction of the Indebtedness
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represented by such Senior Notes unless and until the same are surrendered to
the Trustee for cancellation pursuant to this Section 2.11.
SECTION 2.12. Defaulted Interest.
If Publishing defaults in a payment of interest on the Senior Notes,
it shall, unless the Trustee fixes another record date pursuant to Section 6.10,
pay the defaulted interest, plus (to the extent lawful) any interest payable on
the defaulted interest, to the Persons who are Holders on a subsequent special
record date, which date shall be the fifteenth day next preceding the date fixed
by Publishing for the payment of defaulted interest or the next succeeding
Business Day if such date is not a Business Day. At least 15 days before the
subsequent special record date, Publishing shall mail to each Holder, with a
copy to the Trustee, a notice that states the subsequent special record date,
the payment date and the amount of defaulted interest, and interest payable on
such defaulted interest, if any, to be paid.
SECTION 2.13. CUSIP Number.
Publishing in issuing the Senior Notes shall use a "CUSIP" number
and the Trustee shall use the CUSIP number in notices of redemption or exchange
as a convenience to Holders; provided that any such notice may state that no
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Senior Notes, and that reliance may be placed
only on the other identification numbers printed on the Senior Notes.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
If Publishing elects to redeem Senior Notes pursuant to Section 3.07
hereof, it shall notify the Trustee of the Redemption Date and the principal
amount of Senior Notes to be redeemed and whether it wants the Trustee to give
notice of redemption to the Holders at least 30 days (unless shorter notice
shall be satisfactory to the Trustee, as evidenced in a writing signed on behalf
of the Trustee) but not more than 60 days before the Redemption Date. Any such
notice may be canceled at any time prior to notice of such redemption being
mailed to any Holder and shall thereby be void and of no effect.
Publishing shall give each notice provided for in this Section 3.01,
at its expense, at least 30 days before the applicable Redemption Date (unless a
shorter notice period shall be satisfactory to the Trustee, as evidenced in a
writing signed on behalf of the Trustee), together with an Officers' Certificate
and an Opinion of Counsel stating that such redemption shall comply with the
conditions contained herein and in the Senior Notes.
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SECTION 3.02. Selection of Senior Notes to Be Redeemed.
If fewer than all of the Senior Notes are to be redeemed, the
Trustee shall select the Senior Notes to be redeemed by lot or by such other
method as the Trustee shall determine to be fair and appropriate and in such
manner as complies with applicable legal and other requirements, if any.
The Trustee shall make the selection from the Senior Notes
outstanding and not previously called for redemption and shall promptly notify
Publishing in writing of the Senior Notes selected for redemption and, in the
case of any Senior Note selected for partial redemption, the principal amount
thereof to be redeemed. Senior Notes in denominations of $1,000 may be redeemed
only in whole. The Trustee may select for redemption portions (equal to $1,000
or any integral multiple thereof) of the principal of Senior Notes that have
denominations larger than $1,000. Provisions of this Indenture that apply to
Senior Notes called for redemption also apply to portions of Senior Notes called
for redemption.
SECTION 3.03. Notice of Redemption.
At least 30 days (unless shorter notice shall be satisfactory to the
Trustee, as evidenced in a writing signed on behalf of the Trustee) but not more
than 60 days before a Redemption Date, Publishing shall mail a notice of
redemption by first class mail to each Holder whose Senior Notes are to be
redeemed at its registered address. At Publishing's request, the Trustee shall
give the notice of redemption in Publishing's name and at Publishing's expense.
Each notice for redemption shall identify the Senior Notes to be redeemed and
shall state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) the name and address of the Paying Agent;
(4) that Senior Notes called for redemption must be surrendered to
the Paying Agent to collect the Redemption Price and accrued
interest, if any;
(5) that, unless Publishing defaults in making the redemption
payment, interest on Senior Notes called for redemption ceases
to accrue on and after the Redemption Date, and the only
remaining right of the Holders of such Senior Notes is to
receive payment of the Redemption Price upon surrender to the
Paying Agent of the Senior Notes redeemed;
(6) if any Senior Note is being redeemed in part, the portion of
the principal amount of such Senior Note to be redeemed and
that, after the Redemption Date, and upon surrender of such
Senior Note, a new Senior Note or
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Senior Notes in aggregate principal amount equal to the
unredeemed portion thereof will be issued;
(7) if fewer than all the Senior Notes are to be redeemed, the
identification of the particular Senior Notes (or portion
thereof) to be redeemed, as well as the aggregate principal
amount of Senior Notes to be redeemed and the aggregate
principal amount of Senior Notes to be outstanding after such
partial redemption; and
(8) the Paragraph of the Senior Notes pursuant to which the Senior
Notes are to be redeemed.
SECTION 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with Section 3.03,
Senior Notes called for redemption become due and payable on the Redemption Date
and at the Redemption Price. Upon surrender to the Trustee or Paying Agent, such
Senior Notes called for redemption shall be paid at the Redemption Price.
SECTION 3.05. Deposit of Redemption Price.
On or before the Redemption Date, Publishing shall deposit with the
Paying Agent U.S. Legal Tender sufficient to pay the Redemption Price of all
Senior Notes to be redeemed on that date (other than Senior Notes or portions
thereof called for redemption on that date which have been delivered by
Publishing to the Trustee for cancellation). The Paying Agent shall promptly
return to Publishing any U.S. Legal Tender so deposited which is not required
for that purpose upon the written request of Publishing, except with respect to
monies owed as obligations to the Trustee pursuant to Article Seven.
If Publishing complies with the preceding paragraph, then, unless
Publishing defaults in the payment of such Redemption Price and accrued
interest, if any, interest on the Senior Notes to be redeemed will cease to
accrue on and after the applicable Redemption Date, whether or not such Senior
Notes are presented for payment.
SECTION 3.06. Senior Notes Redeemed in Part.
Upon surrender of a Senior Note that is to be redeemed in part, the
Trustee shall authenticate for the Holder a new Senior Note or Senior Notes
equal in principal amount to the unredeemed portion of the Senior Note
surrendered.
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SECTION 3.07. Optional Redemption.
The Senior Notes will be redeemable, at the option of Publishing, in
whole at any time or in part from time to time, on and after the Issue Date, at
the following Redemption Prices (expressed as percentages of the principal
amount), if redeemed during the twelve-month period commencing on _________of
the year set forth below, plus, in each case, accrued interest thereon to the
Redemption Date:
YEAR PERCENTAGE
1999 ................................ 105.00%
2000 ................................ 103.33%
2001 ................................ 101.25%
2002 and thereafter.................. 100.00%
SECTION 3.08. Mandatory Redemption.
The Senior Notes shall be mandatorily redeemable by Publishing, in
part in an amount equal to $8,333,333 principal amount of Senior Notes, on each
of _____________, 2002, _____________, 2003, and ______________, 2003 (each, a
Redemption Date) at a Redemption Price equal to 100% of the principal amount
plus accrued interest thereon to the applicable Redemption Date.
SECTION 3.09. Mandatory Redemption Upon Asset Sale.
The Senior Notes shall be mandatorily redeemable by Publishing, in
whole or in part, upon any Asset Sale of Collateral (except, in the case of
Second Lien Collateral, to the extent the proceeds of such Asset Sale are used
to permanently repay the New Credit Facility in accordance with Section
4.18(a)(ii)(A)) at the Redemption Price specified in Section 3.07, in an amount
equal to the Net Cash Proceeds of such Asset Sale.
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Senior Notes.
Publishing shall punctually pay the principal of and interest on the
Senior Notes on the dates and in the manner provided in the Senior Notes. An
installment of principal of or interest on the Senior Notes shall be considered
paid on the date it is due if the Trustee or Paying Agent (other than Parent or
its Subsidiary or Affiliate) holds on that date U.S. Legal Tender (or other
consideration permitted to be paid by the terms of such Senior Notes) designated
for and sufficient to pay all principal, premium and interest then due.
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During the period in which Senior Notes are permitted by their terms
to pay interest thereon at a rate of 13.5% per annum by the issuance of
additional Senior Notes, Publishing shall notify the Trustee in writing of its
election to pay interest on such Senior Notes through the issuance of additional
Senior Notes and the aggregate amount of such additional Senior Notes to be
issued not less than 10 nor more than 45 days prior to the Record Date for the
Interest Payment Date on which additional Senior Notes will be issued. On each
such interest payment date, the Trustee shall authenticate additional Senior
Notes for original issuance to each Holder on the relevant Record Date in the
aggregate principal amount required to pay such interest. Each such additional
Senior Note is an additional obligation of Publishing and the Guarantors and
shall be governed by, and entitled to the benefits of, this Indenture and shall
be subject to the terms of this Indenture (including the guarantee provisions)
and shall rank pari passu with and be subject to the same terms (including the
rate of interest from time to time payable thereon) as the Senior Notes (except,
as the case may be, with respect to the issuance date and aggregate principal
amount).
Publishing shall pay interest on overdue principal at the rate borne
by the Senior Notes and it shall pay interest on overdue installments of
interest at the same rate, to the extent lawful.
SECTION 4.02. Maintenance of Office or Agency.
Publishing shall maintain in New York, New York, the office or
agency required under Section 2.03 hereof. Publishing shall give prior notice to
the Trustee of the location, and any change in the location, of such office or
agency. If at any time Publishing shall fail to maintain any such required
office or agency or shall fail to furnish the Trustee with the address thereof,
such presentations, surrenders, notices and demands may be made or served at the
address of the Trustee set forth in Section 13.02.
SECTION 4.03. Limitation on Restricted Payments.
Publishing shall not, and shall cause each of its Subsidiaries not
to, and Parent shall not, and shall cause each of its Subsidiaries not to,
directly or indirectly, make any Restricted Payment.
SECTION 4.04. Maintenance of Net Worth.
(a) If Parent's Net Worth at the end of each of any two consecutive
fiscal quarters (the last day of the second such fiscal quarter being referred
to as the "Deficiency Date") is equal to or less than the Minimum Net Worth,
then Publishing will be required to make an offer to all holders of Senior Notes
(a "Deficiency Offer") to purchase, on a pro rata basis, on or before the last
day of the next following fiscal quarter or, in the event that the Deficiency
Date is the last day of Publishing's fiscal year, the 45th day after the last
day of the next following fiscal quarter (the "Deficiency Repurchase Date"),
$8.7 million aggregate principal amount of Senior
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Notes or, if a lesser principal amount of Senior Notes is outstanding at the
Deficiency Date, all of the Senior Notes then outstanding (the "Deficiency
Repurchase Amount") at a purchase price equal to the percentage specified in
Section 3.07 of the principal amount thereof plus accrued interest to the
Deficiency Repurchase Date. Publishing may credit against the principal amount
of any Senior Notes to be acquired in any Deficiency Offer 100% of the principal
amount of Senior Notes acquired by Publishing through purchase, optional
redemption, exchange or otherwise (but not pursuant to a mandatory redemption)
during the 180-day period ending on the Deficiency Date and surrendered for
cancellation. Publishing, however, may not credit Senior Notes against the
Deficiency Repurchase Amount if such Senior Notes were previously used as a
credit against any other required payment pursuant to this Indenture. To the
extent holders properly tender Senior Notes in an amount exceeding the
Deficiency Repurchase Amount, Senior Notes of tendering holders will be
repurchased on a pro rata basis (based on amounts tendered) in integral
multiples of $1,000 principal amount. In no event shall the failure of Parent's
Net Worth to equal or exceed the Minimum Net Worth at the end of any fiscal
quarter be counted toward the making of more than one Deficiency Offer.
Publishing shall notify the Trustee prior to the making of any
Deficiency Offer whether Publishing elects to credit Senior Notes against its
obligation to make a payment pursuant to a Deficiency Offer as provided above
and set forth the amount of the credit and the basis provided above for such
credit (including identification of any previously canceled Senior Notes not
theretofore made the basis for the credit to a Deficiency Repurchase Amount or
other required prepayment), and shall deliver such Senior Notes with such
notice.
Parent shall give the Trustee notice that its Net Worth is equal to
or less than the Minimum Net Worth at the end of any fiscal quarter in which its
Net Worth is equal to or less than such amount if such quarter is one of the
first three quarters of any fiscal year of Parent, within 60 days after the end
of such quarter and, if such quarter is the fourth quarter of any fiscal year of
Parent, within 90 days after the end of such fiscal year. The Trustee shall
notify the Holders that it has received such a notice from Parent within 10 days
after it receives such notice. Failure to give such notices shall not affect the
obligations of Parent or Publishing pursuant to this Section 4.04.
(b) Notice of a Deficiency Offer shall be sent, by first class mail,
by Publishing to all Holders, with a copy to the Trustee, not less than 30 days
nor more than 45 days before the Deficiency Repurchase Date at their last
registered address. The Deficiency Offer shall remain open from the time of
mailing until five days (or such shorter period as may be required under
applicable law) before the Deficiency Repurchase Date. The notice shall be
accompanied by a copy of the information regarding Parent required to be
contained in a Quarterly Report filed pursuant to the Exchange Act on Form 10-Q
(x) for Parent's first fiscal quarter if the Deficiency Date is the last day of
Parent's second fiscal quarter, (y) for Parent's second fiscal quarter if the
Deficiency Date is the last day of Parent's third fiscal quarter or (z) for
Parent's third fiscal quarter if the Deficiency Date is the last day of Parent's
last fiscal quarter. If the Deficiency Date is the last day of Parent's first
fiscal quarter, a copy of the information
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required to be contained in an Annual Report to Shareholders pursuant to Rule
14a-3 under the Exchange Act for the fiscal year ending immediately prior to
such Deficiency Date and in an Annual Report filed pursuant to the Exchange Act
on Form 10-K for such fiscal year shall accompany the notice. If Parent is not
subject to the requirements of Section 13 or 15(d) of the Exchange Act, the
notice shall be accompanied by financial statements, including any notes thereto
(and, in the case of a fiscal year end, an auditors' report of a firm of
established national reputation reasonably satisfactory to the Trustee),
comparable to that which Parent would have been required to include in such
Quarterly Reports or Annual Report to Shareholders, as the case may be. The
notice shall contain all instructions and materials necessary to enable such
Holders to tender Senior Notes pursuant to the Deficiency Offer. The notice,
which shall govern the terms of the Deficiency Offer, shall state:
(1) that the Deficiency Offer is being made pursuant to this
Section 4.04;
(2) the Deficiency Repurchase Amount, the purchase price
(including the amount of accrued interest) and the Deficiency Repurchase Date;
(3) whether Publishing has elected to credit against the
Deficiency Repurchase Amount, and has delivered to the Trustee for cancellation,
the Senior Notes that are to be made the basis for such credit and, if so, the
amount of such Senior Notes;
(4) that any Senior Note not tendered or accepted for payment
will continue to accrue interest;
(5) that any Senior Note accepted for payment pursuant to the
Deficiency Offer becomes due and payable on the Deficiency Repurchase Date, and
that, unless Publishing defaults in making payment therefor, such Senior Note
shall cease to accrue interest after the Deficiency Repurchase Date;
(6) that Holders electing to have a Senior Note purchased
pursuant to a Deficiency Offer will be required to surrender the Senior Note,
with the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Senior Note completed, to the Paying Agent at the address specified in the
notice at least five days before the Deficiency Repurchase Date;
(7) that Holders will be entitled to withdraw their election
if the Paying Agent receives, not later than two Business Days prior to the
Deficiency Repurchase Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Senior Notes
the Holder delivered for purchase and a statement that such Holder is
withdrawing his election to have the Senior Note purchased;
(8) that if Senior Notes in a principal amount in excess of
the principal amount of Senior Notes to be acquired pursuant to this Section
4.04 are tendered and not
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withdrawn pursuant to the Deficiency Offer, Publishing shall purchase Senior
Notes on a pro rata basis (with such adjustments as may be deemed appropriate by
Publishing so that only Senior Notes in denominations of $ 1,000 or integral
multiples of $1,000 shall be acquired); and
(9) that Holders whose Senior Notes were purchased only in
part will be issued new Senior Notes equal in principal amount to the
unpurchased portion of the Senior Notes surrendered.
On or before a Deficiency Repurchase Date, Publishing shall (i)
accept for payment Senior Notes or portions thereof tendered pursuant to the
Deficiency Offer (on a pro rata basis if required pursuant to paragraph (8)
above), (ii) deposit with the Paying Agent U.S. Legal Tender or Senior Notes
acquired in the manner described in the first paragraph of this Section 4.04
sufficient to pay the purchase price of all Senior Notes or portions thereof so
accepted or to be credited against the Deficiency Repurchase Amount and (iii)
deliver to the Trustee Senior Notes so accepted together with an Officers'
Certificate stating the Senior Notes or portions thereof accepted for payment by
Publishing. The Paying Agent shall promptly mail or deliver to Holders of Senior
Notes so accepted payment in an amount equal to the purchase price, and the
Trustee shall promptly authenticate and mail or deliver to such Holders a new
Senior Note equal in principal amount to any unpurchased portion of the Senior
Note surrendered. Any Senior Notes not so accepted shall be promptly mailed or
delivered by Publishing to the Holder thereof. Publishing will publicly announce
the results of the Deficiency Offer on the Business Day next following a
Deficiency Repurchase Date. For purposes of this Section 4.04, the Trustee shall
act as the Paying Agent.
SECTION 4.05. Corporate Existence.
Except as otherwise permitted by Article Five, Parent and Publishing
shall and shall cause their Subsidiaries to do or cause to be done all things
necessary to preserve and keep in full force and effect their respective
corporate existence and the corporate, partnership or other existence of each of
their respective Subsidiaries in accordance with the respective organizational
documents of each such entity and the rights (charter and statutory), licenses
and franchises of Parent, Publishing and each of their Subsidiaries; provided,
however, that each of Parent and Publishing shall not be required to preserve,
with respect to itself, any right, license or franchise, and with respect to any
of its Subsidiaries, any such right, license or franchise, or the corporate,
partnership or other existence of such Subsidiaries, if the Board of Directors
of Parent and Publishing shall determine that the preservation thereof is no
longer desirable in the conduct of the business of Parent, Publishing and their
Subsidiaries, taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders.
SECTION 4.06. Payment of Taxes and Other Claims.
Each of Parent and Publishing shall and shall cause their
Subsidiaries to pay or discharge or cause to be paid or discharged, before the
same shall become delinquent, (i) all
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taxes, assessments and governmental charges (including withholding taxes and any
penalties, interest and additions to taxes) levied or imposed upon them or any
of their Subsidiaries or properties of them or any of their Subsidiaries and
(ii) all lawful claims for labor, materials and supplies that, if unpaid, might
by law become a Lien upon the property of them or any of their Subsidiaries;
provided, however, that Parent, Publishing and their Subsidiaries shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim if either (a) the amount, applicability or validity
thereof is being contested in good faith by appropriate proceedings and an
adequate reserve has been established therefor to the extent required by GAAP or
(b) the failure to make such payment or effect such discharge (together with all
other such failures) would not have a material adverse effect on the financial
condition or results of operations of Parent, Publishing and their Subsidiaries
taken as a whole.
SECTION 4.07. Maintenance of Properties and Insurance.
(a) Parent and Publishing shall cause all properties used or useful
to the conduct of its business or the business of any of their Subsidiaries to
be maintained and kept in good condition, repair and working order and supplied
with all necessary equipment and shall cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereto, all as in their
judgment may be necessary, so that the business carried on in connection
therewith may be properly and advantageously conducted at all times unless the
failure to so maintain such properties (together with all other such failures)
would not have a material adverse effect on the financial condition or results
of operations of Parent, Publishing and their Subsidiaries taken as a whole;
provided, however, that nothing in this Section 4.07 shall prevent Parent,
Publishing or any of their Subsidiaries from discontinuing the operation or
maintenance of any of such properties, or disposing of any of them, if such
discontinuance or disposal would not be disadvantageous in any material respect
to the Holders and is either (i) in the ordinary course of business, or (ii) is
otherwise permitted by this Indenture.
(b) Parent and Publishing shall provide or cause to be provided, for
itself and each of its Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds that, in the reasonable,
good faith opinion of Parent and Publishing are adequate and appropriate for the
conduct of the business of Parent and Publishing and their Subsidiaries in a
prudent manner, with reputable insurers or with the government of the United
States of America or an agency or instrumentality thereof, in such amounts, with
such deductibles, and by such methods as shall be either (i) consistent with
past practices of Parent, Publishing or the applicable Subsidiary or (ii)
customary, in the reasonable, good faith opinion of Parent and Publishing, for
corporations similarly situated in the industry.
SECTION 4.08. Compliance Certificate; Notice of Default.
(a) Each of Parent and Publishing shall deliver to the Trustee
within 120 days after the end of Publishing's fiscal year an Officers'
Certificate, complying with Section 314(a)(4) of the TIA, stating that a review
of its activities and the activities of its Subsidiaries during the
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preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether each has kept, observed, performed
and fulfilled its obligations under this Indenture and further stating, as to
each such Officer signing such certificate, that to the best of his knowledge
each of Parent and Publishing and their Subsidiaries during such preceding
fiscal year has kept, observed, performed and fulfilled each and every such
covenant and no event of default under the New Credit Facility, Default or Event
of Default occurred during such year or, if such signers do know of such an
event of default, Default or Event of Default, the certificate shall describe
the event of default, Default or Event of Default and its status with
particularity. The Officers' Certificate shall also notify the Trustee should
Publishing elect to change the manner in which it fixes its fiscal year end.
(b) Publishing shall deliver to the Trustee within 120 days after
the end of each fiscal year a written statement by Publishing's independent
certified public accountants stating (A) that their audit examination has
included a review of the terms of this Indenture and the Senior Notes as they
relate to accounting matters, and (B) whether, in connection with their audit
examination, any Default has come to their attention and if such a Default has
come to their attention, specifying the nature and period of existence thereof.
(c) Each of Parent and Publishing shall and shall cause each of
their Subsidiaries to deliver to the Trustee, forthwith upon becoming aware, and
in any event within 5 days after the occurrence, of (i) any Default or Event of
Default in the performance of any covenant, agreement or condition contained in
this Indenture; (ii) any event of default under the New Credit Facility or any
event of default under any other bond, debenture, note or other evidence of
Indebtedness of Parent, Publishing or any of their respective Subsidiaries, or
under any mortgage, indenture or other instrument (as that term is used in
Section 6.01(4)); and (iii) any decline in Net Worth such that the Net Worth is
equal to or less than the Minimum Net Worth at the end of any fiscal quarter or
any subsequent increase in Net Worth above such amount at the end of any fiscal
quarter, an Officers' Certificate specifying with particularity such event.
SECTION 4.09. Compliance with Laws.
Each of Parent and Publishing shall comply, and shall cause each of
their respective Subsidiaries to comply, with all applicable statutes, rules,
regulations, orders and restrictions of the United States of America, all states
and municipalities thereof, and of any governmental department, commission,
board, regulatory authority, bureau, agency and instrumentality of the
foregoing, in respect of the conduct of their respective businesses and the
ownership of their respective properties, except such as are being contested in
good faith and by appropriate proceedings and except for such noncompliances as
would not in the aggregate have a material adverse effect on the financial
condition or results of operations of Parent, Publishing and their Subsidiaries
taken as a whole.
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SECTION 4.10. Commission Reports.
Whether or not required by the rules and regulations of the
Commission, so long as any Senior Notes are outstanding, Parent will furnish to
the Holders of Senior Notes all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if Parent was required to file such Forms, including a "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and,
with respect to the annual information only, a report thereon by Parent's
certified independent accountants. In addition, whether or not required by the
rules and regulation of the Commission, Publishing will file a copy of all such
information with the Commission for public availability and make such
information available to investors who request it in writing.
Parent shall file with the Trustee, within 5 days after it files the
same with the Commission, copies of the quarterly and annual reports and the
information, documents, and other reports (or copies of such portions of any of
the foregoing as the Commission may by rules and regulations prescribe) required
to be filed with the Commission pursuant to Section 13 or 15(d) of the Exchange
Act. Parent and Publishing shall also comply with the other provisions of TIA
Section 314(a).
SECTION 4.11. Waiver of Stay, Extension or Usury Laws.
Each of Publishing and the Guarantors covenant (to the extent that
each may lawfully do so) that it will not at any time insist upon, plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law that would prohibit or forgive any
of Publishing or the Guarantors from paying all or any portion of the principal
of or interest on the Senior Notes or the Guarantee as contemplated herein,
wherever enacted, now or at any time hereafter in force, or which may affect the
covenants or the performance of this Indenture; and (to the extent that each may
lawfully do so) each of Publishing and the Guarantors hereby expressly waives
all benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power herein granted to the Trustee, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
SECTION 4.12. Limitation on Transactions with Affiliates.
(a) Parent and Publishing shall not and shall not permit any of
their respective Subsidiaries to (i) sell, lease, transfer, issue or otherwise
dispose of any of its properties or assets or securities to, (ii) purchase any
property, assets or securities from, (iii) make any Investment in, or (iv) enter
into or suffer to exist any contract or agreement with or for the benefit of, an
Affiliate of Parent, Publishing or any of their respective Subsidiaries (an
"Affiliate Transaction"), other than Affiliate Transactions permitted under the
following paragraph, unless the Board of Directors of Parent, pursuant to a
Board Resolution, reasonably and in good faith determines that such Affiliate
Transaction is fair to Parent, Publishing or such Subsidiary, as the case may
be,
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and is on terms at least as favorable as might reasonably have been obtainable
at such time from an unaffiliated party. All Affiliate Transactions (and each
series of related Affiliate Transactions which are similar or part of a common
plan) involving aggregate payments or other property with a fair market value in
excess of $2,000,000 shall be approved by a majority of the disinterested
members of the Board of Directors of Parent, such approval to be evidenced by a
Board Resolution stating that such Board of Directors has determined that such
transaction complies with the foregoing provisions. In addition, neither
Publishing, Parent nor any of their Subsidiaries shall enter into an Affiliate
Transaction or series of related Affiliate Transactions involving or having a
value of more than $5 million to Publishing, Parent or any Subsidiary unless
Publishing, Parent or such Subsidiary has received an opinion from an
Independent Financial Advisor to the effect that the financial terms of such
Affiliate Transaction are fair to Publishing, Parent or such Subsidiary or are
at least as favorable as might reasonably have been obtained at such time from
an unaffiliated party.
(b) The provisions of the foregoing paragraph shall not apply to (i)
reasonable and customary fees and compensation paid to, and indemnity (other
than for fraud or intentional misrepresentation) provided on behalf of,
officers, directors, employees or consultants of Publishing, Parent or any of
their Subsidiaries, as determined in good faith by the Board of Directors of
Publishing, Parent or any such Subsidiary or the senior management thereof, and
(ii) transactions exclusively between or among Parent and any of its
Wholly-Owned Subsidiaries that are Guarantors as of the Issue Date or
exclusively between or among such Wholly-Owned Subsidiaries that are Guarantors
as of the Issue Date, provided such transactions are not otherwise prohibited by
this Indenture.
SECTION 4.13. Limitation on Incurrences of Additional Indebtedness.
(a) Except as set forth in this Section 4.13, Parent and Publishing
shall not, and shall not permit any of their respective Subsidiaries, after the
original issuance of the Senior Notes, directly or indirectly, to incur, assume,
guarantee, become liable, contingently or otherwise, with respect to, or
otherwise become responsible for the payment of (collectively, "incur") any
Indebtedness. For purposes of this Indenture, Indebtedness incurred by any
Person that is not a Subsidiary of Parent or Publishing, which Indebtedness is
outstanding at the time such Person becomes, or is merged into or consolidated
with, such Subsidiary, Parent or Publishing, shall be deemed to have been
incurred or issued, as the case may be, at the time such Person becomes, or is
merged into or consolidated with, such Subsidiary, Parent or Publishing.
(b) Notwithstanding Section 4.13(a), Publishing, Parent or any of
their Subsidiaries may incur Indebtedness pursuant to the New Credit Facility in
an aggregate principal amount at any time outstanding not to exceed (i) $45
million, or (ii) for each Fiscal Quarter immediately following a Fiscal Quarter
in which the New Credit Facility Increase Test is met, $60 million, subject in
each case to permanent reduction as provided in Section 4.18. [The New Credit
Facility Increase Test shall be met when ________________ [test provisions to be
added].]
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(c) Notwithstanding Section 4.13(a), Publishing, Parent and their
Subsidiaries may incur Indebtedness evidenced by the Senior Notes.
(d) Notwithstanding Section 4.13(a), Parent or Publishing may incur
Indebtedness to any Guarantor, to the extent permitted by Section 4.12.
(e) [Additional Indebtedness to be discussed.]
SECTION 4.14. Limitation on Payment Restrictions Affecting Subsidiaries.
Publishing and Parent shall not, and shall not permit any of their
Subsidiaries to, directly or indirectly, create or suffer to exist, or allow to
become effective any consensual Payment Restriction with respect to any of its
Subsidiaries, except for (i) any such restrictions contained in (a) the New
Credit Facility and related documents as in effect on the Issue Date as any such
payment restriction may apply to any present or future Subsidiary, (b) this
Indenture, (c) secured Indebtedness otherwise permitted to be incurred pursuant
to Sections 4.13 and 4.15 hereof and that limits the right of the debtor to
dispose of the assets securing such Indebtedness; (ii) customary provisions
restricting subletting, transfer or assignment of any lease or agreement entered
into by a Subsidiary of Parent or the assets (other than cash) subject thereto;
(iii) customary pre-closing restrictions with respect to a Subsidiary of Parent
pursuant to an agreement that has been entered into for the sale or disposition
of all or a portion of the Capital Stock or assets of such Subsidiary; and (iv)
restrictions contained in Indebtedness incurred to refinance, refund, extend or
renew Indebtedness referred to in clause (i) above or amendments to the
Indebtedness referred to in clause (i) above; provided that the Payment
Restrictions contained therein are not any more restrictive than those provided
for in such Indebtedness being refinanced, refunded, extended or renewed.
SECTION 4.15. Limitation on Liens.
Publishing and Parent shall not and shall not permit any Subsidiary
to create, incur, assume or suffer to exist any Liens upon any of their
respective assets except for, to the extent permitted by the Security Agreement,
Permitted Liens.
SECTION 4.16. Restrictions on Sale and Ownership of Subsidiaries.
Publishing and Parent will not permit any of its Subsidiaries to
issue any Capital Stock or Partnership Interest (other than to Publishing or
Parent or to a Wholly-Owned Subsidiary that is a Guarantor as of the Issue Date)
or permit any Person (other than Publishing or Parent or a Wholly-Owned
Subsidiary that is a Guarantor as of the Issue Date) to own any Capital Stock or
Partnership Interest of any Subsidiary (other than in the case of a sale of 100%
of the Capital Stock of a Subsidiary which is not otherwise prohibited by this
Indenture).
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SECTION 4.17. Limitation on Change of Control.
Upon the occurrence of a Change of Control, Publishing will be
required to make an offer (the "Change of Control Offer") to repurchase all or
any part (equal to $1,000 principal amount or an integral multiple thereof) of a
holder's Senior Notes at a purchase price equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (the "Change of Control Payment"). Within 20 days following any
Change of Control, Publishing shall mail by first class mail a notice to each
Holder with a copy to the Trustee, which notice shall govern the terms of the
Change of Control Offer, stating:
(1) that the Change of Control Offer is being made pursuant to this
Section 4.17 and that all Senior Notes tendered will be accepted for
payment;
(2) the purchase price and the purchase date, which shall be no
earlier than 30 days nor later than 40 days from the date such
notice is mailed (the "Change of Control Payment Date");
(3) that any Senior Note not tendered will continue to accrue
interest;
(4) that, unless Publishing defaults in the payment of the Change of
Control Payment, all Senior Notes accepted for payment pursuant to
the Change of Control Offer shall cease to accrue interest after the
Change of Control Payment Date;
(5) that holders electing to have any Senior Notes purchased
pursuant to a Change of Control Offer will be required to surrender
the Senior Notes, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Senior Notes completed, to the
Paying Agent at the address specified in the notice prior to the
close of business on the third Business Day preceding the Change of
Control Payment Date;
(6) that holders will be entitled to withdraw their election if the
Paying Agent receives, not later than the close of business on the
second Business Day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the
name of the holder, the principal amount of Senior Notes delivered
for purchase, and a statement that such holder is withdrawing his
election to have such Senior Notes purchased; and
(7) that holders whose Senior Notes are being purchased only in part
will be issued new Senior Notes equal in principal amount to the
unpurchased portion of the Senior Notes surrendered, which
unpurchased portion must be equal to $1,000 principal amount or an
integral multiple thereof.
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On the Change of Control Payment Date, Publishing will (i) accept
for payment Senior Notes or portions thereof tendered pursuant to the Change of
Control Offer, (ii) deposit with the Paying Agent an amount equal to the Change
of Control Payment in respect of all Senior Notes or portions thereof so
tendered and (iii) deliver or cause to be delivered to the Trustee the Senior
Notes so accepted together with an Officers' Certificate stating the Senior
Notes or portions thereof being tendered to Publishing. The Paying Agent shall
promptly mail to each Holder of Senior Notes so accepted payment in an amount
equal to the purchase price for such Senior Notes, and the Trustee shall
promptly authenticate and mail to each holder a new Senior Note equal in
principal amount to any unpurchased portion of the Senior Notes surrendered, if
any; provided, that each new Senior Note shall be in a principal amount of
$1,000 or an integral multiple thereof. Publishing will publicly announce the
results of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date. For purposes of this Section 4.17, the Trustee
shall act as the Paying Agent.
SECTION 4.18. Limitation on Asset Sales.
(a) Parent will not, and will not permit any of its Subsidiaries to,
consummate any Asset Sale unless (i) Parent or the applicable Subsidiary
receives consideration at the time of such Asset Sale (the "Asset Sale Closing
Date") at least equal to the fair market value of the assets sold or otherwise
disposed of (as determined in good faith by the Board of Directors of Parent or,
with respect to assets having a fair market value in excess of $2 million, an
Independent Financial Advisor) and at least 90% of the fair market value (as so
determined) of the consideration so received by Parent or such Subsidiary is in
the form of cash; provided, however, that the amount of (A) any liabilities of
Parent or its Subsidiaries that are assumed by the transferee in any such
transaction (as shown on Parent's or such Subsidiary's most recent balance
sheet) and (B) any Cash Equivalents received by Parent or any Subsidiary from
such transferee that are immediately converted by Parent or such Subsidiary into
cash shall both be deemed to be cash, solely to the extent of the cash received
in the case of (B), for purposes of this Section 4.18; and (ii) the Net Cash
Proceeds received by Parent or such Subsidiary from such Asset Sale are applied,
(1) in the case of Collateral other than Second Lien Collateral, by delivery to
the Trustee on the Asset Sale Closing Date of all Net Cash Proceeds to be held
by the Trustee for the redemption of Senior Notes pursuant to a Net Proceeds
Redemption as set forth below, and (2) in the case of Second Lien Collateral, at
Parent's election, (A) by delivery to the Lender on the Asset Sale Closing Date
of the Net Cash Proceeds to repay Indebtedness of Publishing under the New
Credit Facility; provided, however, that any such repayment shall result in a
permanent reduction of the Lender's commitment thereunder and a corresponding
permanent reduction in the maximum amount of Indebtedness permitted under
Section 4.13(b)(i) or 4.13(b)(ii), or (B) by delivery to the Trustee on the
Asset Sale Closing Date of the Net Cash Proceeds to be held by the Trustee for
the redemption of Senior Notes pursuant to a Net Proceeds Redemption as set
forth below; provided, however, that if at any time any non-cash consideration
received by Parent or any Subsidiary in connection with any Asset Sale is
converted into or sold or otherwise disposed of for cash, or if cash dividends
or interest or other cash payments are received with respect thereto, then such
cash shall constitute Net Cash Proceeds for purposes of
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this covenant and shall be applied in accordance with clause (ii) above as if
received in an Asset Sale occurring on the date any such cash is received. To
the extent that any such Net Cash Proceeds are not actually applied in
accordance with clauses (ii)(2)(A) above or after such application there remains
a portion of the Net Cash Proceeds, Publishing shall redeem Senior Notes as
described in Section 4.18(b) (a "Net Proceeds Redemption") at a price equal to
the percentage specified in Section 3.07 of the aggregate principal amount
thereof, plus accrued interest to the date of purchase, which shall in the
aggregate equal the amount of Net Cash Proceeds required by this Section 4.18 to
be made available to purchase Senior Notes in a Net Proceeds Redemption.
(b) Notice of a Net Proceeds Redemption pursuant to this Section
4.18 shall be mailed, by first class mail, by Publishing not more than 30 days
after the relevant Asset Sale Closing Date to all Holders at their last
registered addresses, with a copy to the Trustee. The notice shall contain all
instructions and materials necessary to enable such Holders to tender Senior
Notes pursuant to the Net Proceeds Redemption and shall state the terms required
to be stated in a notice of redemption under Section 3.03.
On or before the Asset Sale Closing Date, Publishing shall deposit
with the Paying Agent U.S. Legal Tender equal to the Net Cash Proceeds of the
Asset Sale. Following the Redemption Date, the Paying Agent shall promptly mail
to the Holders of Senior Notes so accepted payment in an amount equal to the
purchase price. Publishing will publicly announce the results of the Net
Proceeds Redemption on or as soon as practicable after the Redemption Date. For
purposes of this Section 4.18, the Trustee shall act as the Paying Agent.
Notwithstanding the foregoing, the Trustee need not initiate a
redemption under this Section 4.18 if the amount on deposit with the Trustee on
any Asset Sale Closing Date is less than $1,000,000, but shall instead hold such
lesser amount in trust in an interest bearing account until the earlier of the
next Redemption Date under Sections 3.08 or 3.09 or the date upon which the
Senior Notes become due and payable. Publishing, however, may not credit any
such amounts held by the Trustee against any other provision of this Indenture.
SECTION 4.19. Guarantees of Certain Indebtedness.
Publishing and Parent will not permit any of its Subsidiaries (other
than the Guarantors), directly or indirectly, to (i) incur, guarantee or secure
through the granting of Liens the payment of any Indebtedness under the New
Credit Facility or refinancings thereof, (ii) pledge any intercompany notes
representing obligations of any of its Subsidiaries to secure the payment of any
Indebtedness under the New Credit Facility or refinancings thereof or (iii)
acquire property or assets from Publishing or any Guarantor, in each case unless
such Subsidiary and the Trustee execute and deliver (A) a supplemental indenture
evidencing such Subsidiary's Guarantee and (B) the Collateral Agreements.
Neither Publishing nor any Guarantor shall be required to make a notation on the
Senior Notes to reflect any such
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subsequent Guarantee. Nothing in this Section 4.19 shall be construed to permit
any Subsidiary of Publishing or Parent to incur Indebtedness otherwise
prohibited by Section 4.13.
SECTION 4.20. Limitation on License Agreements and Distribution Agreements.
Publishing and Parent shall not, and shall not permit any of their
respective Subsidiaries to, enter into any license agreement, distribution
agreement, option agreement or similar agreement with respect to any Collateral
other than license agreements and distribution agreements with respect to
intellectual property assets ("License and Distribution Agreements") entered
into prior to the Issue Date and License and Distribution Agreements entered
into in the ordinary course of business on terms which the Board of Directors of
Parent, pursuant to a Board Resolution, reasonably and in good faith determine
are fair to Parent, Publishing or such Subsidiary, as the case may be, and do
not adversely impact the Holders, the Collateral or the value of the Collateral.
All License and Distribution Agreements (and each series of related License and
Distribution Agreements which are similar or part of a common plan) involving
aggregate payments or other property with a fair market value in excess of
$1,000,000 shall be approved by a majority of the disinterested members of the
Board of Directors of Parent, such approval to be evidenced by a Board
Resolution stating that such Board of Directors has determined that such
transaction complies with the foregoing provisions. In addition, neither
Publishing, Parent nor any of their Subsidiaries shall enter into a License and
Distribution Agreement or series of related License and Distribution Agreements
involving or having a value of more than $3 million to Publishing, Parent or any
Subsidiary unless Publishing, Parent or such Subsidiary has received an opinion
from an Independent Financial Advisor to the effect that the financial terms of
such License and Distribution Agreement are fair to Publishing, Parent or such
Subsidiary.
SECTION 4.21. Subsidiaries.
Publishing and Parent shall not, and shall cause their respective
Subsidiaries not to, own, acquire or permit to exist any Subsidiary which is not
a Wholly-Owned Subsidiary and a Guarantor. Publishing and Parent shall not, and
shall not permit any of their respective Subsidiaries to, cause or permit the
formation, acquisition, or ownership of any Subsidiary (or any interest in any
Person) not listed on Schedule 4.21 hereto.
SECTION 4.22. After Acquired Collateral.
Publishing and Parent shall, and shall cause their respective
Subsidiaries to, notify the Trustee of any intellectual property assets related
to the Collateral developed or otherwise acquired by Publishing, Parent or any
of their respective Subsidiaries within 15 days of the acquisition of same, and
shall deliver to the Trustee appropriate documentation to perfect in favor of
the Trustee first priority Liens on such intellectual property in the United
States and any material foreign jurisdiction, which shall include Canada and the
United Kingdom. On the first business day of each February, May, August, and
November, beginning in August 1999,
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Publishing and Parent shall deliver to the Trustee an Opinion of Counsel to the
effect that the Trustee has a perfected first priority (or second priority, as
the case may be) security interest in all such intellectual property.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Limitation on Merger, Etc.
(a) Each of Parent, Publishing, the Guarantors and their
Subsidiaries shall not in a single transaction or through a series of related
transactions, (i) consolidate with or merge with or into any other Person, or
transfer (by lease, assignment, sale or otherwise) all or substantially all of
its properties and assets as an entirety or substantially as an entirety to
another Person or group of affiliated Persons (including, without limitation,
the transfer by Parent of Publishing) or (ii) adopt a Plan of Liquidation.
(b) Notwithstanding Section 5.01(a), Parent may consolidate with or
merge with or into any other Person provided that:
(A) Parent shall be the continuing Person, or the Person (if
other than Parent) formed by such consolidation or into which Parent
is merged or to which all or substantially all of the properties and
assets of Parent as an entirety or substantially as an entirety are
transferred (or, in the case of a Plan of Liquidation, any Person to
which assets are transferred) (Parent or such other Person being
hereinafter referred to as the "Surviving Person") shall be a
corporation organized and validly existing under the laws of the
United States, any State thereof or the District of Columbia, and
shall expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form satisfactory to the
Trustee, all the obligations of Parent under the Senior Notes and
this Indenture;
(B) immediately after and giving effect to such transaction
and the assumption contemplated by clause (A) above and the
incurrence or anticipated incurrence of any Indebtedness to be
incurred in connection therewith, (1) Parent shall have Net Worth
equal to or greater than the Net Worth of Parent immediately
preceding the transaction, (2) [financial test to be discussed], (3)
immediately before and immediately after and giving effect to such
transaction and the assumption of the obligations as set forth in
clause (A) above and the incurrence or anticipated incurrence of any
Indebtedness to be incurred in connection therewith, no Default or
Event of Default shall have occurred and be continuing and (4) the
priority and perfection of the Trustee's Liens under this Indenture
and the Collateral Agreements are not in any way impaired (including
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by means of structural subordination), and all guarantees of the
Guarantors remain in full force and effect;
(C) Parent shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, transfer or adoption and such supplemental
indenture comply with this Article Five, that the Surviving Person
agrees to be bound hereby, and that all conditions precedent herein
provided relating to such transaction have been satisfied;
(D) Parent shall have delivered to the Trustee a certificate
from its independent certified public accountants stating that
Parent has made the calculations required by clauses (B) (1) and (2)
above in accordance with the terms of this Indenture; and
(E) none of Parent, Publishing, any Guarantor or any of their
Subsidiaries or the Surviving Person would thereupon become
obligated with respect to any Indebtedness (including acquired
indebtedness) nor would any of its assets or properties become
subject to a Lien, unless such Person could incur such Indebtedness
(including acquired indebtedness) or create such Lien under this
Indenture (after giving effect to such Person being bound by all the
terms of this Indenture).
(c) Notwithstanding Section 5.01 (a), a Wholly-Owned Subsidiary of
Publishing may merge into Publishing or another Wholly-Owned Subsidiary of
Publishing that is a Guarantor, and a Wholly-Owned Subsidiary of Parent may
merge into Parent or, except in the case of Publishing, another Wholly-Owned
Subsidiary of Parent that is a Guarantor.
(d) For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties and assets of one or
more Subsidiaries, the Capital Stock of which constitutes all or substantially
all of the properties and assets of a Person, shall be deemed to be the transfer
of all or substantially all of the properties and assets of a Person.
SECTION 5.02. Successor Corporation Substituted.
Upon any consolidation or merger, or any transfer of assets
(including pursuant to a Plan of Liquidation) in accordance with Section 5.01,
the successor Person formed by such consolidation or into which Parent,
Publishing or any Guarantor or Subsidiary is merged or to which such transfer is
made shall succeed to, and be substituted for, and may exercise every right and
power of, Parent, Publishing or Guarantor, as the case may be, under this
Indenture (and shall execute a supplemental indenture to that effect in
accordance with Section 11.11) with the same effect as if such successor Person
had been named as Parent, Publishing or Guarantor, as
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the case may be, herein; provided, however that Parent, Publishing and
Guarantors shall not be released from the obligations and covenants under this
Indenture and the Senior Notes.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
An "Event of Default" occurs under this Indenture if:
(1) Publishing defaults in the payment of interest on any
Senior Notes when the same becomes due and payable, and the Default
continues for a period of 30 days;
(2) Publishing defaults in the payment of the principal of any
Senior Note when the same becomes due and payable, at maturity, upon
acceleration, redemption or otherwise (including the failure to
purchase Senior Notes tendered pursuant to the requirements of
Sections 4.04, 4.17 or 4.18);
(3) Publishing or any Guarantor fails to comply with any other
agreement or covenant contained in the Senior Notes, this Indenture,
any Collateral Agreements or the Registration Rights Agreement, and
the Default continues for the period after the notice specified
below;
(4) there shall be a default under any bond, debenture, or
other evidence of Indebtedness of Publishing or any Guarantor, or
under any mortgage, security agreement, indenture or other
instrument under which there may be issued or by which there may be
secured or evidenced any such Indebtedness, whether such
Indebtedness now exists or shall hereafter be created, if such
default either (A) results from the failure to pay principal or
interest on any Indebtedness or (B) relates to an obligation other
than the obligation to pay principal or interest or any Indebtedness
and results in the holder or holders of such Indebtedness causing
such Indebtedness to become due prior to its stated maturity;
(5) any Guarantee required to be in full force and effect by
the terms of this Indenture ceases to be in full force and effect or
is declared null and void or otherwise not enforceable against any
Guarantor in accordance with its terms, or any of the Guarantors
repudiates its obligations under its Guarantee or denies that it has
any further liability under the Guarantee or gives notice to such
effect (other than by reason of the termination of this Indenture or
the release of any such Guarantee in accordance with this
Indenture); or any Guarantor repudiates its
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obligations under its Guarantee of the Senior Notes or if a final
judicial determination is made that such;
(6) Publishing or any Guarantor pursuant to or within the
meaning of any Bankruptcy Law:
(a) admits in writing its inability to pay its debts
generally as they become due;
(b) commences a voluntary case or proceeding;
(c) consents to the entry of a judgment, decree or order
for relief against it in an involuntary case or proceeding;
(d) consents to the appointment of a Custodian of it
or for all or substantially all of its property;
(e) consents to or acquiesces in the institution of a
bankruptcy or an insolvency proceeding against it;
(f) makes a general assignment for the benefit of its
creditors; or
(g) takes any corporate action to authorize or effect
any of the foregoing;
(7) a court of competent jurisdiction enters a judgment,
decree or order under any Bankruptcy Law that is for relief
against Publishing or any Guarantor, in an involuntary case or
proceeding which shall (A) approve a petition seeking
reorganization, arrangement, adjustment or composition in
respect of Publishing or any Guarantor, (B) appoint a
Custodian of Publishing or any Guarantor, or for substantially
all of its property, or (C) order the winding-up or
liquidation of its affairs, and in each case the judgment,
order or decree remains unstayed and in effect for 60 days; or
(8) any warrant of attachment is issued against any
property of Publishing or any Guarantor having a value of at
least $1 million, which warrant is not released, stayed or
bonded against within 60 days after service of process with
respect thereto, or final judgments not covered by insurance
for the payment of money which in the aggregate at any one
time exceeds $1 million shall be rendered against Publishing
or any Guarantor by a court of competent jurisdiction and
shall remain undischarged for 60 days after judgment becomes
final and nonappealable;
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(9) any final judgments or orders are rendered against
Parent, Publishing or any of their Guarantors or Subsidiaries
which require the payment in money, either individually or in
an aggregate amount, that is more than $5 million, which
remain unstayed, undischarged or unbonded for a period of 60
days thereafter; or
(10) there shall be any failure to procure and maintain
property and liability insurance in accordance with the
provisions of Section 4.07 continuing, in the case of failure
to maintain such insurance, until the earlier of (x) 30 days
after notice to Parent, Publishing or their Subsidiaries or
the Trustee of the lapse or cancellation of such insurance,
and (y) the date such lapse or cancellation is effective as to
the Trustee; or
(11) except as provided in this Indenture, the Trustee
does not have at all times a first priority perfected security
interest in the First Lien Collateral and a second priority
perfected security interest in the Second Lien Collateral,
subject only to Permitted Liens, or Publishing or any
Guarantor asserts in writing that the security arrangements
under the Indenture or any Collateral Agreement are not in
full force and effect.
A Default under clause (3) above (other than any Default under
Sections 4.03, 4.04, 4.12, 4.13, 4.14, 4.15, 4.16, 4.17, 4.18, 4.19, 4.20, 4.21,
4.22 and 5.01, which Defaults shall be Events of Default with the notice
specified in this paragraph but without the passage of time specified in this
paragraph) is not an Event of Default until the Trustee notifies Publishing, or
the Holders of at least 25% in principal amount of the outstanding Senior Notes
notify Publishing and the Trustee, of the Default, and Publishing does not cure
the Default within 30 days after receipt of the notice. The notice must specify
the Default, demand that it be remedied and state that the notice is a "Notice
of Default." Such notice shall be given by the Trustee if so requested by the
Holders of at least 25% in principal amount of the Senior Notes then
outstanding. When a Default is cured, it ceases.
SECTION 6.02. Acceleration.
If an Event of Default (other than an Event of Default specified in
Section 6.01(6) or (7) with respect to Publishing) occurs and is continuing, the
Trustee may, by notice to Publishing, or the Holders of at least 25% in
principal amount of the Senior Notes then outstanding may, by written notice to
Publishing and the Trustee, and the Trustee shall, upon the request of such
Holders, declare the aggregate principal amount of the Senior Notes outstanding,
together with accrued interest thereon to the date of payment, to be due and
payable and, upon any such declaration, the same shall become and be due and
payable. If an Event of Default specified in Section 6.01(6) or (7) occurs with
respect to Publishing, all unpaid principal and accrued interest on the Senior
Notes then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of the Trustee or
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any Holder. Upon payment of such principal amount, interest, and premium, if
any, all of Publishing's obligations under the Senior Notes and this Indenture,
other than obligations under Section 7.07, shall terminate. The Holders of a
majority in principal amount of the Senior Notes then outstanding by notice to
the Trustee may rescind an acceleration and its consequences if (i) all existing
Events of Default, other than the non-payment of the principal of the Senior
Notes which has become due solely by such declaration of acceleration, have been
cured or waived, (ii) to the extent the payment of such interest is lawful,
interest on overdue installments of interest and overdue principal, which has
become due otherwise than by such declaration of acceleration, has been paid,
and (iii) the rescission would not conflict with any judgment or decree of a
court of competent jurisdiction.
SECTION 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Senior Notes or to enforce the
performance of any provision of the Senior Notes or this Indenture.
The Trustee may maintain a proceeding even if it does not possess
any of the Senior Notes or does not produce any of them in the proceeding. A
delay or omission by the Trustee or any Securityholder in exercising any right
or remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
SECTION 6.04. Waiver of Past Defaults.
Subject to Sections 6.07 and 9.02, the Holders of a majority in
principal amount of the outstanding Senior Notes by notice to the Trustee may
waive an existing Default or Event of Default and its consequences, except a
Default in the payment of principal of or interest on any Senior Note as
specified in clauses (1) and (2) of Section 6.01. When a Default or Event of
Default is waived, it is cured and ceases.
SECTION 6.05. Control by Majority.
The Holders of a majority in principal amount of the outstanding
Senior Notes may direct the time, method and place of conducting any proceeding
for any remedy available to the Trustee or exercising any trust or power
conferred on it. Subject to Section 7.01, however, the Trustee may refuse to
follow any direction that conflicts with any law or this Indenture, that the
Trustee determines may be unduly prejudicial to the rights of another
Securityholder, or that may involve the Trustee in personal liability; provided
that the Trustee may take any other action deemed proper by the Trustee which is
not inconsistent with such direction.
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SECTION 6.06. Limitation on Suits.
A Securityholder may not pursue any remedy with respect to this
Indenture or the Senior Notes unless:
(1) the Holder gives to the Trustee notice of a continuing Event
of Default;
(2) the Holder or Holders of at least 25% in principal amount of the
outstanding Senior Notes make a written request to the Trustee to
pursue the remedy;
(3) such Holder or Holders offer to the Trustee indemnity
satisfactory to the Trustee against any loss, liability or expense
to be incurred in compliance with such request;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer of indemnity; and
(5) during such 60-day period the Holder or Holders of a majority in
principal amount of the outstanding Senior Notes do not give the
Trustee a direction which, in the opinion of the Trustee, is
inconsistent with the request.
A Securityholder may not use this Indenture to prejudice the rights
of another Securityholder or to obtain a preference or priority over such other
Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of and interest on a Senior Note, on
or after the respective due dates expressed in such Senior Note, or to bring
suit for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of the Holder.
SECTION 6.08. Collection Suit by Trustee.
If an Event of Default in payment of principal or interest specified
in clause (1) or (2) of Section 6.01 occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against
Publishing or any other obligor on the Senior Notes for the whole amount of
principal and accrued interest remaining unpaid, together with interest on
overdue principal and, to the extent that payment of such interest is lawful,
interest on overdue installments of interest, in each case at the rate per annum
borne by the Senior Notes and such further amount as shall be sufficient to
cover the costs and expenses of collection, including the reasonable
compensation, expenses, disbursements and advances of the Trustee, its agents
and counsel.
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SECTION 6.09. Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings relating to Publishing or
any other obligor upon the Senior Notes, any of their respective creditors or
any of their respective property and shall be entitled and empowered to collect
and receive any monies or other property payable or deliverable on any such
claims and to distribute the same, and any Custodian in any such judicial
proceedings is hereby authorized by each Securityholder to make such payments to
the Trustee and, in the event that the Trustee shall consent to the making of
such payments directly to the Securityholders, to pay to the Trustee any amount
due to it for the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agent and counsel, and any other amounts due the Trustee
under Section 7.07. Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Securityholder any plan of reorganization, arrangement, adjustment or
composition affecting the Senior Notes or the rights of any Holder thereof, or
to authorize the Trustee to vote in respect of the claim of any Securityholder
in any such proceeding.
SECTION 6.10. Priorities.
If the Trustee collects any money pursuant to this Article Six, it
shall pay out the money in the following order:
First: to the Trustee for amounts due under Section 7.07;
Second: if the Holders are forced to proceed against
Publishing or any Guarantor directly without the Trustee, to Holders
for their collection costs;
Third: to Holders for amounts due and unpaid on the Senior
Notes for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on
the Senior Notes for principal and interest, respectively; and
Fourth: to Publishing or relevant Guarantor.
The Trustee, upon prior notice to Publishing, may fix a record date and payment
date for any payment to Securityholders pursuant to this Section 6.10.
SECTION 6.11. Undertaking for Costs.
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its
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discretion may require the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section 6.11 does not apply
to a suit by the Trustee, a suit by a Holder pursuant to Section 6.07, or a suit
by a Holder or Holders of more than 10% in principal amount of the outstanding
Senior Notes.
SECTION 6.12. Event of Default from Willful Action.
In the case of any Event of Default occurring by reason of any
willful action (or inaction) taken (or not taken) by or on behalf of Publishing
with the intention of avoiding payment of the premium that Publishing would have
had to pay if Publishing then had elected to redeem the Senior Notes pursuant to
Section 3.07 hereof, an equivalent premium shall also become and be immediately
due and payable to the extent permitted by law.
SECTION 6.13. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement or
payment of mutilated, destroyed, lost or wrongfully taken Senior Notes in
Section 2.07, no right or remedy herein conferred upon or reserved to the
Trustee or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by law, be
cumulative and in addition to every other right and remedy given hereunder or
now or hereafter existing at law or in equity or otherwise. The assertion or
employment of any right or remedy hereunder, or otherwise, shall not prevent the
concurrent assertion or employment of any other appropriate right or remedy.
SECTION 6.14. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder to exercise any
right or remedy arising upon any Default or Event of Default shall impair any
such right or remedy or constitute a waiver of any such Default or Event of
Default or an acquiescence therein. Every right and remedy given by this Article
Six or by law to the Trustee or to the Holders may be exercised from time to
time, and as may be deemed expedient, by the Trustee or by the Holders, as the
case may be.
ARTICLE SEVEN
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this
Indenture and covenants and agrees to perform the same, as herein expressed.
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SECTION 7.01. Duties of Trustee.
(a) If a Default or an Event of Default has occurred and is
continuing, the Trustee shall exercise such of the rights and powers vested in
it by this Indenture and use the same degree of care and skill in its exercise
thereof as a prudent Person would exercise or use under the circumstances in the
conduct of his own affairs.
(b) Except during the continuance of a Default or an Event of
Default:
(i) The Trustee need perform only those duties as are
specifically set forth in this Indenture and no covenants or
obligations shall be implied in this Indenture that are adverse to
the Trustee.
(ii) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates or
opinions furnished to the Trustee and conforming to the requirements
of this Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they conform
to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) This paragraph does not limit the effect of paragraph (b)
of this Section 7.01.
(ii) The Trustee shall not be liable for any error of judgment
made in good faith by a Trust Officer, unless it is proved that the
Trustee was negligent in ascertaining the pertinent facts.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers if it shall have reasonable grounds for believing that
repayment of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01.
(f) Assets held in trust by the Trustee need not be segregated from
other assets except to the extent required by law.
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SECTION 7.02. Rights of Trustee.
Subject to Section 7.01:
(a) The Trustee may rely on any document believed by it to be
genuine and to have been signed or presented by the proper Person. The Trustee
need not investigate any fact or matter stated in the document;
(b) Before the Trustee acts or refrains from acting, it may consult
with counsel and may require an Officers' Certificate or an Opinion of Counsel,
which shall conform to Sections 13.04 and 13.05. The Trustee shall not be liable
for any action it takes or omits to take in good faith in reliance on such
certificate or opinion;
(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent appointed with
due care;
(d) The Trustee shall not be liable for any action that it takes or
omits to take in good faith which it believes to be authorized or within its
rights or powers;
(e) The Trustee shall not be bound to make any investigation into
the facts or matters stated in any resolution, certificate, statement,
instrument, opinion, notice, request, direction, consent, order, bond,
debenture, or other paper or document, but the Trustee, in its discretion, may
make such further inquiry or investigation into such facts or matters as it may
see fit;
(f) The Trustee shall be under no obligation to exercise any of the
rights or powers vested in it by this Indenture at the request, order or
direction of any of the Holders pursuant to the provisions of this Indenture,
unless such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities which may be incurred
therein or thereby; and
(g) Any permissive right or power available to the Trustee under
this Indenture shall not be construed to be a mandatory duty or obligation.
SECTION 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Senior Notes and may otherwise deal with Publishing or any
Guarantor, or their respective Affiliates with the same rights it would have if
it were not Trustee. Any Agent may do the same with like rights. However, the
Trustee must comply with Sections 7.10 and 7.11.
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SECTION 7.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy
of this Indenture or the Senior Notes, it shall not be accountable for
Publishing's use of the proceeds from the Senior Notes, and it shall not be
responsible for any statement in the Senior Notes other than the Trustee's
certificate of authentication.
SECTION 7.05. Notice of Default.
If a Default or an Event of Default occurs and is continuing and if
it is known to the Trustee, the Trustee shall mail to each Holder notice of the
uncured Default or Event of Default within 90 days after such Default or Event
of Default occurs. Except in the case of a Default or an Event of Default in
payment of principal of, or interest on, any Senior Note, including the failure
to make payment of a Deficiency Repurchase Amount pursuant to a Deficiency
Offer, the failure to make payment on the Change of Control Payment Date
pursuant to a Change of Control Offer, and the failure to make payment upon a
mandatory redemption, the Trustee may withhold the notice if and so long as its
board of directors, the executive committee of its board of directors or a
committee of its directors and/or Trust Officers in good faith determines that
withholding the notice is in the interest of the Holders.
SECTION 7.06. Reports by Trustee to Holders.
Within 60 days after each May 15 beginning with the May 15, 2000
following the date of this Indenture, the Trustee shall, to the extent that any
of the events described in TIA Section 313(a) occurred within the previous
twelve months, but not otherwise, mail to each Securityholder a brief report
dated as of such May 15 that complies with TIA Section 313(a).
The Trustee also shall comply with TIA Sections 313(b) and 313(c).
A copy of each report at the time of its mailing to Securityholders
shall be mailed to Publishing and filed with the SEC and each stock exchange, if
any, on which the Senior Notes are listed. Publishing shall notify the Trustee
if the Senior Notes become listed on any stock exchange.
SECTION 7.07. Compensation and Indemnity.
Publishing shall pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall not be limited
by any law on compensation of a trustee of an express trust. Publishing shall
reimburse the Trustee upon request for all reasonable disbursements, expenses
and advances incurred or made by it. Such expenses shall include the reasonable
compensation, disbursements and expenses of the Trustee's agents and counsel.
Publishing shall indemnify the Trustee for, and hold it harmless against, any
loss or liability incurred by it except for such actions to the extent caused by
any negligence or bad faith on its part, arising out of or in connection with
the administration of this trust and its rights or duties
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hereunder. The Trustee shall notify Publishing promptly of any claim asserted
against the Trustee for which it may seek indemnity. Publishing shall defend the
claim and the Trustee shall cooperate in the defense. The Trustee may have
separate counsel and Publishing shall pay the reasonable fees and expenses of
such counsel; provided that Publishing will not be required to pay such fees and
expenses if it assumes the Trustee's defense and there is no conflict of
interest between Publishing and the Trustee in connection with such defense as
reasonably determined by the Trustee. Publishing need not pay for any settlement
made without its written consent. Publishing need not reimburse any expense or
indemnify against any loss or liability to the extent incurred by the Trustee
through its negligence, bad faith or willful misconduct.
To secure Publishing's payment obligations in this Section 7.07, the
Trustee shall have a lien prior to the Senior Notes on all assets held or
collected by the Trustee, in its capacity as Trustee, except assets held in
trust to pay principal of or interest on particular Senior Notes.
When the Trustee incurs expenses or renders services after an Event
of Default specified in Section 6.01(6), (7) or (8) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
The obligations of Publishing under this Section 7.07 shall survive
the satisfaction and discharge of this Indenture.
SECTION 7.08. Replacement of Trustee.
The Trustee may resign by so notifying Publishing. The Holders of a
majority in principal amount of the outstanding Senior Notes may remove the
Trustee by so notifying Publishing and the Trustee and may appoint a successor
trustee with Publishing's consent.
Publishing may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the
Trustee or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, Publishing shall notify each Holder of such
event and shall promptly appoint a successor Trustee. Within one year after the
successor Trustee takes office, the Holders of a majority in principal amount of
the Senior Notes may appoint a successor Trustee to replace the successor
Trustee appointed by Publishing.
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A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to Publishing. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 7.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Securityholder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, Publishing or the
Holders of at least 10% in principal amount of the outstanding Senior Notes may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, Publishing's obligations under Section 7.07 shall continue for the benefit
of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee.
SECTION 7.10. Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA Section 310(a). The Trustee shall have a combined capital
and surplus of at least $100 million (or be a member or subsidiary of a bank
holding system with aggregate combined capital and surplus of at least $100
million) as set forth in its most recent published annual report of condition.
The Trustee shall comply with TIA Section 310(b).
SECTION 7.11. Preferential Collection of Claims Against Publishing.
The Trustee shall comply with TIA Section 311(a), excluding any
creditor relationship listed in TIA Section 311(b). A Trustee who has resigned
or been removed shall be subject to TIA Section 311(a) to the extent indicated.
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ARTICLE EIGHT
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
SECTION 8.01. Option to Effect Legal Defeasance or Covenant Defeasance.
Publishing may, at the option of its and Parent's Board of Directors
evidenced by a resolution set forth in an Officers' Certificate, at any time,
elect to have either Section 8.02 or 8.03 hereof be applied to all outstanding
Senior Notes upon compliance with the conditions set forth below in this Article
Eight.
SECTION 8.02. Legal Defeasance and Discharge.
Upon Publishing's exercise under Section 8.01 hereof of the option
applicable to this Section 8.02, Publishing shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be deemed to have been
discharged from its obligations with respect to all outstanding Senior Notes on
the date the conditions set forth below are satisfied (hereinafter, "Legal
Defeasance"). For this purpose, Legal Defeasance means that Publishing shall be
deemed to have paid and discharged the entire indebtedness represented by the
outstanding Senior Notes, which shall thereafter be deemed to be "outstanding"
only for the purposes of Section 8.05 and the other Sections of this Indenture
referred to in (i) through (iv) below, and to have satisfied all its other
obligations under such Senior Notes and this Indenture (and the Trustee, on
demand of and at the expense of Publishing, shall execute proper instruments
acknowledging the same), except for the following provisions which shall survive
until otherwise terminated or discharged hereunder: (i) the rights of holders of
such outstanding Senior Notes to receive, solely from the trust fund described
in Section 8.05, payments in respect of the principal of, premium, if any, and
interest on such Senior Notes when such payments are due, (ii) Publishing's
obligations with respect to the Senior Notes under Article Two and Section 4.02
hereof, (iii) the rights, powers, trust, duties and immunities of the Trustee,
and Publishing's obligations in connection therewith and (iv) this Article
Eight. Subject to compliance with this Article Eight, Publishing may exercise
its option under this Section 8.02 notwithstanding the prior exercise of its
option under Section 8.03 hereof.
SECTION 8.03. Covenant Defeasance.
Upon Publishing's exercise under Section 8.01 hereof of the option
applicable to this Section 8.03, Publishing shall, subject to the satisfaction
of the conditions set forth in Section 8.04 hereof, be released from its
obligations under the covenants contained in Sections 4.03, 4.04, 4.12, 4.13,
4.14, 4.15, 4.16, 4.17, 4.18, 4.19, 4.20, 4.21, 4.22 and Article Five hereof
with respect to the outstanding Senior Notes on and after the date the
conditions set forth below are satisfied (hereinafter, "Covenant Defeasance"),
and the Senior Notes shall thereafter be deemed not "outstanding" for the
purposes of any direction, waiver, consent or declaration or act of Holders (and
the consequences of any thereof) in connection with such covenants, but shall
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continue to be deemed "outstanding" for all other purposes hereunder (it being
understood that such Senior Notes shall not be deemed outstanding for accounting
purposes). For this purpose, such Covenant Defeasance means that, with respect
to the outstanding Senior Notes, Publishing may omit to comply with and shall
have no liability in respect of any term, condition or limitation set forth in
any such covenant, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Section 6.01 hereof, but, except as specified above, the remainder of this
Indenture and such Senior Notes shall be unaffected thereby. In addition, upon
Publishing's exercise under Section 8.01 hereof of the option applicable to this
Section 8.03, subject to the satisfaction of the conditions set forth in Section
8.04 hereof, Sections 6.01(4), 6.01(8), 6.01(9) and 6.01(10) shall not
constitute Events of Default.
SECTION 8.04. Conditions to Legal or Covenant Defeasance.
The following shall be the conditions to the application of either
Section 8.02 or 8.03 hereof to the outstanding Senior Notes:
In order to exercise either Legal Defeasance or Covenant Defeasance:
(a) Publishing must irrevocably deposit with the Trustee or
Paying Agent, in trust, for the benefit of the Holders, U.S. Legal
Tender, U.S. Government Obligations, or a combination thereof, in
such amounts as will be sufficient, in the opinion of a nationally
recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the Senior Notes on
the stated date for payment thereof or on the applicable redemption
date, as the case may be, of such principal or installment of
principal of, premium, if any, or interest on the Senior Notes;
(b) in the case of an election under Section 8.02 hereof,
Publishing shall have delivered to the Trustee an Opinion of Counsel
in the United States reasonably acceptable to the Trustee confirming
that (A) Publishing has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of
this Indenture, there has been a change in the applicable federal
income tax law, in either case to the effect that, and based thereon
such Opinion of Counsel shall confirm that, the Holders of the
Senior Notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such
Legal Defeasance had not occurred;
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(c) in the case of an election under Section 8.03 hereof,
Publishing shall have delivered to the Trustee an Opinion of Counsel
in the United States reasonably acceptable to the Trustee confirming
that the Holders of the Senior Notes will not recognize income, gain
or loss for federal income tax purposes as a result of such Covenant
Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred;
(d) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit (other than a Default or
Event of Default resulting from the incurrence of Indebtedness all
or a portion of the proceeds of which will be used to defease the
Senior Notes pursuant to this Article Eight concurrently with such
incurrence) or insofar as Sections 6.01(6) and 6.01(7) hereof are
concerned, at any time in the period ending on the 91st day after
the date of such deposit;
(e) such Legal Defeasance or Covenant Defeasance shall not
result in a breach or violation of, or constitute a Default under,
this Indenture or a default under, the New Credit Facility or any
other material agreement or instrument to which Publishing or any of
its Subsidiaries is a party or by which Publishing or any of its
Subsidiaries is bound;
(f) Publishing shall have delivered to the Trustee an opinion
of Counsel to the effect that after the 91st day following the
deposit, the trust funds will not be subject to the effect of any
applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally;
(g) Publishing shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by
Publishing with the intent of preferring the Holders over any other
creditors of Publishing or with the intent of defeating, hindering,
delaying or defrauding any other creditors of Publishing; and
(h) Publishing shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that
all conditions precedent provided for or relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
SECTION 8.05. Deposited U.S. Legal Tender and U.S. Government Obligations to
be Held in Trust; Other Miscellaneous Provisions.
Subject to Section 8.06 hereof, all U.S. Legal Tender and U.S.
Government Obligations (including the proceeds thereof) deposited with the
Trustee (or other qualifying trustee, collectively for purposes of this Section
8.05, the "Trustee") pursuant to Section 8.04
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hereof in respect of the outstanding Senior Notes shall be held in trust and
applied by the Trustee, in accordance with the provisions of such Senior Notes
and this Indenture, to the payment, either directly or through any Paying Agent,
as the Trustee may determine, to the Holders of such Senior Notes of all sums
due and to become due thereon in respect of principal, premium, if any, and
interest, but such U.S. Legal Tender and U.S. Government Obligations need not be
segregated from other funds except to the extent required by law.
Publishing shall pay and indemnify the Trustee against any tax, fee
or other charge imposed on or assessed against the U.S. Legal Tender or U.S.
Government Obligations deposited pursuant to Section 8.04 hereof or the
principal and interest received in respect thereof other than any such tax, fee
or other charge which by law is for the account of the Holders of the
outstanding Senior Notes.
Anything in this Article Eight to the contrary notwithstanding, the
Trustee shall deliver or pay to Publishing from time to time upon Publishing's
request any U.S. Legal Tender or U.S. Government Obligations held by it as
provided in Section 8.04 hereof which, in the opinion of a nationally recognized
firm of independent public accountants expressed in a written certification
thereof delivered to the Trustee (which may be the opinion delivered under
Section 8.04(a) hereof), are in excess of the amount thereof that would then be
required to be deposited to effect an equivalent Legal Defeasance or Covenant
Defeasance.
SECTION 8.06. Repayment to Publishing.
Any U.S. Legal Tender or U.S. Government Obligations deposited with
the Trustee or any Paying Agent, in trust for the payment of the principal of,
premium, if any, or interest on any Senior Note and remaining unclaimed for two
years after such principal, and premium, if any, or interest has become due and
payable shall be paid to Publishing on its request or shall be discharged from
such trust; and the Holder of such Senior Note shall thereafter, as an unsecured
general creditor, look only to Publishing for payment thereof, and all liability
of the Trustee or such Paying Agent with respect to such trust money, and all
liability of Publishing as trustee thereof, shall thereupon cease; provided,
however, that the Trustee or such Paying Agent, before being required to make
any such repayment, may at the expense of Publishing cause to be published once,
in The New York Times and The Wall Street Journal (national edition), notice
that such money remains unclaimed and that, after a date specified therein,
which shall not be less than 30 days from the date of such notification or
publication, any unclaimed balance of such money then remaining will be repaid
to Publishing.
SECTION 8.07. Reinstatement.
If the Trustee or Paying Agent is unable to apply any U.S. Legal
Tender or U.S. Government Obligations in accordance with Section 8.02 or 8.03
hereof, as the case may be, by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then Publishing's obligations under this Indenture and the
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Senior Notes shall be revived and reinstated as though no deposit had occurred
pursuant to Section 8.02 or 8.03 hereof until such time as the Trustee or Paying
Agent is permitted to apply all such U.S. Legal Tender and U.S. Government
Obligations in accordance with Section 8.02 or 8.03 hereof, as the case may be;
provided, however, that, if Publishing makes any payment of principal of,
premium, if any, or interest on any Senior Note following the reinstatement of
its obligations, Publishing shall be subrogated to the rights of the Holders of
such Senior Notes to receive such payment from the U.S. Legal Tender and U.S.
Government Obligations held by the Trustee or Paying Agent.
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVER
SECTION 9.01. Without Consent of Holders.
Publishing and the Guarantors, when authorized by Board Resolutions
of Parent and Publishing, and the Trustee, together, may amend or supplement
this Indenture or the Senior Notes without notice to or consent of any Holder:
(1) to cure any ambiguity, defect or inconsistency; provided
that such amendment or supplement does not adversely affect the
legal rights of any Holder;
(2) to comply with Article Five and Section 11.06;
(3) to provide for uncertificated Senior Notes in addition to
or in place of certificated Senior Notes;
(4) to make any other change that would provide any additional
rights or benefits to the Holders of the Senior Notes or that does
not adversely affect the legal rights under this Indenture of any
such Holder;
(5) to comply with any requirements of the SEC in order to
effect or maintain the qualification of this Indenture and the
Collateral Agreements under the TIA;
(6) to provide for additional Guarantors pursuant to Section
4.19 or otherwise;
(7) to provide for the appointment of a successor Trustee, as
provided in Section 7.08 hereof.
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provided that Publishing has delivered to the Trustee an Opinion of Counsel
stating that such amendment or supplement complies with the provisions of this
Section 9.01.
After an amendment or supplement under this Section becomes
effective, Publishing shall mail to the Holders affected thereby a notice
briefly describing the amendment or supplement. Any failure of Publishing to
mail such notice, or a defect in such notice, shall not, however, in any way
impair or affect the validity of any such amendment or supplement.
SECTION 9.02. With Consent of Holders.
Subject to Section 6.07, Publishing and each Guarantor, when
authorized by Board Resolutions of Parent and Publishing, and the Trustee,
together, with the written consent of the Holder or Holders of at least a
majority in aggregate principal amount of the outstanding Senior Notes may amend
or supplement this Indenture or the Senior Notes, without notice to any other
Securityholders. Subject to Section 6.07, the Holder or Holders of a majority in
aggregate principal amount of the outstanding Senior Notes may waive compliance
by Publishing with any provision of this Indenture or the Senior Notes without
notice to any other Holder. Without the consent of each Holder affected,
however, no amendment, supplement or waiver, including a waiver pursuant to
Section 6.04, may (with respect to any Senior Notes held by a non-consenting
Holder of Senior Notes):
(1) reduce the principal amount of Senior Notes whose holders
must consent to an amendment, supplement or waiver of any provision
of this Indenture or the Senior Notes;
(2) reduce the principal of or change the fixed maturity of
any Senior Note or alter the provisions with respect to the
redemption of Senior Notes pursuant to Article Three of this
Indenture or alter the provisions, including the purchase price
payable, with respect to repurchases or redemptions of the Senior
Notes pursuant to Section 4.04, 4.17 or 4.18 hereof,
(3) reduce the rate of or change the time for payment of
interest, including default interest, on any Senior Note;
(4) waive a Default or Event of Default in the payment of
principal of or premium, if any, or interest on the Senior Notes or
that resulted from a failure to comply with Section 4.04, 4.17 or
4.18 hereof (except a rescission of acceleration of the Senior Notes
by the holders of at least a majority in aggregate principal amount
of the Senior Notes and a waiver of the payment default that
resulted from such acceleration);
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(5) make the principal of, or the interest on, any Senior Note
payable in any manner other than that stated in this Indenture and
the Senior Notes on the Issue Date;
(6) make any change in the provisions of this Indenture
relating to waivers of past Defaults or the rights of Holders of
Senior Notes to receive payments of principal of or interest on the
Senior Notes;
(7) waive a redemption payment with respect to any Senior
Note;
(8) alter the ranking of the Senior Notes relative to other
Indebtedness of Publishing or the Guarantors;
(9) make any change in the foregoing amendment and waiver
provisions;
(10) impair the right of any Holder to receive payment of
principal of and interest on such Holder's Senior Notes on or after
the due dates therefor or to institute suit for the enforcement of
any payment on or with respect to such Holder's Senior Notes;
(11) release any Collateral from the Lien of the Collateral
Agreements except in accordance with terms thereof, or the terms of
this Indenture, or amend the terms thereof or the terms of the
Indenture relating to such release; or
(12) release any Guarantor from its Guarantee, except as
provided herein.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section becomes
effective, Publishing shall mail to the Holders affected thereby a notice
briefly describing the amendment, supplement or waiver. Any failure of
Publishing to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
SECTION 9.03. Compliance with TIA.
Every amendment, waiver or supplement of this Indenture or the
Senior Notes shall comply with the TIA.
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SECTION 9.04. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective, a
consent to it by a Holder is a continuing consent by the Holder and every
subsequent Holder of a Senior Note or portion of a Senior Note that evidences
the same debt as the consenting Holder's Senior Note, even if notation of the
consent is not made on any Senior Note. However, any such Holder or subsequent
Holder may revoke the consent as to his Senior Note or portion of his Senior
Note by notice to the Trustee or Publishing received before the date on which
the Trustee receives an Officers' Certificate certifying that the Holders of the
requisite principal amount of Senior Notes have consented (and not theretofore
revoked such consent) to the amendment, supplement or waiver.
Publishing may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be at least 30 days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
Persons who were Holders at such record date (or their duly designated proxies),
and only those Persons, shall be entitled to revoke any consent previously
given, whether or not such Persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 90 days after
such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (12) of Section 9.02, in which case, the amendment, supplement or
waiver shall bind only each Holder of a Senior Note who has consented to it and
every subsequent Holder of a Senior Note or portion of a Senior Note that
evidences the same debt as the consenting Holder's Senior Note; provided that
any such waiver shall not impair or affect the right of any Holder to receive
payment of principal of and interest on a Senior Note, on or after the
respective due dates expressed in such Senior Note, or to bring suit for the
enforcement of any such payment on or after such respective dates without the
consent of such Holder.
SECTION 9.05. Notation on or Exchange of Senior Notes.
If an amendment, supplement or waiver changes the terms of a Senior
Note, the Trustee may require the Holder of the Senior Note to deliver it to the
Trustee. The Trustee may place an appropriate notation on the Senior Note about
the changed terms and return it to the Holder. Alternatively, if Publishing or
the Trustee so determines, Publishing in exchange for the Senior Note shall
issue and the Trustee shall authenticate a new Senior Note that reflects the
changed terms. Any such notation or exchange shall be made at the sole cost and
expense of Publishing.
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SECTION 9.06. Trustee to Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or waiver
authorized pursuant to this Article Nine; provided that the Trustee may, but
shall not be obligated to, execute any such amendment, supplement or waiver
which affects the Trustee's own rights, duties or immunities under this
Indenture. The Trustee shall be entitled to receive, and shall be fully
protected in relying upon, an Opinion of Counsel stating that the execution of
any amendment, supplement or waiver authorized pursuant to this Article Nine is
authorized or permitted by this Indenture.
ARTICLE TEN
MEETINGS OF SECURITYHOLDERS
SECTION 10.01. Purposes for Which Meetings May Be Called.
A meeting of Securityholders may be called at any time and from time
to time pursuant to the provisions of this Article Ten for any of the following
purposes:
(a) to give any notice to Publishing or to the Trustee, or to
give any directions to the Trustee, or to waive or to consent to the
waiving of any Default or Event of Default hereunder and its
consequences, or to take any other action authorized to be taken by
Securityholders pursuant to any of the provisions of Article Six;
(b) to remove the Trustee or appoint a successor Trustee
pursuant to the provisions of Article Seven;
(c) to consent to an amendment, supplement or waiver pursuant
to the provisions of Section 9.02; or
(d) to take any other action (i) authorized to be taken by or
on behalf of the Holders of any specified aggregate principal amount
of the Senior Notes under any other provision of this Indenture, or
authorized or permitted by law or (ii) which the Trustee deems
necessary or appropriate in connection with the administration of
this Indenture.
SECTION 10.02. Manner of Calling Meetings.
The Trustee may at any time call a meeting of Securityholders to
take any action specified in Section 10.01, to be held at such time and at such
place in The City of New York, New York or elsewhere as the Trustee shall
determine. Notice of every meeting of
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Securityholders, setting forth the time and place of such meeting and in general
terms the action proposed to be taken at such meeting, shall be mailed by the
Trustee, first-class postage prepaid, to Publishing and to the Holders at their
last addresses as they shall appear on the registration books of the Registrar
not less than 10 nor more than 60 days prior to the date fixed for a meeting.
Any meeting of Securityholders shall be valid without notice if the
Holders of all Senior Notes then outstanding are present in Person or by proxy,
or if notice is waived before or after the meeting by the Holders of all Senior
Notes outstanding, and if Publishing, the Guarantors and the Trustee are either
present by duly authorized representatives or have, before or after the meeting,
waived notice.
SECTION 10.03. Call of Meetings by Publishing or Holders.
In case at any time Publishing, pursuant to a Board Resolution or
the Holders of not less than 10% in aggregate principal amount of the Senior
Notes then outstanding shall have requested the Trustee to call a meeting of
Securityholders to take any action specified in Section 10.01, by written
request setting forth in reasonable detail the action proposed to be taken at
the meeting, and the Trustee shall not have mailed the notice of such meeting
within 20 days after receipt of such request, then Publishing or the Holders of
Senior Notes in the amount above specified may determine the time and place in
The City of New York, New York or elsewhere for such meeting and may call such
meeting for the purpose of taking such action, by mailing or causing to be
mailed notice thereof as provided in Section 10.02.
SECTION 10.04. Who May Attend and Vote at Meetings.
To be entitled to vote at any meeting of Securityholders, a Person
shall (a) be a registered Holder of one or more Senior Notes, or (b) be a Person
appointed by an instrument in writing as proxy for the registered Holder or
Holders of Senior Notes. The only Persons who shall be entitled to be present or
to speak at any meeting of Securityholders shall be the Persons entitled to vote
at such meeting and their counsel and any representatives of the Trustee and its
counsel and any representatives of Publishing, the Guarantors and their
respective counsel.
SECTION 10.05. Regulations May Be Made by Trustee; Conduct of the Meeting;
Voting Rights; Adjournment.
Notwithstanding any other provision of this Indenture, the Trustee
may make such reasonable regulations as it may deem advisable for any action by
or any meeting of Securityholders, in regard to proof of the holding of Senior
Notes and of the appointment of proxies, and in regard to the appointment and
duties of inspectors of votes, and submission and examination of proxies,
certificates and other evidence of the right to vote, and such other matters
concerning the conduct of the meeting as it shall think appropriate. Such
regulations may fix a record date and time for determining the Holders of record
of Senior Notes entitled to
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vote at such meeting, in which case those and only those Persons who are Holders
of Senior Notes at the record date and time so fixed, or their proxies, shall be
entitled to vote at such meeting whether or not they shall be such Holders at
the time of the meeting.
The Trustee shall, by an instrument in writing, appoint a temporary
chairman of the meeting, unless the meeting shall have been called by Publishing
or by Securityholders as provided in Section 10.03, in which case Publishing or
the Securityholders calling the meeting, as the case may be, shall in like
manner appoint a temporary chairman. A permanent chairman and a permanent
secretary of the meeting shall be elected by vote of the Holders of a majority
in principal amount of the Senior Notes represented at the meeting and entitled
to vote.
At any meeting each Securityholder or proxy shall be entitled to one
vote for each $ 1,000 principal amount of Senior Notes held or represented by
him; provided, however, that no vote shall be cast or counted at any meeting in
respect of any Senior Notes challenged as not outstanding and ruled by the
chairman of the meeting to be not outstanding. The chairman may adjourn any such
meeting if he is unable to determine whether any Holder or proxy shall be
entitled to vote at such meeting. The chairman of the meeting shall have no
right to vote other than by virtue of Senior Notes held by him or instruments in
writing as aforesaid duly designating him as the proxy to vote on behalf of
other Securityholders. Any meeting of Securityholders duly called pursuant to
the provisions of Section 10.02 or Section 10.03 may be adjourned from time to
time by vote of the Holders of a majority in aggregate principal amount of the
Senior Notes represented at the meeting and entitled to vote, and the meeting
may be held as so adjourned without further notice.
SECTION 10.06. Voting at the Meeting and Record to Be Kept.
The vote upon any resolution submitted to any meeting of
Securityholders shall be by written ballots on which shall be subscribed the
signatures of the Holders of Senior Notes or of their representatives by proxy
and the principal amount of the Senior Notes voted by the ballot. The permanent
chairman of the meeting shall appoint two inspectors of votes, who cast proxies
at the meeting for or against any resolution and who shall make and file with
the secretary of the meeting their verified written reports in duplicate of all
votes cast at the meeting. A record in duplicate of the proceedings of each
meeting of the Securityholders shall be prepared by the secretary of the meeting
and there shall be attached to such record the original reports of the
inspectors of votes on any vote by ballot taken thereat and affidavits by one or
more Persons having knowledge of the facts, setting forth a copy of the notice
of the meeting and showing that such notice was mailed as provided in Section
10.02 or published as provided in Section 10.03. The record shall be signed and
verified by the affidavits of the permanent chairman and the secretary of the
meeting and one of the duplicates shall be delivered to Publishing and the other
to the Trustee to be preserved by the Trustee, the latter to have attached
thereto the ballots voted at the meeting.
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Any record so signed and verified shall be conclusive evidence of
the matters therein stated.
SECTION 10.07. Exercise of Rights of Trustee or Securityholders May Not Be
Hindered or Delayed by Call of Meeting.
Nothing contained in this Article Ten shall be deemed or construed
to authorize or permit, by reason of any call of a meeting of Securityholders or
any rights expressly or impliedly conferred hereunder to make such call, any
hindrance or delay in the exercise of any right or rights conferred upon or
reserved to the Trustee or to the Securityholders under any of the provisions of
this Indenture or of the Senior Notes.
ARTICLE ELEVEN
GUARANTEE OF SENIOR NOTES
SECTION 11.01. Unconditional Guarantee.
(a) Each Guarantor hereby unconditionally, jointly and severally,
guarantees as a primary obligor and not as a surety (such guarantee to be
referred to herein as the "Guarantee") to each Holder of a Senior Note
authenticated and delivered by the Trustee and to the Trustee and its successors
and assigns, the Senior Notes and the obligations of Publishing hereunder or
thereunder, that: (i) the principal of and interest on the Senior Notes will be
promptly paid in full when due, subject to any applicable grace period, whether
at maturity, by acceleration or otherwise and interest on the overdue principal,
if any, and interest on any interest to the extent lawful, of the Senior Notes
and all other obligations of Publishing to the Holders or the Trustee hereunder
or thereunder will be promptly paid in full or performed all in accordance with
the terms hereof and thereof; and (ii) in case of any extension of time of
payment or renewal of any Senior Notes or of any such other obligations, the
same will be promptly paid in full when due or performed in accordance with the
terms of the extension or renewal, subject to any applicable grace period,
whether at stated maturity, by acceleration or otherwise, subject, however, to
the limitations set forth in Section 11.05. Each Guarantor hereby agrees that
its obligations hereunder shall be unconditional, irrespective of the validity,
regularity or enforceability of the Senior Notes or this Indenture, the absence
of any action to enforce the same, any waiver or consent by any Holder of the
Senior Notes with respect to any provisions hereof or thereof, the recovery of
any judgment against Publishing, any action to enforce the same or any other
circumstance which might otherwise constitute a legal or equitable discharge or
defense of a guarantor. Each Guarantor hereby waives diligence, presentment,
demand of payment, filing of claims with a court in the event of insolvency or
bankruptcy of Publishing, any right to require a proceeding first against
Publishing, protest, notice and all demands whatsoever and covenants that this
Guarantee will not be discharged except by complete performance of the
obligations contained in the Senior Notes, this Indenture and in this
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Guarantee. If any Securityholder or the Trustee is required by any court or
otherwise to return to Publishing or any Guarantor or any custodian, trustee,
liquidator or other similar official acting in relation to Publishing or any
Guarantor, any amount paid by Publishing or any Guarantor to the Trustee or such
Securityholder, this Guarantee, to the extent theretofore discharged, shall be
reinstated in full force and effect. Each Guarantor further agrees that, as
between each Guarantor, on the one hand, and the Holders and the Trustee, on the
other hand, (x) the maturity of the obligations guaranteed hereby may be
accelerated as provided in Article Six for the purposes of this Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (y) in the
event of any acceleration of such obligations as provided in Article Six, such
obligations (whether or not due and payable) shall forthwith become due and
payable by each Guarantor for the purpose of this Guarantee.
(b) Each Guarantor further agrees that its Guarantee herein
constitutes a guarantee of payment, performance and compliance when due (and not
a guarantee of collection) and waives any right to require that any resort be
had by any Securityholder or the Trustee to any Senior Notes held for payment of
the Guarantees.
(c) Each Guarantor also agrees to pay any and all costs and expenses
(including reasonable attorneys' fees) incurred by the Trustee or any
Securityholder in enforcing any rights under this Article 11.
(d) Each Guarantor also agrees that the Guarantees will be secured
as provided in Article 12.
(e) Each Guarantor agrees to become a party to the Collateral
Agreements whereby the Guarantees will be secured in the manner set forth in
such Collateral Agreements.
SECTION 11.02. Seniority of Guarantee.
The obligations of each Guarantor to the Holders of Senior Notes and
to the Trustee pursuant to the Guarantee and this Indenture are expressly senior
secured obligations of such Guarantor.
SECTION 11.03. Severability.
In case any provision of this Guarantee shall be invalid, illegal or
unenforceable, the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
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SECTION 11.04. Release of a Guarantor.
If no Default or Event of Default exists or would exist under this
Indenture or any Collateral Agreement upon the sale or disposition (or the sale
or disposition of substantially all of the assets) of a Guarantor other than
Parent to an entity which is not a Subsidiary of Parent, which is otherwise in
compliance with the terms of this Indenture, including, without limitation,
Section 4.18, and the Collateral Agreements, such Guarantor shall be deemed
released from all its obligations under this Article Eleven and its Guarantee
without any further action required on the part of the Trustee or any Holder.
The Trustee shall deliver an appropriate instrument evidencing such release upon
receipt of a request by Publishing accompanied by an Opinion of Counsel and an
Officers' Certificate certifying as to the compliance with this Section 11.04.
Any Guarantor not so released remains liable for the full amount of principal of
and interest on the Senior Notes and other obligations as provided in this
Article Eleven.
SECTION 11.05. Limitation of Guarantor's Liability.
Each Guarantor (other than Parent, which shall be liable hereunder
to the full extent of the Guarantee) and by its acceptance hereof each Holder
confirms that it is the intention of all such parties that the guarantee by such
Guarantor pursuant to its Guarantee not constitute a fraudulent transfer or
conveyance for purposes of the Bankruptcy Law, the Uniform Fraudulent Conveyance
Act, the Uniform Fraudulent Transfer Act or any similar federal or state law. To
effectuate the foregoing intention, the Holders and such Guarantor hereby
irrevocably agree that the obligations of such Guarantor under the Guarantee
shall be limited to the maximum amount as will, after giving effect to all other
contingent and fixed liabilities of such Guarantor and after giving effect to
any collections from or payments made by or on behalf of any other Guarantor in
respect of the obligations of such other Guarantor under its Guarantee or
pursuant to Section 11.07, result in the obligations of such Guarantor under the
Guarantee not constituting such fraudulent transfer or conveyance.
SECTION 11.06. Guarantors May Consolidate, etc., on Certain Terms.
(a) Nothing contained in this Indenture or in any of the Senior
Notes shall prevent any consolidation or merger of a Guarantor with or into
Publishing or another Person that is a Guarantor as of the Issue Date or shall
prevent any sale or conveyance of the property of a Guarantor as an entirety or
substantially as an entirety, to Publishing or another Person that is a
Guarantor as of the Issue Date.
(b) Except as set forth in Articles Four and Five hereof, nothing
contained in this Indenture or in any of the Senior Notes shall prevent any
consolidation or merger of a Guarantor with or into a corporation or
corporations other than Publishing or another Person that is a Guarantor as of
the Issue Date (whether or not affiliated with such Guarantor), or successive
consolidations or mergers in which a Guarantor or its successor or successors
shall be a party or parties, or shall prevent any sale or conveyance of the
property of a Guarantor as an entirety or
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substantially as an entirety, to a corporation other than Publishing or another
Person that is a Guarantor as of the Issue Date (whether or not affiliated with
such Guarantor); provided, however, that, subject to Sections 11.04 and
11.06(a), (i) such transaction does not violate any covenants set forth in
Articles Four and Five hereof, (ii) immediately after such transaction, and
giving effect thereto, no Default or Event of Default shall have occurred as a
result of such transaction and be continuing, and (iii) each Guarantor hereby
covenants and agrees that, upon any such consolidation, merger, sale or
conveyance, the Guarantee set forth in this Article Eleven, and the due and
punctual performance and observance of all of the covenants and conditions of
this Indenture to be performed by such Guarantor, shall be expressly assumed (in
the event that the Guarantor is not the surviving corporation in the merger), by
supplemental indenture satisfactory in form to the Trustee, executed and
delivered to the Trustee, by the corporation formed by such consolidation, or
into which the Guarantor shall have merged, or by the corporation that shall
have acquired such property. In the case of any such consolidation, merger, sale
or conveyance and upon the assumption by the successor corporation, by
supplemental indenture executed and delivered to the Trustee and satisfactory in
form to the Trustee of the due and punctual performance of all of the covenants
and conditions of this Indenture to be performed by the Guarantor, such
successor corporation shall succeed to and be substituted for the Guarantor with
the same effect as if it had been named herein as a Guarantor.
SECTION 11.07. Contribution.
In order to provide for just and equitable contribution among the
Guarantors, the Guarantors agree, inter se, that in the event any payment or
distribution is made by any Guarantor (a "Funding Guarantor") under the
Guarantee, such Funding Guarantor shall be entitled to a contribution from all
other Guarantors in a pro rata amount based on the Adjusted Net Assets of each
Guarantor (including the Funding Guarantor) for all payments, damages and
expenses incurred by that Funding Guarantor in discharging Publishing's
obligations with respect to the Senior Notes or any other Guarantor's
obligations with respect to the Guarantee.
SECTION 11.08. Waiver of Subrogation.
Each Guarantor hereby irrevocably waives any claim or other rights
which it may now or hereafter acquire against Publishing that arise from the
existence, payment, performance or enforcement of such Guarantor's obligations
under the Guarantee and this Indenture, including, without limitation, any right
of subrogation, reimbursement, exoneration, indemnification, and any right to
participate in any claim or remedy of any Holder of Senior Notes against
Publishing, whether or not such claim, remedy or right arises in equity, or
under contract, statute or common law, including, without limitation, the right
to take or receive from Publishing, directly or indirectly, in cash or other
property or by set-off or in any other manner, payment or security on account of
such claim or other rights. If any amount shall be paid to any Guarantor in
violation of the preceding sentence and the Senior Notes shall not have been
paid in full, such amount shall have been deemed to have been paid to such
Guarantor for the benefit of, and held in trust for the benefit of, the Holders
of the Senior Notes, and shall forthwith be paid to
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the Trustee for the benefit of such Holders to be credited and applied upon the
Senior Notes, whether matured or unmatured, in accordance with the terms of this
Indenture. Each Guarantor acknowledges that it will receive direct and indirect
benefits from the financing arrangements contemplated by this Indenture and that
the waiver set forth in this Section 11.08 is knowingly made in contemplation of
such benefits.
SECTION 11.09. Execution of Guarantee.
To evidence their guarantee to the Securityholder specified in
Section 11.01, the Guarantors hereby agree to execute the Guarantee in
substantially the form of Exhibit A recited to be endorsed on each Senior Note
ordered to be authenticated and delivered by the Trustee. Each Guarantor hereby
agrees that its Guarantee set forth in Section 11.01 shall remain in full force
and effect notwithstanding any failure to endorse on each Senior Note a notation
of such Guarantee. Each such Guarantee shall be signed on behalf of each
Guarantor by two Officers, or an Officer and an Assistant Secretary or one
Officer shall sign and one Officer or an Assistant Secretary (each of whom
shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to such Guarantee prior to the authentication of the
Senior Note on which it is endorsed, and the delivery of such Senior Note on
which it is endorsed, and the delivery of such Senior Note by the Trustee, after
the authentication thereof hereunder, shall constitute due delivery of such
Guarantee on behalf of such Guarantor. Such signatures upon the Guarantee may be
by manual or facsimile signature of such officers and may be imprinted or
otherwise reproduced on the Guarantee, and in case any such officer who shall
have signed the Guarantee shall cease to be such officer before the Senior Note
on which such Guarantee is endorsed shall have been authenticated and delivered
by the Trustee or disposed of by Publishing, such Senior Note nevertheless may
be authenticated and delivered or disposed of as though the Person who signed
the Guarantee had not ceased to be such officer of the Guarantor.
SECTION 11.10. Guarantee Unconditional, Etc.
Upon failure of payment when due of any obligations covered by the
Guarantee for whatever reason, each Guarantor will be obligated to pay the same
immediately. Each Guarantor hereby agrees that its obligations hereunder shall
be continuing, absolute and unconditional, irrespective of: the recovery of any
judgment against Publishing or any Guarantor; any extension, renewal,
settlement, compromise, waiver or release in respect of any obligation of
Publishing under this Indenture or any Senior Note, by operation of law or
otherwise; any modification or amendment of or supplement to this Indenture or
any Senior Note; any change in the corporate existence, structure or ownership
of Publishing or any Guarantor, or any insolvency, bankruptcy, reorganization or
other similar proceeding affecting Publishing or any Guarantor or any of their
assets or any resulting release or discharge of any obligation of Publishing or
any Guarantor contained in this Indenture or any Senior Note; the existence of
any claim, set-off or other rights which any Guarantor may have at any time
against Publishing, any Guarantor, the Trustee, any Securityholder or any other
Person, whether in connection herewith or any unrelated transactions, provided,
that nothing herein shall prevent the
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assertion of any such claim by separate suit or compulsory counterclaim; any
invalidity or unenforceability relating to or against Publishing for any reason
of this Indenture or any Senior Note, or any provision of applicable law or
regulation purporting to prohibit the payment by Publishing of the principal,
premium, if any, or interest or any Senior Note or any other Guarantee; or any
other act or omission to act or delay of any kind by Publishing or any
Guarantor, the Trustee, any Securityholder or any other Person or any other
circumstance whatsoever which might, but for the provisions of this paragraph,
constitute a legal or equitable discharge of the Guarantors' obligations
hereunder. Each Guarantor's obligations hereunder shall remain in full force and
effect until this Indenture shall have terminated and the principal of and
interest on the Senior Notes and all other Guarantees shall have been paid in
full. If at any time any payment of the principal of or interest on any Senior
Notes or any other payment in respect of any Guarantees is rescinded or must be
otherwise restored or returned upon the insolvency, bankruptcy or reorganization
of Publishing or otherwise, each Guarantor's obligations hereunder with respect
to such payment shall be reinstated as though such payment had been due but not
made at such time, and this Article 11, to the extent theretofore discharged,
shall be reinstated in full force and effect. Each Guarantor irrevocably waives
any and all rights to which it may be entitled, by operation of law or
otherwise, upon making any payment hereunder to be subrogated to the rights of
the payee against Publishing with respect to such payment or otherwise to be
reimbursed, indemnified or exonerated by Publishing in respect thereof.
SECTION 11.11. Additional Guarantors.
Any Person that was not a Guarantor on the date of this Indenture
may become a Guarantor by executing and delivering to the Trustee (a) a
supplemental indenture in form and substance satisfactory to the Trustee, which
subjects such Person to the provisions of this Indenture as a Guarantor and (b)
an Opinion of Counsel to the effect that such supplemental indenture has been
duly authorized and executed by such Person and constitutes the legal, valid,
binding and enforceable obligation of such Person (subject to such customary
exceptions concerning creditors' rights and equitable principles as may be
acceptable to the Trustee in its discretion). The Guarantee of each Person
described in this Section 11.11 shall apply to all Senior Notes theretofore or
thereafter executed and delivered, notwithstanding any failure of such Senior
Notes to contain a notation of such Guarantee thereon.
SECTION 11.12. Waiver of Stay, Extension or Usury Laws.
Each Guarantor covenants (to the extent that it may lawfully do so)
that it will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay or extension law or any
usury law or other law that would prohibit or forgive each such Guarantor from
performing its Guarantee as contemplated herein, wherever enacted, now or at any
time hereafter in force, or which may affect the covenants or the performance of
this Indenture; and (to the extent that it may lawfully do so) each Guarantor
hereby expressly waives all benefit or advantage of any such law, and covenants
that it will not
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hinder, delay or impede the execution of any power herein granted to the Trustee
but will suffer and permit the execution of every such power as though no such
law had been enacted.
ARTICLE TWELVE
COLLATERAL AND SECURITY
SECTION 12.01. Collateral Agreements.
The due and punctual payment of the principal of and interest on the
Senior Notes when and as the same shall be due and payable, whether on an
Interest Payment Date, at maturity, by acceleration, repurchase, redemption or
otherwise, and interest on the overdue principal of and interest (to the extent
permitted by law), if any, on the Senior Notes and performance of all other
obligations of Publishing and the Guarantors to the Holders of Senior Notes or
the Trustee under this Indenture and the Senior Notes and the Guarantee,
according to the terms hereunder or thereunder, shall be secured as provided in
the Collateral Agreement which Publishing and the Trustee have entered into
simultaneously with the execution of this Indenture. Each Holder of Senior
Notes, by its acceptance thereof, consents and agrees to the terms of the
Collateral Agreements as the same may be in effect or may be amended from time
to time in accordance with its terms and authorizes and directs the Collateral
Agent to enter into the Collateral Agreement and to perform its obligations and
exercise its rights thereunder in accordance therewith. Publishing shall deliver
to the Trustee copies of all documents delivered to the Collateral Agent
pursuant to the Collateral Agreement, and shall do or cause to be done all such
acts and things as may be necessary or proper, or as may be required by the
provisions of the Collateral Agreements, to assure and confirm to the Trustee
and the Collateral Agent the security interest in the Collateral, by the
Collateral Agreements or any part thereof, as from time to time constituted, so
as to render the same available for the security and benefit of this Indenture
and of the Senior Notes secured hereby, according to the intent and purposes
herein expressed. Publishing and Parent shall take, or shall cause its
Subsidiaries to take, upon request of the Trustee, any and all actions
reasonably required to cause the Collateral Agreements to create and maintain,
as security for the Obligations of Publishing hereunder, a valid and enforceable
perfected first priority Lien in and on all the First Lien Collateral, in favor
of the Collateral Agent for the benefit of the Holders of Senior Notes, superior
to and prior to the rights of all third Persons and subject to no other Liens
other than, to the extent permitted by the Security Agreement, Permitted Liens
and a valid and enforceable perfected second priority Lien in and on all the
Second Lien Collateral, in favor of the Collateral Agent for the benefit of the
Holders of Senior Notes, subject to no other Liens than the Permitted Liens.
SECTION 12.02. Recording and Opinions.
(a) Publishing shall furnish to the Trustee simultaneously with the
execution and delivery of this Indenture an Opinion of Counsel either (i)
stating that in the opinion of such
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counsel all action has been taken with respect to the recording, registering,
filing and perfection of this Indenture, financing statements, copyright
registrations, trademark registrations or other instruments necessary to make
effective the Liens intended to be created by the Collateral Agreements, or (ii)
stating that, in the opinion of such counsel, no such action is necessary to
make such Liens effective.
(b) Publishing shall furnish to the Collateral Agent and the Trustee
on [September 30] in each year beginning with 1999, an Opinion of Counsel, dated
as of such date, either (i) (A) stating that, in the opinion of such counsel,
action has been taken with respect to the recording, registering, filing,
perfecting, re-recording, re-registering and refiling of all supplemental
indentures, financing statements, copyright registrations, trademark
registrations, continuation statements or other instruments of further assurance
as is necessary to maintain the Liens of the Collateral Agreements, and (B)
stating that, based on relevant laws as in effect on the date of such Opinion of
Counsel, all financing statements, copyright registrations, trademark
registrations and continuation statements have been executed and filed that are
necessary as of such date and during the succeeding 12 months fully to preserve
and protect, to the extent such protection and preservation are possible by
filing, the rights of the Holders of Senior Notes and the Collateral Agent and
the Trustee hereunder and under the Collateral Agreements with respect to the
security interests in the Collateral, or (ii) stating that, in the opinion of
such counsel, no such action is necessary to maintain such Lien and assignment.
(c) The Guarantors shall otherwise comply with the provisions of TIA
Section 314(b).
SECTION 12.03. Release of Collateral.
(a) Subject to Section 4.18 and subsections (b) and (c) of this
Section 12.03, Collateral may be released from the Lien and security interest
created by the Security Agreements on the terms set forth in such Security
Agreement.
(b) At any time when a Default or Event of Default shall have
occurred and be continuing and the maturity of the Senior Notes shall have been
accelerated (whether by declaration or otherwise) and the Trustee shall have
delivered a notice of acceleration to the Collateral Agent, no release of
Collateral pursuant to the provisions of the Collateral Agreement shall be
effective as against the Holders of Senior Notes.
(c) The release of any Collateral from the terms of this Indenture
and the Collateral Agreements shall not be deemed to impair the security under
this Indenture in contravention of the provisions hereof if and to the extent
the Collateral is released pursuant to the terms of such Collateral Agreement.
To the extent applicable, Publishing shall cause TIA Section 314(d) relating to
the release of property or securities from the Liens and security interest of
the Collateral Agreements and relating to the substitution therefor of any
property or securities to be subjected to the Liens and security interest of the
Collateral Agreement to be complied
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with. Any certificate or opinion required by TIA Section 314(d) may be made by
an Officer of Publishing except in cases where TIA Section 314(d) requires that
such certificate or opinion be made by an independent Person, which Person shall
be an independent engineer, appraiser or other expert selected or approved by
the Trustee and the Collateral Agent in the exercise of reasonable care.
SECTION 12.04. Certificates of Publishing.
Publishing shall furnish to the Trustee and the Collateral Agent,
prior to each proposed release of Collateral pursuant to the Collateral
Agreements, (i) all documents required by TIA Section 314(d) and (ii) an Opinion
of Counsel, which may be rendered by internal counsel to Publishing, to the
effect that such accompanying documents constitute all documents required by TIA
Section 314(d). The Trustee may, to the extent permitted by Sections 7.01 and
7.02 hereof, accept as conclusive evidence of compliance with the foregoing
provisions the appropriate statements contained in such documents and such
Opinion of Counsel.
SECTION 12.05. Certificates of the Trustee.
In the event that Publishing wishes to release Collateral in
accordance with the Collateral Agreements and has delivered the certificates and
documents required by such Collateral Agreements and Sections 12.03 and 12.04
hereof, the Trustee shall determine whether it has received all documentation
required by TIA Section 314(d) in connection with such release and, based on
such determination and the Opinion of Counsel delivered pursuant to Section
12.04(ii), shall deliver a certificate to the Collateral Agent setting forth
such determination.
SECTION 12.06. Authorization of Actions to be Taken by the Trustee Under the
Collateral Agreement.
Subject to the provisions of Section 7.01 and 7.02 hereof, the
Trustee may, in its sole discretion and without the consent of the Holders of
Senior Notes, direct, on behalf of the Holders of Senior Notes, the Collateral
Agent to take all actions it deems necessary or appropriate in order to (a)
enforce any of the terms of the Collateral Agreements and (b) collect and
receive any and all amounts payable in respect of the Obligations of Publishing
hereunder. The Trustee shall have power to institute and maintain such suits and
proceedings as it may deem expedient to prevent any impairment of the Collateral
by any acts that may be unlawful or in violation of the Collateral Agreements or
this Indenture, and such suits and proceedings as the Trustee may deem expedient
to preserve or protect its interests and the interests of the Holders of Senior
Notes in the Collateral (including power to institute and maintain suits or
proceedings to restrain the enforcement of or compliance with any legislative or
other governmental enactment, rule or order that may be unconstitutional or
otherwise invalid if the enforcement of, or compliance with, such enactment,
rule or order would impair the security interest hereunder or be prejudicial to
the interests of the Holders of Senior Notes or of the Trustee).
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SECTION 12.07. Authorization of Receipt of Funds by the Trustee Under the
Collateral Agreement.
The Trustee is authorized to receive any funds for the benefit of
the Holders of Senior Notes distributed under the Collateral Agreements, and to
make further distributions of such funds to the Holders of Senior Notes
according to the provisions of this Indenture.
SECTION 12.08. Termination of Security Interest.
Upon the payment in full of all Obligations of Publishing under this
Indenture and the Senior Notes, or upon Legal Defeasance in accordance with
Section 8.02, the Trustee shall, at the request of Publishing, deliver a
certificate to the Collateral Agent stating that such Obligations have been paid
in full, and instruct the Collateral Agent to release the Liens pursuant to this
Indenture and the Collateral Agreements.
ARTICLE THIRTEEN
MISCELLANEOUS
SECTION 13.01. TIA Controls.
If any provision of this Indenture limits, qualifies, or conflicts
with the duties imposed by operation of Section 318(c) of the TIA, the imposed
duties shall control.
SECTION 13.02. Notices.
Except as otherwise expressly provided herein, all notices, requests
and demands to or upon the respective parties hereto to be effective shall be in
writing (including by telecopy or telex), and shall be deemed to have been duly
given or made when delivered by hand, or five days after being deposited in the
United States mail, postage prepaid, or, in the case of telex notice, when sent,
answer-back received, or in the case of telecopy notice, when sent, or in the
case of a nationally recognized overnight courier service, one business day
after deposit with such nationally recognized overnight courier service, to the
address set forth below or to such other address as may be designated by any
party in a written notice to the other party hereto:
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IF TO PUBLISHING OR GUARANTORS:
Golden Books Publishing Company, Inc.
888 Seventh Avenue
New York, New York 10106-4100
Attention: Philip Galanes, General Counsel
Telephone: (212) 547-4466
Facsimile: (212) 547-6771
WITH A COPY TO:
Proskauer Rose LLP
1585 Broadway
New York, New York 10036
Attention: Alan Hyman, Esq.
Telephone: (212) 969-3000
Facsimile: (212) 969-2900
IF TO TRUSTEE:
[Marine Midland Bank
Corporate Trust Services
140 Broadway, 12th Floor
New York, New York 10005-1180
Attention: Corporate Trust Department
Telephone: (212) 658-6433
Facsimile: (212) 658-6425]
WITH A COPY TO:
[Pryor Cashman Sherman & Flynn LLP
410 Park Avenue
New York, New York 10022
Attention: Eric M. Hellige, Esq.
Telephone: (212) 421-4100
Facsimile: (212) 326-0806]
SECTION 13.03. Communications by Holders with Other Holders.
Securityholders may communicate pursuant to TIA Section 312(b) with
other Securityholders with respect to their rights under this Indenture or the
Senior Notes. Publishing,
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the Guarantors, the Trustee, the Registrar and any other Person shall have the
protection of TIA Section 312(c).
SECTION 13.04. Certificate and Opinion as to Conditions Precedent.
Upon any request or application by Publishing to the Trustee to take
any action under this Indenture, Publishing shall furnish to the Trustee:
(1) an Officer's Certificate stating that, in the opinion of
the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with;
and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 13.05. Statements Required in Certificate or Opinion.
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 4.08, shall include:
(1) a statement that the Person making such certificate or
opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such Person, he has
made such examination or investigation as is necessary to enable him
to express an informed opinion as to whether or not such covenant or
condition has been complied with; and
(4) a statement as to whether or not, in the opinion of each
such Person, such condition or covenant has been complied with;
provided, however, that with respect to matters of fact an Opinion
of Counsel may rely on an Officers' Certificate or certificates of
public officials.
SECTION 13.06. Rules by Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a meeting
of Securityholders. The Paying Agent or Registrar may make reasonable rules for
its functions.
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SECTION 13.07. Legal Holidays.
A "Legal Holiday" used with respect to a particular place of payment
is a Saturday, a Sunday or a day on which banking institutions in New York, New
York, Los Angeles, California or at such place of payment are not required to be
open. If a payment date is a Legal Holiday at such place, payment may be made at
such place on the next succeeding day that is not a Legal Holiday, and no
interest shall accrue for the intervening period.
SECTION 13.08. Governing Law.
THIS INDENTURE AND THE SENIOR NOTES SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO
CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. Each of
the parties hereto agrees to submit to the jurisdiction of the courts of the
State of New York in any action or proceeding arising out of or relating to this
Indenture.
SECTION 13.09. No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret another indenture, loan
or debt agreement of any of Publishing, Parent or any of their respective
Subsidiaries. Any such indenture, loan or debt agreement may not be used to
interpret this Indenture.
SECTION 13.10. No Recourse Against Others.
A director, officer, employee, stockholder or incorporator, as such,
of Publishing, or any Guarantor shall not have any liability for any obligations
of Publishing or any Guarantor under the Senior Notes or this Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creations. Each Securityholder by accepting a Senior Note waives and releases
all such liability. Such waiver and release are part of the consideration for
the issuance of the Senior Notes.
SECTION 13.11. Successors.
All agreements of Publishing and each Guarantor in this Indenture
and the Senior Notes shall bind their respective successors. All agreements of
the Trustee in this Indenture shall bind its successor.
SECTION 13.12. Duplicate Originals.
All parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together shall represent the
same agreement.
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SECTION 13.13. Severability.
In case any one or more of the provisions in this Indenture or in
the Senior Notes shall be held invalid, illegal or unenforceable, in any respect
for any reason, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being intended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
SECTION 13.14. Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table and Headings of the
Articles and Sections of this Indenture have been inserted for convenience of
reference only, are not to be considered a part of this Indenture and shall in
no way modify or restrict any of the terms or provisions hereof.
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SIGNATURES
IN WITNESS WHEREOF, the parties hereto have cause this Indenture to
be duly executed, and their respective corporate seals to be hereunto affixed
and attested, all as of the date first written above.
Dated: , 1999
----------------
GOLDEN BOOKS PUBLISHING COMPANY,
INC.
By:
--------------------------------------
Name:
Title:
Attest:
----------------------------
HSBC BANK USA,
as Trustee
By:
--------------------------------------
Name:
Title:
Attest:
----------------------------
GOLDEN BOOKS FAMILY ENTERTAINMENT,
INC.
By:
--------------------------------------
Name:
Title:
Attest:
----------------------------
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GOLDEN BOOKS HOME VIDEO, INC.
By:
--------------------------------------
Name:
Title:
Attest:
----------------------------
GOLDEN BOOKS PUBLISHING (CANADA)
INC.
By:
--------------------------------------
Name:
Title:
Attest:
----------------------------
SHARI LEWIS ENTERPRISES, INC.
By:
--------------------------------------
Name:
Title:
Attest:
----------------------------
SLE PRODUCTIONS
By:
--------------------------------------
Name:
Title:
Attest:
----------------------------
76
<PAGE>
MCSPADDEN-SMITH, INC.
By:
--------------------------------------
Name:
Title:
Attest:
----------------------------
MCSPADDEN-SMITH MUSIC, LLC
By:
--------------------------------------
Name:
Title:
Attest:
----------------------------
MCSPADDEN MUSIC, LLC
By:
--------------------------------------
Name:
Title:
Attest:
----------------------------
LRM ACQUISITION CORP.
By:
--------------------------------------
Name:
Title:
Attest:
----------------------------
MAGNOLIA HILL MUSIC, LLC
By:
--------------------------------------
Name:
Title:
Attest:
----------------------------
77
<PAGE>
SUMMERDAWN MUSIC, LLC
By:
---------------------------------------
Name:
Title:
Attest:
----------------------------
CHUNKY MONKEY MUSIC, LLC
By:
--------------------------------------
Name:
Title:
Attest:
----------------------------
MCSPADDEN-SMITH PUBLISHING, INC.
By:
--------------------------------------
Name:
Title:
Attest:
----------------------------
78
<PAGE>
Exhibit A
[FORM OF SENIOR NOTE]
GOLDEN BOOKS PUBLISHING COMPANY, INC.
10% Senior Secured Note Due 2004
No. $
GOLDEN BOOKS PUBLISHING COMPANY, INC., a Delaware corporation ("Publishing,"
which term includes any successor corporation), for value received promises to
pay to ____________________ or registered assigns, the principal sum of
______________ Dollars, on ___________, 2004 and to pay interest thereon in cash
semiannually in arrears at the rate of 10% per annum on ______ and _________ of
each year until the principal hereof is paid or made available for payment;
provided, however, that, at the option of Publishing, semiannual interest
payments due on or prior to __________, 2002 may be paid in the form of
additional securities at a rate of 13.5% per annum, and otherwise identical in
form to this Senior Note, in lieu of cash. Payment of principal, premium, if
any, and interest shall be made in the manner and subject to the terms set forth
in provisions appearing on the reverse hereof, which provisions, in their
entirety, shall for all purposes have the same effect as if set forth at this
place.
IN WITNESS WHEREOF, Publishing has caused this Senior Note to be
signed manually or by facsimile by its duly authorized officers.
Dated:
---------------------
Attest: GOLDEN BOOKS PUBLISHING COMPANY,
INC.
By:
- ----------------------------- --------------------------
Name: Name:
Title: Title:
A-1
<PAGE>
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Senior Notes described in the within-mentioned Indenture.
HSBC BANK USA
By:
-------------------------------------
Authorized Signatory
A-2
<PAGE>
GOLDEN BOOKS PUBLISHING COMPANY, INC.
10% Senior Secured Note Due 2004
1. Interest.
GOLDEN BOOKS PUBLISHING COMPANY, INC., a Delaware corporation
("Publishing"), promises to pay interest on the principal amount of this Senior
Note at the rate per annum shown above, provided, however, that at the option of
Publishing, interest payments due on or prior to ___________, 2002 may be paid
in the form of additional securities at a rate of 13.5% per annum, and otherwise
identical in form to this security, in lieu of cash. Publishing will pay
interest, whether in cash or in-kind, semi-annually on __________________ and
________________ of each year (the "Interest Payment Date"), commencing
_________________, 1999. Interest on the Senior Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from the date of issuance of the Senior Notes. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
Publishing shall pay interest on overdue principal and interest on
overdue installments of interest, to the extent lawful, at a rate equal to the
rate of interest otherwise payable on the Senior Notes.
2. Method of Payment.
Publishing shall pay interest on the Senior Notes (except defaulted
interest) to the Persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date even if the
Senior Notes are canceled on registration of transfer or registration of
exchange after such Record Date. Holders must surrender Senior Notes to a Paying
Agent to collect principal payments. Publishing shall pay principal and
interest, except as otherwise provided by the terms of this Note, in money of
the United States that at the time of payment is legal tender for payment of
public and private debts ("U.S. Legal Tender"). However, Publishing may pay
principal and interest by wire transfer of Federal funds, or interest by its
check payable in such U.S. Legal Tender. Publishing may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address. Publishing shall notify the Trustee in writing of its election to pay
interest on this Senior Note through the issuance of additional Notes and the
aggregate amount of additional Notes to be issued not less than 10 nor more than
45 days prior to the Record Date for the Interest Payment Date on which
additional Notes will be issued. On each such Interest Payment Date, the Trustee
shall authenticate additional Notes for original issuance to each Holder on the
relevant Record Date in the aggregate principal amount required to pay such
interest. Additional Notes are an additional obligation of Publishing and shall
be governed by, and entitled to the benefits of the Indenture (as such term is
defined below) and shall be subject to the terms of the Indenture (including the
guarantee provisions) and shall rank pari passu with and be subject to the same
terms (including
A-3
<PAGE>
the rate of interest from time to time payable thereon) as this Senior Note
(except, as the case may be, with respect to the issuance date and aggregate
principal amount).
3. Paying Agent and Registrar.
Initially, [Marine Midland Bank] (the "Trustee") will act as Paying
Agent and Registrar. Publishing may change any Paying Agent, Registrar or
co-Registrar without notice to the Holders. Publishing, Parent or any of their
respective Subsidiaries may, subject to certain exceptions, act as Paying Agent,
Registrar or co-Registrar.
4. Indenture and Guarantees.
Publishing issued the Senior Notes under an Indenture, dated as of
___________, 1999 (the "Indenture"), among Publishing, the Guarantors and the
Trustee. Capitalized terms herein are used as defined in the Indenture unless
otherwise defined herein. The terms of the Senior Notes include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code Sections 77aaa-77bbbb) (the "TIA"), as in
effect on the date of the Indenture. Notwithstanding anything to the contrary
herein, the Senior Notes are subject to all such terms, and Holders of Senior
Notes are referred to the Indenture and the TIA for a statement of them. The
Senior Notes are senior secured obligations of Publishing limited in aggregate
principal amount to $87,000,000 (except as otherwise provided in Section 2 of
this Senior Note relating to Payment of Additional Senior Notes). Payment on
each Senior Note is guaranteed on a senior secured basis, jointly and severally,
by the Guarantors pursuant to Article Eleven of the Indenture. The Senior Notes
are secured by a first priority lien on First Lien Collateral (as defined in the
Security Agreement referred to in the Indenture), and a second priority lien on
Second Lien Collateral (as defined in the Security Agreement referred to in the
Indenture).
5. Optional Redemption.
The Senior Notes may be redeemed in whole, at any time, or from time
to time in part, at the option of Publishing, at a redemption price equal to the
applicable percentage of the principal amount thereof set forth below, together
with accrued interest to the Redemption Date, if redeemed during the 12-month
period commencing on _________________ in the years set forth below:
Year Percentage
---- ----------
1999.......................... 105.00%
2000.......................... 103.33%
2001.......................... 101.25%
2002 and thereafter........... 100.00%
A-4
<PAGE>
6. Notice of Redemption.
Notice of redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each Holder of Senior Notes to be
redeemed at such Holder's registered address. Senior Notes in denominations
larger than $1,000 may be redeemed in part.
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Senior Notes called for redemption
shall have been deposited with the Paying Agent for redemption on such
Redemption Date, then, unless Publishing defaults in the payment of such
Redemption Price, the Senior Notes called for redemption will cease to bear
interest and the only right of the Holders of such Senior Notes will be to
receive payment of the Redemption Price.
7. Redemption or Repurchase at Option of Holders.
(a) Deficiency Offer. If at the end of each of any two consecutive
fiscal quarters Parent's Net Worth is equal to or less than $_________ million
(the "Minimum Net Worth"), then Publishing will make a Deficiency Offer to
purchase, on a pro rata basis on the Deficiency Repurchase Date, $8.7 million
aggregate principal amount of Senior Notes, or if a lesser amount of Senior
Notes is outstanding at the Deficiency Date, all of the Senior Notes then
outstanding (the "Deficiency Repurchase Amount") at a purchase price equal to
the Redemption Price specified in paragraph 5 hereof of the principal amount
thereof plus accrued interest to the Deficiency Repurchase Date. Publishing may
credit against the principal amount of Senior Notes to be acquired in any
Deficiency Offer 100% of the principal amount of Senior Notes acquired by
Publishing's through purchase, optional redemption, exchange or otherwise during
the 180-day period ending on the Deficiency Date and surrendered for
cancellation. Publishing, however, may not credit Senior Notes against the
Deficiency Repurchase Amount if such Senior Notes were previously used as a
credit against any other required payment pursuant to the Indenture. To the
extent Holders properly tender Senior Notes in an amount exceeding the
Deficiency Repurchase Amount, Senior Notes of tendering Holders will be
repurchased on a pro rata basis (based on amounts tendered) in integral
multiples of $1,000 principal amount. In no event shall the failure of
Publishing's Net Worth to equal or exceed the Minimum Net Worth at the end of
any fiscal quarter be counted toward the making of more than one Deficiency
Offer.
(b) Change of Control Offer. Upon the occurrence of a Change of
Control, Publishing will be required to make an offer (the "Change of Control
Offer") to repurchase all or any part (equal to $1,000 principal amount or an
integral multiple thereof) of a Holder's Senior Notes at a purchase price equal
to 101% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of purchase.
A-5
<PAGE>
8. Mandatory Redemption.
(a) Amortization Payment. The Senior Notes shall be mandatorily
redeemable by Publishing in part in an amount equal to $8,333,333 principal
amount of Senior Notes, on each of ___________, 2002, ___________, 2003, and
____________, 2003 (each, a Redemption Date) at a Redemption Price equal to 100%
of the principal amount plus accrued interest thereon to the applicable
Redemption Date.
(b) Asset Sale. Publishing is required to apply the Net Proceeds
from Asset Sales of Collateral (other than Second Lien Collateral) to the
mandatory redemption of Senior Notes (and in the case of Second Lien Collateral,
either to permanently repay the New Credit Facility or to the mandatory
redemption of Senior Notes), at the Redemption Price specified in Paragraph 5
hereof.
9. Denominations; Transfer; Exchange.
The Senior Notes are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Senior Notes in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Senior Notes or portions thereof selected for redemption.
10. Persons Deemed Owners.
The registered Holder of a Senior Note shall be treated as the owner
of it for all purposes.
11. Unclaimed Money.
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee and the Paying Agents will pay the money back to
Publishing at its request. After that, all liability of the Trustee and such
Paying Agents with respect to such money shall cease.
12. Discharge Prior to Redemption or Maturity.
If Publishing at any time deposits with the Trustee U.S. Legal
Tender or U.S. Government Obligations sufficient to pay the principal of and
interest on the Senior Notes to redemption or maturity and complies with the
other provisions of the Indenture relating thereto, Publishing will be
discharged from certain provisions of the Indenture and the Senior Notes
(including the financial covenants, but excluding its obligation to pay the
principal of and interest on the Senior Notes).
A-6
<PAGE>
13. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Senior Notes may
be amended or supplemented with the written consent of the Holders of at least a
majority in aggregate principal amount of the Senior Notes then outstanding.
Without notice to or consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Senior Notes to, among other things, cure any
ambiguity, defect or inconsistency, provide for uncertificated Senior Notes in
addition to or in place of certificated Senior Notes, provide for additional
Guarantors pursuant to Section 4.19 of the Indenture or otherwise, comply with
Article Five or Section 11.06 of the Indenture, or comply with any requirements
of the Commission in connection with the qualification of the Indenture under
the TIA, provide for the appointment of a successor Trustee pursuant to Section
7.08 or make any other change that does not adversely affect the legal rights of
any Holder of a Senior Note.
14. Restrictive Covenants.
The Indenture imposes certain limitations on the ability of Parent
and its Subsidiaries to, among other things, pay dividends to stockholders of
Parent or make certain other restricted payments, incur additional Indebtedness
or Liens, enter into transactions with Affiliates, make payments in respect of
its Capital Stock and merge or consolidate with any other Person and sell,
lease, transfer or otherwise dispose of substantially all of its properties or
assets. The limitations are subject to a number of important qualifications and
exceptions. Publishing must annually report to the Trustee regarding compliance
with such limitations.
15. Successors.
When a successor assumes all the obligations of its predecessor
under the Senior Notes and the Indenture, the predecessor will not be released
from those obligations.
16. Defaults and Remedies.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Senior Notes then
outstanding may declare all the Senior Notes to be due and payable immediately
in the manner and with the effect provided in the Indenture. Holders of Senior
Notes may not enforce the Indenture or the Senior Notes except as provided in
the Indenture. The Trustee may require indemnity satisfactory to it before it
enforces the Indenture or the Senior Notes. Subject to certain limitations,
Holders of a majority in aggregate principal amount of the Senior Notes then
outstanding may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Holders of Senior Notes notice of any continuing
Default or Event of Default (except a Default in payment of principal or
interest, including a payment of the Deficiency Repurchase Amount pursuant to a
Deficiency Offer, a payment on the Change of Control Payment Date pursuant to a
Change of Control Offer,
A-7
<PAGE>
and a payment upon a mandatory redemption) if it determines that withholding
notice is in their interest.
17. Trustee Dealings with Publishing.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Senior Notes and may otherwise deal
with Publishing, the Guarantors, or their respective Affiliates as if it were
not the Trustee.
18. No Recourse Against Others.
No stockholder, director, officer, employee or incorporator, as
such, of Publishing or any Guarantor shall have any liability for any
obligations of Publishing or any Guarantor under the Senior Notes or the
Indenture or for any claim based on, in respect of or by reason of, such
obligations or their creation. Each Holder of a Senior Note by accepting a
Senior Note waives and releases all such liability. The waiver and release are
part of the consideration for the issuance of the Senior Notes.
19. Authentication.
This Senior Note shall not be valid until the Trustee or
authenticating agent manually signs the certificate of authentication on this
Senior Note.
20. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder of a
Senior Note or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (Uniform Gifts to
Minors Act).
21. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, Publishing will cause CUSIP numbers to be
printed on the Senior Notes as a convenience to the Holders of the Senior Notes.
No representation is made as to the accuracy of such numbers as printed on the
Senior Notes and reliance may be placed only on the other identification numbers
printed hereon.
Publishing will furnish to any Holder of a Senior Note upon written
request and without charge a copy of the Indenture. Requests may be made to:
Golden Books Publishing Company, Inc., 888 Seventh Avenue, New York, NY 10106.
A-8
<PAGE>
[FORM OF NOTATION ON NOTE RELATING TO GUARANTEE]
SENIOR SECURED GUARANTEE
The Guarantors (as defined in the Indenture (the "Indenture")
referred to in the Senior Note upon which this notation is endorsed and each
hereinafter referred to as a "Guarantor," which term includes any successor
Person under the Indenture) have, jointly and severally, unconditionally
guaranteed on a senior secured basis, (such guarantee by each Guarantor being
referred to herein as the "Guarantee") (i) the due and punctual payment of the
principal of and interest on the Senior Notes, whether at maturity, by
acceleration or otherwise, the due and punctual payment of interest on the
overdue principal and interest, if any, on the Senior Notes, to the extent
lawful, and the due and punctual performance of all other obligations of
Publishing to the Holders or the Trustee all in accordance with the terms set
forth in Article Eleven of the Indenture and (ii) in case of any extension of
time of payment or renewal of any Senior Notes or any of such other obligations,
the same will be promptly paid in full when due or performed in accordance with
the terms of the extension or renewal, whether at stated maturity, by
acceleration or otherwise.
The obligations of each Guarantor to the Holders of Senior Notes and
to the Trustee pursuant to the Guarantee and the Indenture are expressly set
forth, and are senior secured obligations of each such Guarantor to the extent
and in the manner provided, in Article Eleven of the Indenture, and may be
released under certain circumstances. Reference is hereby made to such Indenture
for the precise terms of the Guarantee therein made.
No stockholder, officer, director or incorporator, as such, past,
present or future, of any Guarantor shall have any liability under the Guarantee
by reason of his or its status as such stockholder, officer, director or
incorporator.
The Guarantee shall not be valid or obligatory for any purpose until
the certificate of authentication on the Senior Notes upon which the Guarantee
is noted shall have been executed by the Trustee under the Indenture by the
manual signature of one of its authorized officers.
[Remainder of Page Intentionally Left Blank]
A-9
<PAGE>
GUARANTORS:
Golden Books Family Entertainment, Inc.
Golden Books Home Video, Inc.
Golden Books Publishing, (Canada) Inc.
Shari Lewis Enterprises, Inc.
SLE Productions, Inc.
McSpadden-Smith, Inc.
McSpadden-Smith, Music, LLC
McSpadden Music, LLC
LRM Acquisition Corp.
Summerdawn Music, LLC
Chunky Monkey Music, LLC
McSpadden-Smith Publishing, LLC
Magnolia Hill Music, LLC
By:
-----------------------------------------
Name:
(for each of the above-listed Guarantors)
By:
-----------------------------------------
Name:
(for each of the above-listed Guarantors)
A-10
<PAGE>
[FORM OF ASSIGNMENT]
To assign this Senior Note, fill in the form below: I or we assign and transfer
this Senior Note to
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
Please insert Social Security or other identifying number of assignee
- --------------------------------------------------------------------------------
and irrevocably appoint ____________ agent to transfer this Senior Note on the
books of Publishing. The agent may substitute another to act for him.
Dated:
-------------------------------
Signed:
-------------------------------
- --------------------------------------------------------------------------------
(Sign exactly as your name appears on the
front of this Senior Note)
Signature Guarantee:
Signature must be guaranteed by an eligible guarantor institution within
the meaning of Securities and Exchange Commission Rule 17Ad-15 (including
banks, stock brokers, savings and loan associations, national securities
exchanges, registered securities associations, clearing agencies and
credit unions) with membership or participation in an approved signature
guarantee medallion program if this Senior Note is delivered other than to
and in the name of the registered holder.
A-11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Senior Note purchased by
Publishing pursuant to Section 4.04 or Section 4.17 of the Indenture, check the
appropriate box: Section 4.04 [ ] Section 4.17 [ ].
If you want to elect to have only part of this Senior Note purchased
by Publishing pursuant to Section 4.04 or Section 4.17 of the Indenture, state
the amount:
Date: Signature:
-------------------- --------------------------------------
(Sign exactly as your name appears
on the front of this Senior Note)
Signature Guarantee:
Signature must be guaranteed by an eligible guarantor institution within
the meaning of Securities and Exchange Commission Rule 17Ad-15 (including
banks, stock brokers, savings and loan associations, national securities
exchanges, registered securities associations, clearing agencies and
credit unions) with membership or participation in an approved signature
guarantee medallion program if this Senior Note is delivered other than to
and in the name of the registered holder.
A-12
<PAGE>
PROSKAUER ROSE LLP
Counsel for Debtors and Debtors-in-Possession
1585 Broadway
New York, New York 10036
(212) 969-3000
Alan B. Hyman (AH-6655)
Scott K. Rutsky (SR-0712)
Glenn S. Walter (GW-0133)
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- ---------------------------------------x
:
In re: : (Chapter 11)
:
GOLDEN BOOKS FAMILY :
ENTERTAINMENT, INC., et al., : Case Nos. 99-10030
: Through 99-10032 (TLB)
:
Debtors. : (Jointly Administered)
:
- ---------------------------------------x
AMENDED DISCLOSURE STATEMENT PURSUANT TO SECTION
1125 OF THE BANKRUPTCY CODE FOR THE AMENDED JOINT
PLAN OF REORGANIZATION OF THE DEBTORS
-------------------------------------
THIS IS NOT A SOLICITATION OF ACCEPTANCES OR REJECTIONS OF THE PLAN. ACCEPTANCES
OR REJECTIONS MAY NOT BE SOLICITED UNTIL A DISCLOSURE STATEMENT HAS BEEN
APPROVED BY THE BANKRUPTCY COURT. THIS DISCLOSURE STATEMENT IS BEING SUBMITTED
FOR APPROVAL BUT HAS NOT BEEN APPROVED BY THE COURT.
Dated: May 13, 1999
New York, New York
<PAGE>
I.
INTRODUCTION AND SUMMARY
A. Overview
Golden Books Family Entertainment, Inc. ("Parent"), Golden Books Publishing
Company, Inc. ("Publishing") and Golden Books Home Video, Inc. ("Video" and
together with Parent and Publishing, the "Debtors" or "Golden Books") transmit
this Disclosure Statement pursuant to Section 1125(b) of Title 11, United States
Code, 11 U.S.C. Sections 101 et seq. (the "Bankruptcy Code") and Rule 3017 of
the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules"), in connection
with their Amended Joint Plan o Reorganization dated May 13, 1999 (the "Plan")
in order to provide adequate information to enable holders of Claims and Equity
Interests that are impaired under the Plan to make an informed judgment in
exercising their right to vote for acceptance or rejection of the Plan. A copy
of the Plan is attached hereto as Exhibit "A". All capitalized terms used but
not defined in this Disclosure Statement shall have the respective meanings
ascribed to them in the Plan unless otherwise noted. Copies of all documents
filed in these Chapter 11 Cases are available on the Court's website at
www.nysb.uscourts.gov.
THE DEBTORS STRONGLY URGE ACCEPTANCE OF THE PLAN. THE DEBTORS HAVE
NEGOTIATED THE TERMS OF THE PLAN WITH AN INFORMAL COMMITTEE OF HOLDERS OF OLD
SENIOR NOTES (THE "INFORMAL SENIOR NOTE COMMITTEE") AND AN INFORMAL COMMITTEE OF
HOLDERS OF TOPrS CERTIFICATES (THE "INFORMAL TOPrS COMMITTEE"). THE INFORMAL
SENIOR NOTE COMMITTEE AND THE
<PAGE>
INFORMAL TOPrS COMMITTEE ALSO STRONGLY RECOMMEND THAT ALL HOLDERS OF OLD SENIOR
NOTES AND TOPrS CERTIFICATES VOTE TO ACCEPT THE PLAN.
B. Summary of Classification and Treatment Under the Plan
In general, and as more fully described herein, the Plan effectuates a
restructuring of the Debtors' pre-petition indebtedness and operations. Among
other things, the Plan provides for the exchange of Old Senior Notes for a
combination of New Senior Notes and New Parent Common Stock. The Plan also
provides for the exchange of TOPrS Certificates for shares of New Parent Common
Stock. Holders of General Unsecured Claims, to the extent not previously
satisfied, will either be reinstated, paid in full in accordance with their
respective terms or otherwise rendered unimpaired. Holders of Old Preferred
Stock Interests and Old Common Stock Interests will receive New Warrants to
purchase New Parent Common Stock. Set forth in the following section is a
summary of the classification and treatment of Claims and Equity Interests under
the Plan.
The Plan (i) divides Claims and Equity Interests into eleven classes,
(ii) sets forth the treatment afforded to each class, and (iii) provides the
means by which the Debtors will be reorganized under Chapter 11 of the
Bankruptcy Code. The following table sets forth a summary of the treatment of
each type of Claim and Equity Interest under the Plan (a more detailed
description of the Plan is set forth later in this Disclosure Statement in
Section IV entitled "Overview of The Plan").1
- -------------
1 This summary contains only a brief and simplified description of the
classification and treatment of Claims and Equity Interests under the Plan.
It does not describe every
(continued...)
2
<PAGE>
Class Type of Claim/Interest Treatment
- ---------------- ------------------------- ---------------------------------
Not Applicable Allowed Administrative To be paid in full, in Cash, in
Expense Claims such amounts as (1) are incurred
in the ordinary course of
business by the Debtors, (2) are
Allowed by the Bankruptcy Court
upon the later of the Effective
Date, the date of a Final Order
allowing such Administrative
Expense Claims, or any other date
specified in such order, or (3)
may be agreed upon between the
holders of such Administrative
Expense Claims and the Debtors.
Not Applicable Allowed Priority Tax To be paid in full, in Cash, upon
Claims the later (1) the Effective Date,
(2) the date upon which there is
a Final Order allowing such Claim
as an Allowed Priority Tax Claim,
(3) the date that such Allowed
Priority Tax Claim would have
been due if the Reorganization
Cases had not been commenced, or
(4) upon such other terms as may
be agreed to between the Debtors
and the holder of any Allowed
Priority Tax Claim; provided,
however, that the Debtors may, at
their option, in lieu of payment
in full of Allowed Priority Tax
Claims on the Effective Date,
make Cash payments respecting
Allowed Priority Tax Claims
deferred in accordance with
Section 1129(a)(9) of the
Bankruptcy Code.
- -----------------------
(...continued)
provision of the Plan. Accordingly, reference should be made to the entire
Disclosure Statement (including exhibits), the Plan, and the Plan
Supplement for a complete description of the classification and treatment
of Claims and Equity Interests.
3
<PAGE>
Class Type of Claim/Interest Treatment
- ---------------- ------------------------- ---------------------------------
1 Priority Claims Unimpaired. Each holder of an
Allowed ---------- Priority Claim
shall receive Cash in an amount
equal to such Allowed Priority
Claim on the later of the
Effective Date and the date such
Priority Claim becomes an Allowed
Priority Claim, or as soon
thereafter as is practicable,
unless the holder of an Allowed
Priority Claim and the
Reorganized Debtors agree to a
different treatment thereof.
2 General Secured Claims Unimpaired. At the option of the
Reorganized Debtors, (i) an
Allowed General Secured Claim
shall be reinstated and rendered
unimpaired in accordance with
Section 1124(2) of the Bankruptcy
Code, (ii) a holder of an Allowed
General Secured Claim shall
receive Cash in an amount equal
to such Allowed General Secured
Claim, including any interest on
such Allowed General Secured
Claim required to be paid
pursuant to Section 506(b) of the
Bankruptcy Code, on the later of
the Effective Date and the date
such General Secured Claim
becomes an Allowed General
Secured Claim, or as soon
thereafter as is practicable, or
(iii) a holder of an Allowed
General Secured Claim shall
receive the Collateral securing
its Allowed General Secured Claim
and any interest on such Allowed
General Secured Claim required to
be paid pursuant to Section
506(b) of the Bankruptcy Code, in
full and complete satisfaction
thereof on the later of the
Effective Date and the date such
General Secured Claim becomes
Allowed, or as soon thereafter as
is practicable.
4
<PAGE>
Class Type of Claim/Interest Treatment
- ---------------- ------------------------- ---------------------------------
3 Old Senior Note Claims Impaired. On the Effective Date,
each holder of an Allowed Old
Senior Note Claim shall receive,
in full and final satisfaction of
such Allowed Claim (including any
unsecured deficiency Claim in
respect of the Old Senior Notes),
its Pro Rata Share of (i) the New
Senior Notes and (ii) 2,125,000
shares of New Parent Common
Stock. The New Parent Common
Stock issued to holders of
Allowed Old Senior Note Claims
pursuant to the Plan will
represent, in the aggregate,
42.5% of the authorized and
outstanding shares of New Parent
Common Stock on the Effective
Date; provided, however, that the
foregoing percentage is subject
to dilution by (i) shares of New
Parent Common Stock issued as a
result of the exercise of the New
Warrants, (ii) shares of New
Parent Common Stock issued in
accordance with the Management
Stock Option Plan, and (iii) such
other shares as may be authorized
and issued pursuant to the
Reorganized Parent Charter.
5
<PAGE>
Class Type of Claim/Interest Treatment
- ---------------- ------------------------- ---------------------------------
4 GPH Claims Impaired. On the Effective Date,
the holder of the Allowed GPH
Claim shall receive, in full and
final satisfaction of such
Allowed Claim (including any
unsecured deficiency Claim in
respect of the GPH Notes),
250,000 shares of New Parent
Common Stock. The New Parent
Common Stock issued to the holder
of the Allowed GPH Claim pursuant
to the Plan, will represent, in
the aggregate, 5% of the
authorized and outstanding shares
of New Parent Common Stock on the
Effective Date; provided,
however, that the foregoing
percentage is subject to dilution
by (i) shares of New Parent
Common Stock issued as a result
of the exercise of the New
Warrants, (ii) shares of New
Parent Common Stock issued in
accordance with the Management
Stock Option Plan, and (iii) such
other shares as may be authorized
and issued pursuant to the
Reorganized Parent Charter.
5 TOPrS Claims Impaired. On the Effective Date,
each holder of an Allowed TOPrS
Claim shall receive, in full and
final satisfaction of such
Allowed Claim, its Pro Rata Share
of 2,500,000 shares of New Parent
Common Stock. The New Parent
Common Stock issued to holders of
Allowed TOPrS Claims pursuant to
the Plan, will represent, in the
aggregate, 50.0% of the
outstanding shares of New Parent
Common Stock on the Effective
Date; provided, however, that the
foregoing percentage is subject
to dilution by (i) shares of New
Parent Common Stock issued as a
result of the exercise of the New
Warrants, (ii) shares of New
Parent Common Stock issued in
accordance with the Management
Stock Option Plan, and (iii) such
other shares as may be authorized
and issued pursuant to the
Reorganized Parent Charter.
6
<PAGE>
Class Type of Claim/Interest Treatment
- ---------------- ------------------------- ---------------------------------
6 General Unsecured Unimpaired. To the extent not
Claims satisfied by the Debtors in the
ordinary course of busines prior
to the Effective Date, in full
and final satisfaction of such
claim, the legal, equitable, and
contractual rights to which an
Allowed General Unsecured Claim
entitles the holder thereof shall
be left unimpaired and,
accordingly, shall be satisfied
on the latest of (a) the
Effective Date, (b) the date a
General Unsecured Claim becomes
an Allowed Claim, (c) the date an
Allowed General Unsecured Claim
becomes due and payable in the
ordinary course of the Debtors'
business consistent with the
Debtors' ordinary payment
practices, and (d) the date on
which the Debtors and the holder
of such Allowed General Unsecured
Claim otherwise agree in writing.
At the option of the Debtors, the
treatment provided in the Plan
will result in the payment of any
Allowed General Unsecured Claim,
in Cash, in an amount equal to
such Allowed General Unsecured
Claim (which payment shall
include post-petition interest
for the period from the Petition
Date through the Effective Date
calculated as follows: (i) to the
extent holders of Allowed General
Unsecured Claim are contractually
entitled to receive interest,
such holders shall receive
post-petition interest at the
contract rate, and (ii) all other
holders of Allowed General
Unsecured Claims shall receive
post-petition interest at the
rate applicable to federal
judgements pursuant to 28 U.S.C.
ss.ss. 1961, which on the
Petition Date was 4.584%).
7
<PAGE>
Class Type of Claim/Interest Treatment
- ---------------- ------------------------- ---------------------------------
7 Debt Securities Impaired. Subject to the releases
Rescission or Damage contained in Section 9.1 of the
Claims Plan, each holder of an Allowed
Debt Securities Rescission or
Damage Claim shall retain all
proceeds derived from or relating
to any litigation instituted by
or against any such holder or on
his behalf which are payable by
any entity other than the Debtors
or Reorganized Debtors (but not
any proceeds from any of the
property or assets of the Debtors
except proceeds of insurance
policies maintained by the
Debtors) but shall receive no
other distribution under the
Plan.
8 Old Preferred Stock Impaired. On the Effective Date,
Interests all Old Preferred Stock Interests
shall be canceled, annulled, and
extinguished, and the holder of
the Allowed Old Preferred Stock
Interests shall receive
two-thirds (2/3) of the New
9 Old Common Stock Impaired. On the Effective Date,
Interests all Old Common Stock Interests
(including any such Equity
Interests consisting of accrued
and unpaid dividends on the Old
Preferred Stock Interest) shall
be canceled, annulled, and
extinguished, and each holder of
an Allowed Old Common Stock
Interest shall receive its Pro
Rata Share of one-third (1/3) of
the New Warrants.
8
<PAGE>
Class Type of Claim/Interest Treatment
- ---------------- ------------------------- ---------------------------------
10 Equity Interests Impaired. Subject to the releases
Rescission or Damage contained in Section 9.1 of the
Claims Plan, each holder of an Allowed
Equity Interests Rescission or
Damage Claim shall retain all
proceeds derived from or relating
to any litigation instituted by
or against any such holder or on
his behalf which are payable by
any entity other than the Debtors
or Reorganized Debtors (but not
any proceeds from any of the
property or assets of the Debtors
except proceeds of insurance
policies maintained by the
Debtors) but shall receive no
other distribution under the
Plan.
11 Subsidiary Equity Unimpaired. On the Effective
Interests Date, record holders of Allowed
Subsidiary Equity Interests shall
continue to hold such equity
interests, which equity interests
shall continue to be evidenced by
the capital stock held by such
record holders in the Subsidiary
or Subsidiaries as of the
Effective Date. All Subsidiaries
are wholly owned, directly or
indirectly, by Parent.
AS SET FORTH MORE FULLY IN SECTION IV.F.12 HEREOF, IN THE EVENT THAT
ANY CLASS OF CLAIMS OR EQUITY INTEREST HOLDERS RANKING IN PRIORITY BELOW CLASS 6
(GENERAL UNSECURED CLAIMS) VOTES TO REJECT THE PLAN (AND THE BANKRUPTCY COURT
DETERMINES THAT, AS A RESULT THEREOF, THE PLAN IS UNCONFIRMABLE), THE DEBTORS
RESERVE THE RIGHT TO AMEND THE PLAN TO PROVIDE THAT ALL CLASSES RANKING IN
PRIORITY BELOW CLASS 6 (I.E., CLASSES 7, 8, 9 AND 10) SHALL NOT RECEIVE OR
RETAIN ANY PROPERTY UNDER THE PLAN,
9
<PAGE>
INCLUDING, WITHOUT LIMITATION, THAT CLASSES 8 AND 9 WOULD NOT RECEIVE THE NEW
WARRANTS CURRENTLY CONTEMPLATED TO BE DISTRIBUTED UNDER THE PLAN. IN SUCH CASE,
CLASSES 7, 8, 9 AND 10 WOULD BE DEEMED TO REJECT THE PLAN, IN WHICH EVENT, THE
DEBTORS WOULD THEN SEEK TO CONFIRM THE PLAN UNDER SECTION 1129(B) OF THE
BANKRUPTCY CODE WITHOUT RE-SOLICITING VOTES TO ACCEPT OR REJECT THE PLAN AND
BALLOTS CAST RESPECTING SUCH CLASSES WOULD BE DISREGARDED.2
THIS DISCLOSURE STATEMENT HAS BEEN APPROVED BY ORDER OF THE BANKRUPTCY
COURT AS CONTAINING INFORMATION OF A KIND, AND IN SUFFICIENT DETAIL, TO ENABLE
HOLDERS OF CLAIMS AND EQUITY INTERESTS TO MAKE AN INFORMED JUDGMENT IN VOTING TO
ACCEPT OR REJECT THE PLAN. APPROVAL OF THIS DISCLOSURE STATEMENT DOES NOT,
HOWEVER, CONSTITUTE A DETERMINATION OR RECOMMENDATION BY THE BANKRUPTCY COURT AS
TO THE FAIRNESS OR THE MERITS OF THE PLAN.
THIS DISCLOSURE STATEMENT CONTAINS A SUMMARY OF CERTAIN PROVISIONS OF
THE PLAN, THE PLAN DOCUMENTS, AND CERTAIN FINANCIAL INFORMATION. WHILE THE
DEBTORS BELIEVE THAT THESE SUMMARIES ARE FAIR AND ACCURATE AND PROVIDE ADEQUATE
- ----------------------
2 GPH has reserved the right not to support the Plan or to invoke its other
rights under the Restructuring Agreement in the event that the Debtors
amend the Plan to provide that Classes 7,8,9 and 10 do not receive or
retain any property under the Plan.
10
<PAGE>
INFORMATION WITH RESPECT TO THE DOCUMENTS SUMMARIZED, SUCH SUMMARIES ARE
QUALIFIED TO THE EXTENT THAT THEY DO NOT SET FORTH THE ENTIRE TEXT OF SUCH
DOCUMENTS. FURTHERMORE, ALTHOUGH THE DEBTORS HAVE MADE EVERY EFFORT TO BE
ACCURATE, THE FINANCIAL INFORMATION CONTAINED HEREIN (WITH THE EXCEPTION OF
CERTAIN INFORMATION CONTAINED IN THE DEBTORS' ANNUAL REPORT ON FORM 10K FOR THE
FISCAL YEAR ENDED 1998 WHICH IS ATTACHED HERETO AS EXHIBIT "B") HAS NOT BEEN THE
SUBJECT OF AN AUDIT BY AN OUTSIDE ACCOUNTING FIRM. IN THE EVENT OF ANY CONFLICT,
INCONSISTENCY, OR DISCREPANCY BETWEEN THE TERMS AND PROVISIONS IN THIS
DISCLOSURE STATEMENT AND THE TERMS AND PROVISIONS IN THE PLAN, THE PLAN
DOCUMENTS, OR THE FINANCIAL INFORMATION INCORPORATED THEREIN BY REFERENCE, THE
PLAN SHALL GOVERN FOR ALL PURPOSES. ALL HOLDERS OF CLAIMS AND EQUITY INTERESTS
SHOULD READ THIS DISCLOSURE STATEMENT, THE PLAN, THE EXHIBITS TO THIS DISCLOSURE
STATEMENT, AND THE PLAN DOCUMENTS IN THEIR ENTIRETY BEFORE VOTING ON THE PLAN.
THE STATEMENTS AND FINANCIAL INFORMATION CONTAINED HEREIN HAVE BEEN
MADE AS OF THE DATE HEREOF UNLESS OTHERWISE SPECIFIED. HOLDERS OF CLAIMS AND
EQUITY INTERESTS REVIEWING THIS DISCLOSURE STATEMENT SHOULD NOT INFER AT THE
TIME OF SUCH
11
<PAGE>
REVIEW THAT THERE HAVE BEEN NO CHANGES IN THE FACTS SET FORTH HEREIN UNLESS SO
SPECIFIED. WHILE THE DEBTORS HAVE MADE EVERY EFFORT TO DISCLOSE WHERE CHANGES IN
PRESENT CIRCUMSTANCES COULD REASONABLY BE EXPECTED TO AFFECT MATERIALLY THE VOTE
ON THE PLAN, THIS DISCLOSURE STATEMENT IS QUALIFIED TO THE EXTENT THAT CERTAIN
EVENTS, SUCH AS THOSE MATTERS DISCUSSED IN SECTION VIII BELOW ENTITLED "RISK
FACTORS," DO OCCUR.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH SECTION
1125 OF THE BANKRUPTCY CODE AND NOT IN ACCORDANCE WITH FEDERAL OR STATE
SECURITIES LAW OR OTHER APPLICABLE NONBANKRUPTCY LAW. PERSONS OR ENTITIES
HOLDING OR TRADING IN OR OTHERWISE PURCHASING, SELLING OR TRANSFERRING CLAIMS
AGAINST, OR SECURITIES OF, THE DEBTORS SHOULD EVALUATE THIS DISCLOSURE STATEMENT
IN LIGHT OF THE PURPOSE FOR WHICH IT WAS PREPARED.
IN ACCORDANCE WITH THE BANKRUPTCY CODE, THIS DISCLOSURE STATEMENT HAS
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR
HAS SUCH COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS
CONTAINED HEREIN.
12
<PAGE>
WITH RESPECT TO CONTESTED MATTERS, ADVERSARY PROCEEDINGS AND OTHER
PENDING OR THREATENED ACTIONS, THIS DISCLOSURE STATEMENT AND THE INFORMATION
CONTAINED HEREIN SHALL NOT BE CONSTRUED AS AN ADMISSION OR STIPULATION, BUT
RATHER AS STATEMENTS MADE IN SETTLEMENT NEGOTIATIONS.
C. Voting and Confirmation Procedures
Accompanying this Disclosure Statement are copies of the following
documents: (i) the Plan, which is attached hereto as Exhibit "A", (ii) an Order
from the Bankruptcy Court (the "Disclosure Statement Approval Order") (a)
approving this Disclosure Statement as containing adequate information pursuant
to Section 1125 of the Bankruptcy Code; (b) approving the forms of Ballots to be
executed by holders of impaired Claims and Equity Interests for voting on the
Plan; and (c) approving the notice of and fixing the time for (1) submitting
acceptances or rejections to the Plan, (2) the hearing to consider confirmation
of the Plan, and (3) filing objections to confirmation of the Plan; and (iii)
forms of Ballots to be executed by holders of impaired Claims and Equity
Interests for voting to accept or reject the Plan.
The forms of Ballots, and the related materials delivered together
herewith, are being furnished, for purposes of soliciting votes on the Plan, to
holders of (i) Old Senior Notes whose respective names (or the names of whose
nominees) appear as of the Voting Record Date (defined below) on the security
holder lists maintained by the Old Senior Note Indenture Trustee, (ii) TOPrS
Certificates whose respective names (or the names of whose nominees)
13
<PAGE>
appear as of the Voting Record Date on the security holder lists maintained by
the TOPrS Trustee, (iii) GPH Claims, (iv) Debt Securities Rescission or Damage
Claims, (v) Old Preferred Stock Interests, (vi) Old Common Stock Interests and
(vii) Equity Interest Rescission or Damage Claims. With regard specifically to
the Senior Notes and the TOPrS Certificates held by banks and/or brokers (the
"Record Holders") for the beneficial ownership of other entities or individuals
(the "Beneficial Holders"), the Debtors or their balloting agent will provide a
sufficient number of copies of this Disclosure Statement, the Plan and the
Ballots to the Record Holders for transmission to each of the Beneficial
Holders. The Debtors shall ask the Record Holders to send copies of the
Disclosure Statement, the Plan and the Ballots to the respective Beneficial
Holders, and to collect completed Ballots from such Beneficial Holders on the
Debtors' behalf. The Record Holders shall be asked to summarize the results of
the votes received from the Beneficial Holders on a summary form, i.e., a master
ballot, which will be provided to each Record Holder by the Debtors. The
Disclosure Statement is also being provided to holders of claims in Classes 1,
2, 6 and 11 (who are deemed to have accepted the Plan), and other entities,
solely for informational purposes.
1. Who May Vote
------------
Under the Bankruptcy Code, impaired classes of Claims or Equity
Interests are entitled to vote to accept or reject a plan of reorganization. A
class which is not "impaired" is deemed to have accepted a Plan and does not
vote. A class is "impaired" under the Bankruptcy Code unless the legal,
equitable, and contractual rights of the holders of Claims or Equity Interests
in such class are not modified or altered. For purposes of the Plan, holders of
Old
14
<PAGE>
Senior Note Claims in Class 3, holders of GPH Claims in Class 4, holders of
TOPrS Claims in Class 5, holders of Debt Securities Rescission or Damage Claims
in Class 7, holders of Old Preferred Stock Interests in Class 8, holders of Old
Common Stock Interests in Class 9, and holders of Equity Interest Rescission or
Damage Claims in Class 10 are impaired and are entitled to vote on the Plan.
2. Voting Instructions
-------------------
All votes to accept or reject the Plan must be cast by using the form
of Ballot, or, in the case of a brokerage firm holding Old Senior Notes, TOPrS
Certificates, or Old Common Stock Interests in its own name on behalf of a
beneficial owner, the Ballot entitled "Master Ballot" enclosed with this
Disclosure Statement. No votes other than ones using such Ballots will be
counted except to the extent the Bankruptcy Court orders otherwise. The
Bankruptcy Court has fixed a time and date (the "Voting Record Date"), as set
forth in the Disclosure Statement Approval Order, for the determination of
holders of record of Claims who are entitled to (a) receive a copy of this
Disclosure Statement and all of the related materials, and (b) vote to accept or
reject the Plan. After carefully reviewing the Plan and this Disclosure
Statement, including the attached exhibits and the Plan Documents, please
indicate your acceptance or rejection of the Plan on the appropriate Ballot and
return such Ballot in the enclosed envelope to:
15
<PAGE>
Golden Books Plan of Reorganization
c/o Bankruptcy Services, LLC
70 East 55th Street
6th Floor
New York, New York 10022
(212) 376-8494
Attn: Ms. Kathy Gerber
BALLOTS MUST BE RECEIVED ON OR BEFORE 4:00 P.M. (NEW YORK CITY TIME) ON
_________, 1999 (THE "VOTING DEADLINE"). ANY BALLOT WHICH IS NOT EXECUTED BY A
DULY AUTHORIZED PERSON SHALL NOT BE COUNTED. ANY BALLOT WHICH IS EXECUTED BY THE
HOLDER OF AN ALLOWED CLAIM BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR
REJECTION OF THE PLAN SHALL BE DEEMED TO BE AN ACCEPTANCE.
IF YOU ARE A BENEFICIAL HOLDER OF A SECURITY HELD BY A NOMINEE PLEASE NOTE THAT
BALLOTS MUST BE RETURNED BY HAND, MAIL, OR OVERNIGHT TRANSMISSION TO YOUR
NOMINEE IN SUFFICIENT TIME FOR IT TO BE FORWARDED BY YOUR NOMINEE TO THE
DEBTORS' BALLOTING AGENT BY THE VOTING DEADLINE.
If you have any questions regarding the procedures for voting on the
Plan, please contact the Debtors' balloting agent, Bankruptcy Services, LLC, at
the above address and telephone number.
16
<PAGE>
3. Acceptance or Rejection of the Plan
-----------------------------------
Under the Bankruptcy Code, a voting Class of Claims is deemed to have
accepted the Plan if it is accepted by creditors in such Class who, of those
voting on the Plan, hold at least two-thirds in amount and more than one-half in
number of the Allowed Claims of such Class. A voting Class of Equity Interests
is deemed to have accepted the Plan if it is accepted by holders of Equity
Interests who hold at least two-thirds in amount of the Equity Interests of such
Class that have actually voted on the Plan.
If the Plan is not accepted by all impaired Classes of Allowed Claims,
the Plan may still be confirmed by the Bankruptcy Court pursuant to Section
1129(b) of the Bankruptcy Code if (a) the Plan has been accepted by at least one
impaired Class of Claims, and (b) the Bankruptcy Court determines, among other
things, that the Plan "does not discriminate unfairly" and is "fair and
equitable" with respect to each non-accepting impaired Class. If the Plan is not
accepted by all impaired Classes of Allowed Claims or Equity Interests, the
Debtors reserve the right to ask the Bankruptcy Court to find that the Plan does
not discriminate unfairly and is fair and equitable with respect to each
impaired Class that has not accepted the Plan.
4. Confirmation Hearing
--------------------
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court,
after notice, to hold a Confirmation Hearing. Section 1128(b) of the Bankruptcy
Code provides that any party-in-interest may object to Confirmation of the Plan.
17
<PAGE>
Pursuant to Section 1128 of the Bankruptcy Code and Rule 3017(c) of
the Bankruptcy Rules, the Bankruptcy Court has scheduled the Confirmation
Hearing before the Honorable Tina L. Brozman, Chief United States Bankruptcy
Judge, at the United States Bankruptcy Court, Southern District of New York, One
Bowling Green, New York, New York for _________, 1999 at ___ p.m. A notice
setting forth the time and date of the Confirmation Hearing has been included
along with this Disclosure Statement. The Confirmation Hearing may be adjourned
from time to time by the Bankruptcy Court without further notice, except for an
announcement of such adjourned hearing date by the Bankruptcy Court in open
court at such hearing.
5. Objections
----------
Any objection to Confirmation of the Plan must be in writing, must
comply with the Bankruptcy Rules and the Local Rules of the Bankruptcy Court,
and must be filed and served as required by the Bankruptcy Court pursuant to the
Disclosure Statement Approval Order. A copy of the Disclosure Statement Approval
Order accompanies this Disclosure Statement and contains all relevant procedures
relating to the submission of objections to Confirmation of the Plan. Parties
submitting objections should review such order in its entirety.
18
<PAGE>
II.
BACKGROUND AND EVENTS PRECIPITATING
CHAPTER 11 FILING AND SOLICITATION
A. Overview of the Debtors and their Business Operations
Golden Books publishes, produces, licenses and markets an extensive
range of children's and family-related media and entertainment products. On the
Petition Date, the Debtors employed over 1,100 individuals, owned or leased
properties in five states, and had operations in Canada (through a non-debtor
affiliate) and in the United Kingdom. The Debtors' products and productions are
distributed throughout the United States, and worldwide in over 60 countries.
On May 8, 1996, Golden Press Holding, L.L.C. ("GPH"), an investment
vehicle formed by Warburg, Pincus Ventures, L.P., Richard E. Snyder and Barry
Diller, invested $65 million in Golden Books through the purchase of Parent's
Old Preferred Stock Interests.3 At that time, the name of the Debtors' parent
corporation was changed from Western Publishing Company, Inc. to Golden Books
Family Entertainment, Inc.
- ----------------
3 GPH also purchased $10 million in principal amount of GPH Notes on or about
September 8, 1998. Class 4 under the Plan is made up of the holders of GPH
Notes.
19
<PAGE>
On the Petition Date, the Debtors operated through the following four
business segments: (i) Children's Publishing Division, (ii) Adult Publishing
Division, (iii) Golden Books Entertainment Group and (iv) Commercial Printing
Division.4
1. Children's Publishing Division
------------------------------
Golden Books, through its Children's Publishing Division, is the
largest publisher of children's books in the North American retail market, and
has published its flagship product line, "Little Golden Books", for over 50
years. The Children's Publishing Division produces storybooks, coloring/activity
books, electronic storybooks, puzzles, educational workbooks, reference books,
novelty books, chapter books and fiction. The products of the Children's
Publishing Division utilize both owned (in whole or in part) characters, such as
the Poky Little Puppy and Lassie, and characters licensed from third parties,
such as Barney and the Muppets. The products of the Children's Publishing
Division have traditionally been designed for children up to age seven and have
been distributed through mass market channels (which include national discount
store chains, such as Wal-mart, K-Mart, Target and Toys "R" Us). Golden Books
has also distributed children's products through bookstores and other retailers,
specialty markets and international channels.
- -------------------
4 For a detailed description of Golden Books and its operations, see Golden
Books' Annual Report on Form 10-K for the fiscal year ended 1998, a copy of
which is annexed hereto as Exhibit "B." The aforementioned financial
information is provided to permit holders of Claims and Equity Interests to
better understand Golden Books' historical business performance.
20
<PAGE>
2. Adult Publishing Division
-------------------------
On the Petition Date, the Debtors' Adult Publishing Division published
trade books focusing primarily on hobbies, parenting and the family. As of the
Petition Date, the Adult Publishing Division consisted of certain intellectual
property rights (e.g., copyrights and "author agreements") and the personal
property related thereto (e.g, inventory and accounts) associated with
approximately 170 titles aimed at the adult audience. The products of the Adult
Publishing Division were distributed primarily through bookstores, although the
line included books published in formats suitable for mass market distribution.
On the Petition Date, the products of the Adult Publishing Division were
distributed throughout the United States and Canada by St. Martin's Press,
Incorporated ("St. Martin's Press") pursuant to an exclusive distribution
agreement. As discussed later in this Disclosure Statement, on or about April
16, 1999, pursuant to an order of the Bankruptcy Court, the assets of the Adult
Publishing Division were sold to St. Martin's Press.
3. Entertainment Group Division
----------------------------
The Golden Books Entertainment Group Division (the "Entertainment
Division") was established in August 1996 when Golden Books acquired an
extensive library of character- based family entertainment properties from
Broadway Video Entertainment, L.P. The Entertainment Division's library is
comprised of copyrights, distribution rights, trademarks and licenses relating
to characters, television programs and motion pictures, both animation and live
action, and includes individual specials and multiple episode series. Properties
from this library
21
<PAGE>
are licensed to third parties, both domestically and internationally, for use in
television, home video and other electronic media. Included in the assets of the
Entertainment Division are the intellectual property rights relating to a number
of well-known television programs, motion pictures and characters including,
among others, Christmas Classics, Lassie, Underdog, Lone Ranger and Felix the
Cat.
4. Commercial Printing Division
----------------------------
The Debtors' Commercial Printing Division allows the company, as a
leading publisher, to market surplus manufacturing capabilities to third
parties. Customers of the Commercial Printing Division include educational
publishers, religious publishers, brand marketers targeting children and
families, and other juvenile publishers and entertainment companies. The
Commercial Printing Division also engages in commodity printing such as tax
instruction booklets and tax forms.
B. Pre-Petition Debt Structure of the Debtors
Prior to the Petition Date, the Debtors' debt structure included a
secured working capital facility, long-term debt consisting primarily of the
Senior Notes and the TOPrS Certificates, and short-term debt consisting
primarily of the GPH Notes.
22
<PAGE>
1. Pre-Petition Working Capital Facility
-------------------------------------
The Debtors' day-to-day operations were primarily financed by a
secured, revolving working capital facility with NationsCredit Commercial
Funding, a division of NationsCredit Commercial Corp. ("NationsCredit"),
pursuant to a Loan and Security Agreement dated as of June 3, 1998 (the
"NationsCredit Agreement"), by and between NationsCredit, as lender, and
Publishing, as borrower. Publishing's obligations under the NationsCredit
Agreement were secured by a first lien and security interest in (i) all
Accounts, Chattel Paper, Documents and Inventory (each as defined in the
NationsCredit Agreement) relating solely to Publishing's Children's Publishing
Division excluding all of the foregoing assets relating to Publishing's
Christmas Classics, Lone Ranger and Underdog properties (as such terms are
defined in the NationsCredit Agreement), (ii) any and all proceeds and products
of the foregoing, and (iii) all books and records relating to any of the
foregoing (collectively, the "NationsCredit Collateral").
The NationsCredit Agreement had an initial maximum borrowing capacity
of $30 million. Prior to the Petition Date, NationsCredit notified the Debtors
of the occurrence of certain alleged events of default. As a result, the Debtors
and NationsCredit entered into a series of letter agreements, wherefore in
consideration for certain payments and other undertakings by the Debtors,
NationsCredit agreed to refrain, through February 26, 1999, from exercising its
rights under the NationsCredit Agreement with respect to the alleged events of
default. Additionally, pursuant to such agreements, the Debtors' maximum
borrowing capacity was reduced from time to time. On the Petition Date, the
Debtors' maximum borrowing capacity
23
<PAGE>
under the NationsCredit Agreement was approximately $16 million and the
outstanding balance owed to NationsCredit was approximately $10 million.5
2. The Old Senior Notes
--------------------
Pursuant to the Old Senior Note Indenture, dated September 15, 1992,
$150 million of Old Senior Notes due 2002 were issued by Parent's
predecessor-in-interest. As part of the series of transactions related to the
1996 investment by GPH (see subsection II.A. above), Parent assigned its
obligations in respect of the Old Senior Notes to Publishing. Interest on the
Old Senior Notes accrues at the rate of 7.65% per annum and is payable on each
March 15 and September 15. As part of the incurrence of the secured working
capital facility with NationsCredit, in June 1998, the holders of Old Senior
Notes directed the Old Senior Note Indenture Trustee to amend the covenant
prohibiting secured indebtedness and certain other provisions contained in the
Old Senior Note Indenture. Parent guaranteed Publishing's obligations under the
Old Senior Notes and Publishing provided the Old Senior Note Indenture with
certain collateral described below. As of the Petition Date, the aggregate
amount owed under the Old Senior Notes (including accrued and unpaid interest)
was approximately $160 million. As discussed below, Publishing did not make the
interest payment due on September 15, 1998. (See Section II.D.)
- --------------------
5 On March 1, 1999, the Bankruptcy Court entered an Interim Order authorizing
the Debtors to enter into a debtor-in-possession financing facility of up
to $55 million with The CIT Group/Business Credit, Inc. (and allowing for
interim borrowing thereunder of up to $30 million), and authorizing the use
of a portion of the proceeds of such facility to satisfy fully the Debtors'
obligations to NationsCredit.
24
<PAGE>
The Old Senior Notes are secured obligations of the Debtors pursuant
to a security agreement dated as of June 2, 1998 (the "Security Agreement"). In
particular, the Debtors believe that the Senior Note Trustee (for the benefit of
all holders) holds valid, perfected and unavoidable (i) first priority liens and
security interests (subject to certain permitted liens) in and upon (a)
inventory, accounts receivable, chattel paper, documents and proceeds of the
foregoing relating solely to Publishing's Christmas Classics, Lone Ranger and
Underdog properties (as such terms are defined in the Security Agreement), and
the copyrights, copyright licenses, trademarks and trademark licenses associated
therewith, and (b) certain personal property and fixtures owned by Publishing
and located at the Debtors' distribution center in Crawfordsville, Indiana,
their manufacturing facility in Racine, Wisconsin, and their corporate
headquarters in New York, New York; (ii) junior liens and security interests in
and upon the NationsCredit Collateral (subject to the terms and conditions set
forth therein); and (iii) a mortgage lien upon Publishing's real property
located in Crawfordsville, Indiana. In addition, the Old Senior Note Indenture
Trustee and the Informal Senior Note Committee believe that the Senior Notes are
entitled to be secured by a first priority lien on and security interest in a
certain distribution agreement between Video and Sony Music and a related
license agreement between Publishing and Video (collectively, the "Distribution
Agreement"), and all rights to receive moneys due and to become due thereunder,
and all proceeds thereof.
3. GPH Claims
----------
Pursuant to the GPH Note Purchase Agreement, dated as of September 8,
1998, among GPH, Parent, Publishing and Video, Video issued senior secured
promissory notes in the
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<PAGE>
original principal amount of $10 million to GPH in consideration for a $10
million loan by GPH. The GPH Notes provide for the payment of interest at the
rate of (i) 5% per annum until and including March 8, 1999, (ii) 7% per annum
after March 8, 1999 and (iii) 11% per annum respecting overdue payments of
principal or interest. The proceeds from the Note Purchase Agreement were loaned
to Publishing in return for senior notes of Publishing in the original principal
amount of $10 million (the "Publishing Notes"). The Publishing Notes were
pledged to GPH as collateral for the GPH Notes.
As additional collateral for the GPH Notes, the Debtors believe that
the GPH Notes are secured by first priority liens and security interests
(subject in certain instances to permitted liens) in and upon all of Video's
assets (including Video's rights under the Distribution Agreement and all rights
of Video to receive moneys due and to become due thereunder, and all proceeds
thereof). Video's obligations under the Note Purchase Agreement were guaranteed
by both Parent and Publishing. In connection therewith, Parent pledged to GPH
all of the issued and outstanding capital stock of Publishing and Video, and all
dividends, cash and other rights in respect thereof, and all proceeds of any of
the foregoing. As of the Petition Date, the aggregate amount owed to GPH under
the Note Purchase Agreement (including accrued and unpaid interest) was
approximately $10.2 million.
4. TOPrS Certificates
------------------
Prior to the Petition Date, Parent and Publishing issued $118 million
in original principal amount of 8.75% Convertible Debentures due 2016 (the
"Convertible Debentures") to
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the Golden Books Financing Trust (the "TOPrS Trust"), a Delaware Statutory
Business Trust. In turn, the TOPrS Trust issued $118 million of 8.75%
Convertible Trust Originated Preferred Securities due 2016 (the "TOPrS
Certificates"), which represent undivided beneficial ownership interests in the
assets of the TOPrS Trust (i.e., the Convertible Debentures). Pursuant to the
terms of the TOPrS Trust, a bankruptcy filing by Publishing or Parent causes a
dissolution of the TOPrS Trust, whereupon the Convertible Debentures are to be
distributed to the holders of the TOPrS Certificates on a pro rata basis.6 The
Convertible Debentures are joint and several unsecured obligations of Parent and
Publishing.
The TOPrS Certificates are convertible at the option of the holder
into shares of Old Common Stock of Parent at a conversion rate of approximately
$13 per share of Common Stock. Interest payments on both the Convertible
Debentures and TOPrS Certificates are payable in arrears quarterly except that
Parent and Publishing have the option to defer the payment of interest for
successive periods not exceeding 20 consecutive periods. In November 1998 and
February 1999, Golden Books exercised its option to defer interest payments due
with respect to the TOPrS Certificates.
C. Pre-Petition Capital Structure
As of the Petition Date, Parent had approximately 27,899,047 shares of
common stock, $.01 par value per share, issued and outstanding. Parent's Old
Common Stock is listed for
- -----------------
6 Given the direct interrelationship between the Convertible Debentures and
the TOPrS Certificates, they are treated collectively as a single Class of
"TOPrS Claims" for purposes of the Plan.
27
<PAGE>
inclusion on the NASDAQ National Market System ("NASDAQ"). In February, 1999,
trading of Parent's Old Common Stock was suspended by NASDAQ.
As of the Petition Date, Parent also had 13,000 shares of its Series B
Preferred Stock, no par value (the "Old Preferred Stock"), issued and
outstanding. These shares are held by GPH, whose aggregate investment for such
shares was approximately $65 million. The Old Preferred Stock is convertible
into 6,500,000 shares of Old Common Stock at a conversion price of $10 a share.
The Old Preferred Stock is entitled to receive quarterly dividends in the form
of 195,000 shares of Old Common Stock (together with certain amounts of cash if
the market value of the Old Common Stock falls below certain thresholds
specified in the certificate of designation relating to the Old Preferred Stock)
through May 8, 2000. However, the Debtors have not paid 195,000 shares of Old
Common Stock and certain cash amounts due as unpaid dividends on the Old
Preferred Stock.
D. Events Precipitating Chapter 11 Filing
The Debtors' Chapter 11 proceedings were preceded by liquidity
difficulties which they experienced after incurring operating losses for the
past several years, including restructuring costs related to the implementation
of a long-term financial strategic plan centered on the Debtors' core publishing
operations. Such difficulties hampered the Debtors' ability to fund day-to-day
operations and maintain future business prospects.
As a result of the Debtors' insufficient liquidity, Publishing
determined that it was in the best interests of its creditors and stockholders
for it not to make a September 15, 1998
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<PAGE>
interest payment in respect of the Old Senior Notes, but rather to attempt to
pursue long-term strategic financial and capital restructuring options.
Publishing's failure to make the September 15, 1998 interest payment resulted in
the reactivation of an unrestricted informal committee of holders of Old Senior
Notes, which had originally been formed in connection with the series of
transactions related to the incurrence of the pre-petition working capital
facility with NationsCredit in June, 1998. Members of this informal committee
held, as of September 15, 1998, in the aggregate, approximately 60% of the
principal amount of Old Senior Notes. Members of the informal committee
included, at that time, the following: AEGON; U.S.A. Investment Management,
Inc.; Avenue Advisors, LLC; Ohio National Life Insurance Company; Principal Life
Insurance Company; Provident Mutual Life Insurance Company; Security Benefit
Life Insurance Company; Alliance Capital Management Corporation; and Bennett
Management Corporation.
During the negotiations leading up to the agreed Plan, the first five
members of the informal committee listed in the foregoing sentence agreed to
become "restricted" in order to receive material non-public information to
assist them, in their capacity as members of the Informal Senior Note Committee,
in making recommendations regarding the proposed restructuring to all holders of
Senior Notes. The Informal Senior Note Committee has retained the law firm of
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038, as
counsel, and the financial advisory firm of Houlihan Lokey Howard & Zukin, 685
Third Avenue, New York, New York 10017, as financial advisors.
29
<PAGE>
In November 1998, due to continued liquidity problems, the Debtors
deferred a scheduled interest payment due with respect to the TOPrS Certificates
pursuant to the terms of such certificates. Thereafter, the Debtors began
discussions with a second ad hoc committee, the Informal TOPrS Committee, that
had formed earlier. The members of the Informal TOPrS Committee include
Deephaven Capital Management; David Matlin; Stephen J. Devoe, III; Oleg Lagetko;
Anil Suri; Chris Pechock; Stacy Herman; Mark Patterson; Greyhound Lines, Inc.;
Amalgamated CNCL Retirement and Disability Trust, P.R. Co.; Forest Global
Convertible Fund Series B-1; Forest Global Convertible Fund Series A-5; Forest
Performance Fund; Forest Alternative Strategies Fund II, LP Series B-3; Forest
Strategies Fund III, LP Series A-5M; Forest Alternative Strategies Fund II, LP
Series A-5-2; Forest Fulcrum Fund LP; SoundShore Holdings Ltd.; SoundShore
Opportunity Holding Fund Ltd.; and Krista Cowley. These members of the Informal
TOPrS Committee hold, upon information and belief, an aggregate of approximately
32% of the outstanding TOPrS Certificates. The Informal TOPrS Committee is
represented by the law firm of Cleary, Gottlieb, Steen & Hamilton, One Liberty
Plaza, New York, New York 10006-1470, as counsel, and Jefferies & Company, Inc.,
650 Fifth Avenue, New York, New York 10019, as financial advisors. In February,
1999, the Debtors again exercised their right to defer a scheduled interest
payment on the TOPrS Certificates.
After failing to make the September 15, 1998 interest payment on the
Old Senior Notes, the Debtors were notified of certain alleged events of default
under the NationsCredit Agreement. As previously noted, NationsCredit and the
Debtors entered into letter agreements pursuant to which, among other things,
NationsCredit agreed to refrain from exercising remedies
30
<PAGE>
under the NationsCredit Agreement based on such events of default and the
Debtors' maximum borrowing capacity was reduced from $30 million to
approximately $16 million immediately prior to the Petition Date. Such reduced
liquidity further hampered the Debtors' pre-petition business operations and
their ability to implement their pre-petition operational restructuring plan.
Accordingly, in October and November 1998, the Debtors explored the possibility
of obtaining a new working capital facility to provide them with greater
liquidity to stabilize operations and allow the continued implementation of
their operational restructuring plan while they continued to pursue a long-term
resolution of their financial difficulties.
In particular, the Debtors undertook extensive negotiations with the
Informal Senior Note Committee and potential lenders with respect to a
replacement working capital facility. Such negotiations were required because
any working capital facility which provided rights or borrowing capacity greater
than those contained in the NationsCredit Agreement also required an amendment
to the Old Senior Note Indenture. In November, 1998, the Debtors believed that
they were close to entering into a replacement working capital and term loan
facility with The CIT Group/Business Credit, Inc. which would have provided them
with greater borrowing capacity. However, despite extensive efforts by all
parties, it was determined that a replacement facility could not be implemented
at that time, primarily due to complex intercreditor issues and disputes, and
efforts to pursue such a transaction ceased. Nonetheless, the parties continued
discussions concerning a long-term restructuring of Golden Books' indebtedness.
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<PAGE>
During discussions with its creditor constituencies, Golden Books
emphasized the benefits of a consensual transaction, and the potential harm the
uncertainties of a protracted, contentious restructuring process could cause to
Golden Books' relationships with its suppliers and customers. Ultimately,
following months of negotiations with the Informal Senior Note Committee, the
Informal TOPrS Committee, GPH, Mr. Richard E. Snyder (the Debtors' Chairman and
Chief Executive Officer) and others, the parties reached an agreement in
principle on the terms of a restructuring of Golden Books' indebtedness, which
the parties determined would be best accomplished through a pre-arranged Chapter
11 proceeding.
To memorialize the agreement, the parties negotiated and entered into
a "Restructuring Agreement," a copy of which is annexed hereto as Exhibit "C",
outlining the terms and provisions by which the Debtors, members of the Informal
Senior Note Committee, members of the Informal TOPrS Committee and certain other
signatory holders of such securities, Mr. Richard E. Snyder and GPH, would
support a restructuring of the Debtors through a Chapter 11 plan of
reorganization. The Plan, which is described in this Disclosure Statement,
embodies the terms and arrangements set forth in the Restructuring Agreement. In
general, the Plan provides for, among other things, an exchange of the Old
Senior Notes for new senior secured notes and equity interests in Reorganized
Parent, and an exchange of TOPrS Certificates and GPH Notes for equity interests
in Reorganized Parent. The Debtors' general unsecured trade creditors shall be
paid in full under the Plan. The Plan also provides a distribution of New
Warrants to holders of Old Preferred Stock Interests and Old Common
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<PAGE>
Stock Interests. (For a more detailed description of the treatment of Claims and
Equity Interests under the Plan see Section IV.C. of this Disclosure Statement).
Additionally, pursuant to the Restructuring Agreement, the parties
thereto agreed, inter alia, to: (i) support confirmation of the Plan; (ii) not
vote against, object to or support an objection to the Plan; (iii) not vote for,
consent to, support or participate in any modification of the Plan or the
severance of any provision thereof that is determined to be invalid, void or
unenforceable (unless such modification or the severance of such provision has
been agreed to in writing by each of the parties thereto); and (iv) not vote
for, consent to, support or participate in the formulation of, and shall vote
against, any other plan of reorganization for any or all of the Debtors.
Furthermore, under the Restructuring Agreement, the Informal Senior Note
Committee, the Informal TOPrS Committee, and each of the respective members
thereof, Mr. Snyder and GPH each agreed that the distributions under the Plan in
respect of such person's claims against, or interests in, the Debtors is fair
and equitable under Section 1129(b) of the Bankruptcy Code.
Pursuant to its terms, the Restructuring Agreement may terminate upon
the occurrence of any of the following events, unless waived in writing by all
of the parties thereto:
(i) the Plan and the DIP Order are not filed within twenty-one
(21) days after the effective date of the Restructuring
Agreement;
(ii) projections supporting the Plan are not filed within
twenty-five (25) days after the filing of the Plan;
(iii) the Plan is not confirmed within one hundred and fifty (150
days after the effective date of the Restructuring Agreement
(or an order is entered
33
<PAGE>
which has the practical effect of preventing confirmation of
the Plan within one hundred and fifty (150) days after the
effective date of the Restructuring Agreement);
(iv) the Plan shall not become effective within two hundred (200)
days after the effective date of the Restructuring
Agreement;
(v) any party fails to perform, in any material respect, any of
their obligations under the Restructuring Agreement or to
support the terms set forth in the exhibits thereto;
(vi) holders of more than 20% in the aggregate principal amount,
on a per issue basis, of Old Senior Notes that are not
members of the Informal Senior Note Committee or of TOPrS
Certificates that are not members of the Informal TOPrS
Committee shall take actions which are materially adverse
to, and in contravention of, the obligations under the
Restructuring Agreement of the respective members of the
Informal Senior Note Committee or Informal TOPrS Committee;
or
(vii) there shall be any material modification to, or severance of
any provision of, the Plan which is materially inconsistent
with the terms and conditions set forth in the exhibits to
the Restructuring Agreement (including, without limitation,
a material modification to, or severance of, the release and
indemnification provisions set forth in the exhibits to the
Restructuring Agreement).
E. Pre-Petition Asset Disposition and Expense Reduction Efforts
Throughout the entire pre-petition negotiation process, Golden Books
continued to implement its pre-petition operational restructuring plan,
centering on a rehabilitation around the Debtors' core children's publishing and
distribution businesses. In that regard, prior to the Petition Date, the Debtors
undertook extensive efforts to reduce overhead and other operating expenses
through, among other things, the termination of nonessential employees, the
disposition of certain nonessential assets and facilities, and the consolidation
of business and administration functions. Among other actions, in 1998, Golden
Books sold its distribution
34
<PAGE>
center in Coffeyville, Kansas, and a manufacturing and distribution facility in
Fayetteville, North Carolina. In addition, the Debtors consolidated their office
space in New York City. Such efforts resulted in several million dollars in
expense reductions. The Debtors' cost reduction and business consolidation
efforts are ongoing.
III.
SIGNIFICANT POST-PETITION EVENTS
A. Commencement Of Chapter 11 Cases
On February 26, 1999 (the "Petition Date"), in furtherance of their
restructuring efforts, the Debtors filed their Chapter 11 cases in the
Bankruptcy Court. The Debtors' cases were assigned to the Honorable Tina L.
Brozman, Chief United States Bankruptcy Judge for the Southern District of New
York. The Debtors continue to operate their businesses and manage their
properties as debtors-in-possession pursuant to Sections 1107 and 1108 of the
Bankruptcy Code. As of the date hereof, no trustee or official committee of
unsecured creditors has been appointed in the Debtors' cases. The following
sections present a brief description of some of the major events which have
occurred since the Petition Date.
B. First Day Orders
On the Petition Date or shortly thereafter, the Bankruptcy Court
entered several orders authorizing the Debtors to pay various pre-petition
claims and granting other relief necessary to help the Debtors stabilize their
day-to-day business operations. These orders were
35
<PAGE>
designed to allow the Debtors to continue business operations with minimum
disruption and dislocation, and to ease the strain on the Debtors' relationships
with their employees and other parties. Included among the orders entered by the
Bankruptcy Court were orders authorizing the Debtors to: (i) pay pre-petition
payroll, business expenses and other employee-related obligations; (ii) pay
pre-petition royalties in the ordinary course of business; (iii) continue the
Debtors' return policy; and (iv) continue, maintain and use their consolidated
cash management system, existing bank accounts, and existing business forms.
C. Professional Retentions
On the Petition Date, the Bankruptcy Court entered orders authorizing
the Debtors to retain, among others, (i) the law firm of Proskauer Rose LLP,
1585 Broadway, New York, New York 10036, as bankruptcy and reorganization
counsel, and (ii) the firm of Conway, Del Genio, Gries & Co., Olympic Tower, 645
Fifth Avenue, New York, New York 10022, as financial advisors.
D. Post-Petition Financing
As noted above, prior to the Petition Date, the Debtors' operations
were hampered by, among other things, significant reductions in their borrowing
capacity under their pre-petition working capital facility with NationsCredit.
Accordingly, on the Petition Date, one of the most important issues addressed by
the Debtors was obtaining access to an adequate post-petition working capital
facility to enable them to operate their businesses on a competitive basis and,
thus, to successfully reorganize. After due deliberation and consideration of
viable
36
<PAGE>
alternatives, the Debtors determined that it was in the best interests of their
creditors and estates to seek authorization and approval of a $55 million
post-petition financing facility from The CIT Group/Business Credit, Inc.
("CITBC"). Accordingly, on the Petition Date, the Debtors filed an application
to authorize and approve of such facility pursuant to a Revolving Credit and
Term Loan Agreement with CITBC dated as of March 1, 1999 (the "Loan Agreement").
On March 1, 1999, the Bankruptcy Court entered an interim order (the
"Interim Order") preliminarily approving of the Loan Agreement and authorizing
the Debtors to borrow up to $30 million thereunder on an interim basis pending a
final hearing. On March 29, 1999, the Court entered a final order (the "Final
Order" and together with the Interim Order, the "Financing Order") authorizing
the Debtors to obtain post-petition financing in the form of a $45 million
revolving credit facility and $10 million term loan from CITBC pursuant to the
Loan Agreement on a permanent basis; provided, however, that the Debtors are
limited to aggregate borrowings of $45 million pending approval of the Informal
Senior Note Committee to borrow up to the total $55 million facility (i.e., the
$45 million revolving credit facility plus the $10 million term loan), which
permission may not be unreasonably withheld. Pursuant to the Financing Order, as
security for the borrowings under the Loan Agreement, CITBC was granted senior
and junior liens on specified assets of the Debtors, and a superpriority
administrative expense claim (subject to a carve out for fees of the United
States Trustee and specified professional fees).
In addition, pursuant to the Financing Order, the Debtors were
authorized to use collateral (including cash collateral) in which liens and
security interests were held by the Old
37
<PAGE>
Senior Note Indenture Trustee and by GPH. Pursuant to the Financing Order,
replacement and additional senior and junior liens on specified assets were
provided to the Old Senior Note Indenture Trustee, and replacement liens on its
pre-petition collateral and a specified superpriority administrative expense
claim were provided to GPH.
E. Sale of Assets of the Adult Publishing Division
As noted above, the Debtors have been implementing a long-term
strategic business plan centered on their core children's publishing and
distribution operations through, among other things, the divestment of non-core
assets. In that regard, on or about March 8, 1999, the Debtors filed a motion
seeking authorization to sell the assets comprising their Adult Publishing
Division, which had been extensively marketed since the Fall of 1998, to St.
Martin's Press for approximately $11 million, subject to higher and better
offers. Pursuant to an Order of the Bankruptcy Court, dated March 25, 1999, the
Debtors were authorized to sell the Adult Publishing Division to St. Martin's
Press, which sale was consummated on or about April 16, 1999.
F. Extension of Time to Assume or Reject Leases
Pursuant to Section 365(d)(4) of the Bankruptcy Code, the Debtors were
required to assume or reject all nonresidential real property leases under which
they are lessees within 60 days of the Petition Date unless such time period was
extended by the Bankruptcy Court. By Order dated April 21, 1999, the Bankruptcy
Court extended the time within which the Debtors
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<PAGE>
may assume or reject their nonresidential real property leases through and
including the date of confirmation of a plan(s) of reorganization.
G. Claims Process and Bar Date
1. Schedules and Statements
------------------------
On or about April 14, 1999, the Debtors' respective
Schedules of Assets and Liabilities, Schedules of Executory Contracts and
Unexpired Leases, and Statements of Financial Affairs, were filed with the
Bankruptcy Court.
2. Bar Date Order
--------------
On April 22, 1999, the Bankruptcy Court entered an order
(the "Bar Date Order") (i) fixing May 26, 1999 (the "Claims Deadline") as the
deadline for all creditors of the Debtors (except those expressly excluded by
the Bar Date Order) to file proofs of claim against the Debtors for claims
arising prior to the Petition Date and (ii) approving the form and manner of
notice of the Claims Deadline to be provided by the Debtors to their creditors
and other interested parties. The Bar Date Order provides that, except as set
forth therein, any holder of a Claim that fails to file a timely proof of claim
on or before the Claims Deadline is (a) forever barred from (i) asserting such
Claim, whether directly or indirectly, against the Debtors, the Debtors' estates
and their successors and assigns under any plan of reorganization and (ii)
voting on any plan of reorganization in the Debtors' Chapter 11 cases or sharing
in any distribution thereunder, and (b) receiving any distribution under any
plan of reorganization confirmed by
39
<PAGE>
order of the Bankruptcy Court in the Chapter 11 Cases. Notwithstanding the
foregoing, due to a delay in the service of notice of the Claims Deadline to
certain parties, the Debtors have requested that the Claims Deadline be extended
for approximately three weeks for record holders of publicly traded debt and
equity securities affected by such delay.
IV.
OVERVIEW OF THE PLAN
A. General
The following summary is intended as a brief overview of the Plan and
is qualified in its entirety by reference to the full text of the Plan, a copy
of which is annexed hereto as Exhibit "A, and to the Plan Supplement. Holders of
Claims and Equity Interests are respectfully referred to the relevant provisions
of the Bankruptcy Code and are encouraged to review the Plan and this Disclosure
Statement with their counsel.
In general, a Chapter 11 plan of reorganization must (i) divide claims
and equity interests into separate categories and classes, (ii) specify the
treatment that each category and class is to receive under such plan, and (iii)
contain other provisions necessary to implement the reorganization of a debtor.
A Chapter 11 plan may specify that the legal, equitable, and contractual rights
of the holders of claims or equity interests in certain classes are to remain
unchanged by the reorganization effectuated by the plan. Such classes are
referred to as "unimpaired" and, because of such favorable treatment, are deemed
to vote to accept the plan.
40
<PAGE>
Accordingly, it is not necessary to solicit votes from holders of claims or
equity interests in such "unimpaired" classes. Pursuant to Section 1124(1) of
the Bankruptcy Code, a class of claims or interest is "impaired," and entitled
to vote on a plan, unless the plan "leaves unaltered the legal, equitable, and
contractual rights to which such claim or interest entitles the holder of such
claim or interest."
The Debtors believe that (i) under the Plan holders of impaired Claims
and Equity Interests will obtain a greater recovery than they would otherwise
obtain if the assets of the Debtors were liquidated under Chapter 7 of the
Bankruptcy Code, and (ii) the Plan will enable the Debtors to emerge from
Chapter 11 as a viable and competitive enterprise, and enhance the Debtors'
ability to effect a return to profitability.
B. Classification of Claims and Equity Interests
Section 1122 of the Bankruptcy Code provides that a plan of
reorganization shall classify the claims and equity interests of a debtor's
creditors and equity interest holders. In compliance with Section 1122, the Plan
divides the holders of Claims and Equity Interests into two categories and
eleven Classes, and sets forth the treatment offered to each Class.7 These
- -----------------
7 A debtor is required under Section 1122 of the Bankruptcy Code to classify
the claims and interests of its creditors and interest holders into classes
containing claims and interests that are substantially similar to the other
claims or interests in such class. While the Debtors believe that their
classification of all Claims and Equity Interests is in compliance with the
provisions of Section 1122 of the Bankruptcy Code, it is possible that a
holder of a Claim or Equity Interest may challenge the Debtors'
classification scheme and the Bankruptcy Court may find that a different
classification is required for the Plan to be confirmed. In such event, it
is the present intention of the Debtors, to the extent permitted by the
Bankruptcy Court, to modify the Plan to provide for whatever
(continued...)
41
<PAGE>
Classes take into account the differing nature and priority of Claims against
the Debtors. Section 101(5) of the Bankruptcy Code defines "Claim" as a "right
to payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured or unsecured" or a "right to an equitable remedy for
breach of performance if such breach gives rise to a right to payment whether or
not such right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured or unsecured." A "Claim"
against the Debtors also includes a Claim against property of the Debtors, as
provided in Section 102(2) of the Bankruptcy Code. An interest is an equity
interest in a debtor.
For the holder of a Claim to participate in a reorganization plan and
receive the treatment offered to the class in which it is classified, its Claim
must be Allowed. Under the Plan, an Allowed Claim is defined as: (a) a Claim
that has been listed by the Debtors in their Schedules and (i) is not listed as
disputed, contingent or unliquidated, and (ii) is not a Claim as to which a
proof of claim has been filed; (b) a Claim as to which a timely proof of Claim
has been filed as of the Bar Date and either (i) no objection thereto, or
application to estimate, equitably subordinate or otherwise limit recovery, has
been made on or before any applicable deadline, or (ii) if an objection thereto,
or application to estimate, equitably subordinate or otherwise limit recovery,
has been interposed, the extent to which such Claim (whether in whole
- --------------------
7 (continued)
reasonable classification might be required by the Bankruptcy Court for
Confirmation, and to use the acceptances received by the Debtors from any
holder of a Claim or Equity Interest pursuant to this solicitation for the
purpose of obtaining the approval of the Class or Classes of which such
holder of a Claim or Equity Interest is ultimately deemed to be a member
42
<PAGE>
or in part) has been allowed by a Final Order; (c) a Claim arising from the
recovery of property under Section 550 or 553 of the Bankruptcy Code and allowed
in accordance with Section 502(h) of the Bankruptcy Code; or (d) any Claim
allowed under the Plan.
C. Treatment of Claims and Equity Interests Under the Plan
The Plan segregates the various Claims against, and Equity Interests
in, the Debtors into Administrative Expense Claims, Priority Tax Claims, Class 1
consisting of Priority Claims, Class 2 consisting of General Secured Claims,
Class 3 consisting of Old Senior Note Claims, Class 4 consisting of GPH Claims,
Class 5 consisting of TOPrS Claims, Class 6 consisting of General Unsecured
Claims, Class 7 consisting of Debt Securities Recission or Damage Claims, Class
8 consisting of Old Preferred Stock Interests, Class 9 consisting of Old Common
Stock Interests, Class 10 consisting of Equity Interest Recission or Damage
Claims and Class 11 consisting of Subsidiary Equity Interests.
Under the Plan, Claims in Classes 1, 2, 6 and 11 are unimpaired, and
Claims in Classes 3, 4, 5, 7, 8, 9 and 10 are impaired. In the Debtors' opinion,
the treatment accorded to the impaired Classes of Claims and Equity Interests
under the Plan represents the best treatment which can be provided to such
Classes under the circumstances and is superior to the treatment which would be
afforded to such Classes in the event of a liquidation of the Debtors. Set forth
below is a summary of the Plan's treatment of the various categories and Classes
of Claims and Equity Interests. This summary is qualified in its entirety by the
full text of the Plan. In the event of an inconsistency between the Plan and the
description contained herein, the terms of the
43
<PAGE>
Plan shall govern. The Plan is complicated and substantial. Time should be
allowed for its analysis; consultation with a legal and/or financial advisor is
recommended and should be considered.
1. Unclassified Categories of Claims
---------------------------------
a. Category 1 -- Administrative Expense Claims
-------------------------------------------
Administrative Expense Claims include the actual and necessary costs
and expenses incurred during the Chapter 11 Cases. Under the Plan, all
Administrative Expense Claims shall be paid in full, in Cash, in such amounts as
(a) are incurred in the ordinary course of business by the Debtors, (b) are
Allowed by the Bankruptcy Court upon the later of the Effective Date, the date
upon which there is a Final Order allowing such Administrative Expense Claim or
any other date specified in such order, or (c) may be agreed upon between the
holder of such Administrative Expense Claim and the Debtors.
Administrative Expense Claims shall include obligations to CITBC,
costs incurred in the operation of the Debtors' businesses after the Petition
Date, the fees and expenses of Professionals retained by the Debtors, any
statutory committee appointed to serve in the Chapter 11 Cases, and the fees due
to the United States Trustee pursuant to 28 U.S.C. ss. 1930. The Plan recognizes
that GPH, the Informal Senior Note Committee, the Old Senior Note Indenture
Trustee, the Informal TOPrS Committee, and the TOPrS Trustee (including the
respective counsel and financial advisors to the foregoing (collectively, all
such parties are referred to herein as the "Other Professionals")) have rendered
a substantial contribution in the
44
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Chapter 11 Cases within the meaning of Section 503(b) of the Bankruptcy Code,
and, accordingly, the reasonable fees and expenses of the Other Professionals
incurred on or before the Effective Date incurred in connection with the Chapter
11 Cases or the Plan shall be paid by the Reorganized Debtors as Administrative
Expense Claims following (i) the submission of a request for payment pursuant to
Section 503(a) of the Bankruptcy Code and (ii) entry of an order of the
Bankruptcy Court allowing same.
All entities seeking an award by the Bankruptcy Court of Professional
Fees, or of compensation for services rendered or reimbursement of expenses
incurred through and including the Confirmation Date under Sections 503(b)(2),
503(b)(3), 503(b)(4) or 503(b)(5) of the Bankruptcy Code, (a) shall file their
respective final applications for allowances of compensation for services
rendered and reimbursement of expenses incurred through the Confirmation Date
within thirty (30) days after the Confirmation Date, and (b) if granted such an
award by the Bankruptcy Court, shall be paid in full in such amounts as are
allowed by the Bankruptcy Court (i) on the later of the Effective Date or the
date such Administrative Expense Claim becomes an Allowed Administrative Expense
Claim, or as soon thereafter as is practicable, (ii) upon such other terms as
may be mutually agreed upon between such holder of an Allowed Administrative
Expense Claim and the Debtors-in-Possession or, on and after the Effective Date,
the Reorganized Debtors, or (iii) in accordance with the terms of any applicable
administrative procedures order entered by the Bankruptcy Court.
All Professional Fees for services rendered in connection with the
Chapter 11 Cases and the Plan after the Confirmation Date, including, without
limitation, those relating to
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the occurrence of the Effective Date, the prosecution of Causes of Action
preserved hereunder and the resolution of Disputed Claims, shall be paid by the
Reorganized Debtors upon receipt of an invoice therefor, or on such other terms
as the Reorganized Debtors may agree to, without the need for further Bankruptcy
Court authorization or entry of a Final Order. If the Reorganized Debtors and
any Professional cannot agree on the amount of post-Confirmation Date fees and
expenses to be paid to such Professional, such amount shall be determined by the
Bankruptcy Court. In addition, simultaneously with the closing of the
Post-Effective Date Financing Facility, all of the Debtors' obligations to the
DIP Lender pursuant to the DIP Loan Documents shall be fully and finally
satisfied in accordance with the terms thereof.
b. Category 2 -- Priority Tax Claims
---------------------------------
Allowed Priority Tax Claims shall be paid in full, in Cash, upon the
later of (a) the Effective Date, (b) the date upon which there is a Final Order
allowing such Claim as an Allowed Priority Tax Claim, (c) the date that such
Allowed Priority Tax Claim would have been due if the Chapter 11 Cases had not
been commenced, or (d) upon such other terms as may be agreed to between the
Debtors and any holder of an Allowed Priority Tax Claim; provided, however, that
the Debtors may, at their option, in lieu of payment in full of Allowed Priority
Tax Claims on the Effective Date, make Cash payments respecting Allowed Priority
Tax Claims deferred to the extent permitted by Section 1129(a)(9) of the
Bankruptcy Code and, in such event, interest shall be paid on the unpaid portion
of such Allowed Priority Tax Claim at a rate to be agreed to by the Debtors and
the appropriate governmental unit or, if they are unable to
46
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agree, as determined by the Bankruptcy Court. The Debtors estimate that, on the
Effective Date, the aggregate amount of Allowed Priority Tax Claims will be
approximately $400,000.
2. Unimpaired Classes of Claims
----------------------------
A Chapter 11 plan may specify that the legal, equitable, and
contractual rights of the holders of claims or equity interests in certain
classes are to remain unchanged by the reorganization effectuated by the plan.
Such classes are referred to as "unimpaired" and, because of such favorable
treatment, are deemed to vote to accept the plan. Accordingly, it is not
necessary to solicit votes from holders of Claims or equity interests in such
"unimpaired" classes. Under the Debtors' Plan, the Class of Priority Claims
(Class 1), the Class of General Secured Claims (Class 2), the Class of General
Unsecured Claims (Class 6) and the Class of Equity Interests in Subsidiaries
(Class 11) are unimpaired and, therefore, are deemed to have accepted the Plan.
a. Class 1 -- Priority Claims
--------------------------
Each holder of an Allowed Priority Claim shall receive Cash in an
amount equal to such Allowed Priority Claim on the later of the Effective Date
and the date such Priority Claim becomes an Allowed Priority Claim, or as soon
thereafter as is practicable, unless the holder of an Allowed Priority Claim and
the Reorganized Debtors agree to a different treatment thereof. The Debtors
estimate that, on the Effective Date, the aggregate amount of Allowed Priority
Claims will be less than $50,000.
47
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b. Class 2 -- General Secured Claims
---------------------------------
At the option of the Reorganized Debtors, (i) an Allowed General
Secured Claim shall be reinstated and rendered unimpaired in accordance with
Section 1124(2) of the Bankruptcy Code, (ii) a holder of an Allowed General
Secured Claim shall receive Cash in an amount equal to such Allowed General
Secured Claim, including any interest on such Allowed General Secured Claim
required to be paid pursuant to Section 506(b) of the Bankruptcy Code, on the
later of the Effective Date and the date such General Secured Claim becomes an
Allowed General Secured Claim, or as soon thereafter as is practicable, or (iii)
a holder of an Allowed General Secured Claim shall receive the Collateral
securing its Allowed General Secured Claim and any interest on such Allowed
General Secured Claim required to be paid pursuant to Section 506(b) of the
Bankruptcy Code, in full and complete satisfaction thereof on the later of the
Effective Date and the date such General Secured Claim becomes Allowed, or as
soon thereafter as is practicable.
Included in the Class of General Secured Claims are subclasses
consisting of secured obligations to (i) the Wisconsin Department of Revenue
Division of Economic Development and the Racine County Economic Development
Corporation, and (ii) the Wisconsin Department of Revenue Bureau of Business
Finance. Specifically, Publishing and Parent have an approximately $1 million
joint obligation to the Wisconsin Department of Revenue Division of Economic
Development and Racine County Economic Development Corporation, which is secured
by certain equipment located in Racine County, Wisconsin. Parent has an
approximately $3 million secured obligation to the Wisconsin Department of
48
<PAGE>
Revenue Bureau of Business Finance which is secured by specified equipment
located in Racine County, Wisconsin. The Debtors intend to maintain such
obligations post-Confirmation, and, therefore, to render such claimants
unimpaired by providing them with the treatment set forth in clause (i) of the
preceding paragraph.
c. Class 6 -- General Unsecured Claims
-----------------------------------
To the extent not satisfied by the Debtors in the ordinary course of
business prior to the Effective Date, in full and final satisfaction of such
Claim, the legal, equitable, and contractual rights to which an Allowed General
Unsecured Claim entitles the holder thereof shall be left unimpaired and,
accordingly, shall be satisfied on the latest of (a) the Effective Date, (b) the
date a General Unsecured Claim becomes an Allowed Claim, (c) the date an Allowed
General Unsecured Claim becomes due and payable in the ordinary course of the
Debtors' business consistent with the Debtors' ordinary payment practices, or
(d) the date on which the Debtors and the holder of such Allowed General
Unsecured Claim otherwise agree in writing. At the option of the Debtors, the
treatment provided in the Plan will result in the payment of any Allowed General
Unsecured Claim, in Cash, in an amount equal to such Allowed General Unsecured
Claim which payment shall include post-petition interest for the period from the
Petition Date through the Effective Date calculated as follows: (i) to the
extent holders of Allowed General Unsecured Claim are contractually entitled to
receive interest, such holders shall receive post-petition interest at the
contract rate, and (ii) all other holders of Allowed General Unsecured Claims
shall receive post-petition interest at the rate applicable to federal
judgements pursuant to 28 U.S.C. ss.ss. 1961, which on the Petition Date was
4.584%. The
49
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Debtors estimate that, on the Effective Date, the aggregate amount of Allowed
General Unsecured Claims will be approximately $15.4 million, and that the
aggregate amount of post-petition interest to be paid with respect thereto will
be between approximately $250,000 and $300,000.
d. Class 11 -- Subsidiary Equity Interests
---------------------------------------
On the Effective Date, record holders of Allowed Subsidiary Equity
Interests shall continue to hold such equity interests, which equity interests
shall continue to be evidenced by the capital stock held by such record holders
in the Subsidiary or Subsidiaries as of the Effective Date. All Subsidiaries are
wholly owned, directly or indirectly, by Parent.
3. Impaired Classes
----------------
Pursuant to Section 1124 of the Bankruptcy Code, a class of claims or
equity interests is impaired unless the legal, equitable, and contractual rights
of the holders of claims or equity interests in such class are not modified or
altered. Holders of Allowed Claims and interests in impaired classes are
entitled to vote on a debtor's plan of reorganization. Under the Debtors' Plan,
the Class of Old Senior Note Claims (Class 3), the Class of GPH Claims (Class
4), the Class of TOPrS Claims (Class 5), the Class of Debt Securities Rescission
or Damage Claims (Class 7), the Class of Old Preferred Stock Interests (Class
8), the Class of Old
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Common Stock Interests (Class 9), and the Class of Equity Interest Rescission or
Damage Claims (Class 10) are impaired and, therefore, are entitled to vote on
the Debtors' Plan.
a. Class 3 -- Old Senior Note Claims
---------------------------------
Allowance of Old Senior Note Claims. On the Effective Date, the Old
Senior Note Claims shall be deemed Allowed in the aggregate amount of $150
million plus accrued and unpaid interest relating to the period up to but not
including the Petition Date.
Distributions. On the Effective Date, each holder of an Allowed Old
Senior Note Claim shall receive, in full and final satisfaction of such Allowed
Claim (including any unsecured deficiency Claim in respect of the Old Senior
Notes), its Pro Rata Share of (i) the New Senior Notes and (ii) 2,125,000 shares
of New Parent Common Stock. The New Parent Common Stock issued to holders of
Allowed Old Senior Note Claims as described in clause (ii) of the preceding
sentence, will represent, in the aggregate, 42.5% of the authorized and
outstanding shares of New Parent Common Stock on the Effective Date; provided,
however, that the foregoing percentage is subject to dilution by (i) shares of
New Parent Common Stock issued as a result of the exercise of the New Warrants,
(ii) shares of New Parent Common Stock issued in accordance with the Management
Stock Option Plan, and (iii) such other shares as may be authorized and issued
pursuant to the Reorganized Parent Charter.
Principal Terms of New Senior Notes. Subject to the occurrence of the
Effective Date, the New Senior Note issued pursuant to the New Senior Note
Indenture shall contain the following principal terms:
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Issuer: Reorganized Publishing
Guarantor: Reorganized Parent and Reorganized Video (and
their respective direct and indirect subsidiaries
and affiliates other than Reorganized Publishing)
Principal Amount: $87 million
Maturity: Fifth anniversary of the Effective Date
Interest: _________ Payable in Cash at a rate of 10% per
annum, or at the sole election of the issuer,
payable in kind in additional New Senior Notes at
a rate of 13.5% per annum, payable semi-annually;
provided, however, that commencing three years
after the Effective Date, interest on the New
Senior Notes shall be payable only in cash at a
rate of 10% per annum.
Amortization: _____________ Mandatory semi-annual amortization
payments of $8.33 million commencing three years
after the Effective Date, i.e., commencing with
the first semi-annual interest payment that is due
during the fourth year after the Effective Date,
to retire $25.0 million of the principal balance
of the New Senior Notes prior to maturity
Collateral: New Senior Notes shall be secured by all
collateral securing the Old Senior Notes on the
Petition Date as described in this Disclosure
Statement (including, without limitation, the
proceeds arising under the Distribution
Agreement); provided, however, that the liens
securing the -------- ------- Old Senior Notes on
corporate leasehold improvements sold in
connection with Parent's reduction of the office
space at its corporate headquarters in New York,
New York shall be deemed released.8 The New Senior
Notes shall also be secured by (i) a first lien on
(a) the Distribution Agreement, and (b) the
Debtors' rights and interests in and to "Lassie,"
"Felix the Cat," the "Film Library," and "Other
Entertainment Works"; and (ii) a blanket second
lien on all assets pledged to the lender(s) under
the Post-Effective Date Financing Facility.
Consistent with the foregoing, upon the Effective
Date, the
- -----------------
8 See Section II.B.2. for a general description of the collateral securing
the Old Senior Notes on the Petition Date.
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New Senior Notes will be secured by either a first
or second lien on all assets of Reorganized Parent
and its direct and indirect subsidiaries.
Call Protection: New Senior Notes may be redeemed, in whole or in
part, at any time, at the option of the Issuer, at
the redemption prices (expressed as percentages of
principal amount of New Senior Notes) set forth
below, plus accrued and unpaid interest to the
date of redemption:
Years From
Effective Date Redemption Price
-------------- ----------------
1 year 105.00%
2 years 103.33%
3 years 101.25%
Thereafter 100.00%
Any net proceeds from the sale of any collateral
securing the New Senior Notes (excluding sales of
inventory or accounts receivable in the ordinary
course of business) will be used to pay down the
New Senior Notes (subject to the redemption
schedule set forth above).
Covenants: Normal and customary for secured indebtedness of
this nature, to be determined to the reasonable
satisfaction of the Informal Senior Note Committee
and the Informal TOPrS Committee.
Public Trading: The New Senior Notes shall not be listed for
trading on a recognized securities exchange prior
to 75 days from the date of issuance.
Cancellation of Old Senior Notes and Related Instruments. As of the
Effective Date, all Old Senior Notes, and all indentures, agreements,
instruments and other documents evidencing Old Senior Note Claims and the rights
of the holders thereof, shall be canceled and deemed null and void and of no
further force and effect (all without further act or action by any Person), and
all obligations of any Person (including, without limitation, the Old Senior
Note
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<PAGE>
Indenture Trustee) under such instruments and agreements shall be fully and
finally satisfied and released. Notwithstanding the foregoing, such cancellation
shall not impair the rights and duties under the Old Senior Note Indenture as
between the Old Senior Note Indenture Trustee and the beneficiaries of the trust
created thereby.
b. Class 4 -- GPH Claims
---------------------
Allowance of GPH Claims. On the Effective Date, the GPH Claims shall
be deemed Allowed in the aggregate amount of $10 million plus accrued and unpaid
interest at the rate set forth in the GPH Notes relating to the period up to but
not including the Petition Date. (See Section II.B.3 of this Disclosure
Statement for a description of the GPH Notes and their terms).
Distributions. On the Effective Date, the holder of the Allowed GPH
Claim shall receive, in full and final satisfaction of such Allowed Claim
(including any unsecured deficiency Claim in respect of the GPH Notes) 250,000
shares of New Parent Common Stock. The New Parent Common Stock issued to the
holder of the Allowed GPH Claim pursuant to the Plan, will represent, in the
aggregate, 5% of the authorized and outstanding shares of New Parent Common
Stock on the Effective Date; provided, however, that the foregoing percentage is
subject to dilution by (i) shares of New Parent Common Stock issued as a result
of the exercise of the New Warrants, (ii) shares of New Parent Common Stock
issued in accordance with the Management Stock Option Plan, and (iii) such other
shares as may be authorized and issued pursuant to the Reorganized Parent
Charter.
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Cancellation of GPH Notes and Related Instruments. As of the Effective
Date, all GPH Notes, the GPH Note Purchase Agreement and all agreements,
instruments and other documents evidencing the GPH Claims and the rights of the
holder thereof (including, without limitation, the Publishing Notes), and all
liens and security interests securing the GPH Claims, shall be canceled and
extinguished, and deemed null and void and of no force and effect (all without
further act or action by any Person), and all obligations of any Person under
such instruments and agreements shall be fully and finally satisfied and
released.
c. Class 5 -- TOPrS Claims
Allowance of TOPrS Claims. On the Effective Date, the TOPrS Claims
shall be deemed Allowed in the aggregate amount of $105 million plus accrued and
unpaid interest relating to the period up to but not including the Petition
Date.
Distributions. On the Effective Date, each holder of an Allowed TOPrS
Claim shall receive, in full and final satisfaction of such Allowed Claim, its
Pro Rata Share of 2,500,000 shares of New Parent Common Stock. The New Parent
Common Stock issued to holders of Allowed TOPrS Claims pursuant to the Plan,
will represent, in the aggregate, 50.0% of the outstanding shares of New Parent
Common Stock on the Effective Date; provided, however, that the foregoing
percentage is subject to dilution by (i) shares of New Parent Common Stock
issued as a result of the exercise of the New Warrants, (ii) shares of New
Parent Common Stock issued in accordance with the Management Stock Option Plan,
and (iii) such other shares as may be authorized and issued pursuant to the
Reorganized Parent Charter.
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Cancellation of TOPrS Certificates and Related Instruments. As of the
Effective Date, all TOPrS Certificates and all Convertible Debentures, and all
indentures, agreements, instruments and other documents evidencing TOPrS Claims
and the rights of the holders thereof, shall be canceled and extinguished, and
deemed null and void and of no further force and effect (all without further act
or action by any Person), and all obligations of any Person under such
instruments and agreements shall be fully and finally satisfied and released,
and the TOPrS Trust shall be deemed dissolved.
d. Class 7 -- Debt Securities Rescission or Damage Claims
------------------------------------------------------
Subject to the releases contained in Section 9.1 of the Plan, each
holder of an Allowed Debt Securities Rescission or Damage Claim shall retain all
proceeds derived from or relating to any litigation instituted by or against any
such holder or on his behalf which are payable by any entity other than the
Debtors or Reorganized Debtors (but not any proceeds from any of the property or
assets of the Debtors except proceeds of insurance policies maintained by the
Debtors) but shall receive no other distribution under the Plan.
Currently, there is a consolidated litigation pending in the United
States District Court for the Southern District of New York (the "District
Court") encaptioned Kevin Lemmer v. Golden Books Family Entertainment, Inc., et
al., Case No. 98 CIV 5748 (AGS) and Green Fund and Cynthia Green Colin v. Golden
Books Family Entertainment, Inc., et al., Case No. 98 CIV 7072 (AGS) purportedly
on behalf of all persons who, during the period between May 13, 1997 and August
4, 1998, purchased Old Common Stock Interests or TOPrS Certificates,
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<PAGE>
alleging damages based on the Debtors' alleged dissemination of materially false
and misleading statements regarding, among other things, the Debtors'
restructuring program and the effect of the restructuring on the Debtors'
financial condition, operations and liquidity. As of the date hereof, a class
has not been certified in either action. The Debtors and the individual
defendants deny the allegations and have filed a motion to dismiss the case. The
plaintiffs filed an opposition to the Debtors' motion and the Debtors have filed
a response. Additionally, the plaintiffs recently received leave of the District
Court to further amend their complaint. The District Court has required that any
additional pleadings respecting the motion to dismiss arising from such
amendment be filed with the Court by mid-May. Thus, as of the date hereof, no
ruling has been made by the District Court with respect to the motion to
dismiss. The plaintiffs are represented by Milberg, Weiss, Bershad, Hynes &
Learach LLP, One Pennsylvania Plaza, New York, New York 10119, (212) 594-5300,
Attn: Robert Wallner, Esq.
e. Class 8 -- Old Preferred Stock Interests
----------------------------------------
On the Effective Date, all Old Preferred Stock Interests shall be
canceled, annulled, and extinguished, and the holder of the Allowed Old
Preferred Stock Interests shall receive two-thirds (2/3) of the New Warrants to
be issued pursuant to the Plan.
f. Class 9 -- Old Common Stock Interests
-------------------------------------
Impairment and Voting. Class 9 is impaired by the Plan. Consequently,
each holder of an Allowed Old Common Stock Interest shall be entitled to vote to
accept or reject the Plan.
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<PAGE>
Distributions. On the Effective Date, all Old Common Stock Interests
shall be canceled, annulled and extinguished, and each holder of an Allowed Old
Common Stock Interest (including any such Interest consisting of accrued and
unpaid dividends on the Old Preferred Stock Interests) shall receive its Pro
Rata Share of one-third (1/3) of the New Warrants to be issued pursuant to the
Plan.
g. Class 10 -- Equity Interest Rescission or Damage Claims
-------------------------------------------------------
Impairment and Voting. Class 10 is impaired by the Plan. Consequently,
each holder of an Allowed Equity Interest Rescission or Damage Claim shall be
entitled to vote to accept or reject the Plan.
Distributions. Subject to the releases contained in Section 9.1 of the
Plan, each holder of an Allowed Equity Interest Rescission or Damage Claim shall
retain all proceeds derived from or relating to any litigation instituted by or
against any such holder or on his behalf which are payable by any entity other
than the Debtors or Reorganized Debtors (but not any proceeds from any of the
property or assets of the Debtors except proceeds of insurance policies
maintained by the Debtors) but shall receive no other distribution under the
Plan.
As set forth in more detail in subsection IV.C.3.d. above, currently,
there is a consolidated litigation pending in the United States District Court
for the Southern District of New York encaptioned Kevin Lemmer v. Golden Books
Family Entertainment, Inc., et al., Case No. 98 CIV 5748 (AGS) and Green Fund
and Cynthia Green Colin v. Golden Books Family
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<PAGE>
Entertainment, Inc., et al., Case No. 98 CIV 7072 (AGS), alleging an Equity
Interest Recession or Damages Claim.
D. Description of Transactions to Be Implemented in Connection with the Plan
1. New Senior Notes
----------------
On the Effective Date, the New Senior Notes will be issued pursuant to
the New Senior Note Indenture. The New Senior Notes will have the principal
terms set forth in Section 4.3(d) of the Plan. In addition, the New Senior Notes
will have normal and customary terms for secured indebtedness of this nature and
standard financial covenants and, as set forth in Section IV.3.a. above, will be
guaranteed. A form of the New Senior Note Indenture will be included as an
exhibit to the Plan Supplement.
2. New Warrants
------------
On the Effective Date, the New Warrants shall be issued pursuant to
the Warrant Agreement to purchase that number of shares of New Parent Common
Stock constituting 5%, on a fully-diluted basis, of the authorized and
outstanding shares of New Parent Common Stock on the Effective Date, provided,
however, that the foregoing percentage is subject to dilution by (i) shares of
New Parent Common Stock issued in accordance with the Management Stock Option
Plan, and (ii) such other shares as may be authorized and issued pursuant to the
Reorganized Parent Charter. The New Warrants shall be exercisable until the
third anniversary of the
59
<PAGE>
Effective Date at a price of $46.05 per share and will have normal and customary
terms for a security of this nature.
3. Reorganized Debtors' Charters
-----------------------------
Upon the Effective Date, the Reorganized Debtors' Charters will become
effective. The Reorganized Debtors' Charters, together with the provisions of
the Plan, will provide for the authorization and issuance of the New Senior
Notes, the New Parent Common Stock and the New Warrants, a prohibition on the
issuance of non-voting equity securities in accordance with Section 1123(a)(6)
of the Bankruptcy Code, and such other provisions that are necessary to
facilitate consummation of the Plan.
4. Management Stock Option Plan
----------------------------
a. General; Ratification
---------------------
The Management Stock Option Plan, the form of which is annexed
hereto as Exhibit "G", shall be effective immediately upon the Effective Date.
The Management Stock Option Plan shall be a stock incentive program and shall
provide for the issuance of up to 10%, on a fully-diluted basis, of the shares
of New Parent Common Stock as of the Effective Date of the Plan. Shares of New
Parent Common Stock issued pursuant to the Management Stock Option Plan shall be
allocated as follows:
o ________ Richard E. Snyder (Chief Executive Officer) -- 2%, on a
fully-diluted basis, of the shares of New Parent Common Stock in
the form of restricted stock to vest 2/3 on the second
anniversary of the Effective Date
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and 1/3 on the third anniversary of the Effective Date (with
vesting fully accelerated upon a termination without cause, a
termination for good reason, a termination due to death or
disability or a change of control).
o Richard K. Collins (Chief Operating Officer), Philip Galanes
(Chief Administrative Officer) and Colin Finkelstein (Chief
Financial Officer) -- Each shall receive 1%, on a fully-diluted
basis, of the shares of New Parent Common Stock in the form of at
the money stock options with an exercise price based upon the
total equity value of Reorganized Parent (as set forth in this
Disclosure Statement) to vest ratably over a three year period
(with vesting fully accelerated upon a termination without cause,
a termination for good reason, a termination due to death or
disability or a change of control).
o Other Grants -- 5%, on a fully-diluted basis, of the shares of
New Parent Common Stock shall be reserved for option grants to
key employees up to one-half of which is to be determined by the
Debtors' current management or board to be issued as part of the
Debtors' 1999 bonus plan to management not covered by clauses (a)
or (b) above, with the remainder to be determined by the board of
directors of Reorganized Parent.
On or prior to the Effective Date, the Management Stock Option Plan
shall be adopted by Parent, and by voting to accept the Plan, all holders of
Senior Notes, GPH Claims, and TOPrS Claims (who, collectively, on the Effective
Date, will receive, in the aggregate, approximately 97.5% of the New Parent
Common Stock to be issued pursuant to the Plan) shall be deemed to have ratified
and approved the Management Stock Option Plan. Following the Effective Date, the
Management Stock Option Plan may be modified by the Board of Directors of
Reorganized Parent in accordance with the terms thereof and any such
modification or amendment shall not require an amendment of the Plan.
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b. Purpose
-------
The purpose of the Management Stock Option Plan is to enhance the
profitability and value of Reorganized Parent (hereinafter referred to
throughout this section as the "Company") for the benefit of the Company and its
stockholders by enabling the Company to offer eligible employees and consultants
of the Company and its affiliates who are in a position to contribute materially
to the long-term success of the Company, stock based incentives in the Company
in order to attract, retain and reward such individuals and strengthen the
mutuality of interests between such individuals and the Company's stockholders.
The following description of the Management Stock Option Plan is qualified in
its entirety by reference to such plan, a form of which is annexed hereto as
Exhibit "G".
c. Administration
The Management Stock Option Plan is to be administered and interpreted
by a committee (the "Board Committee") of two or more members of the Board of
Directors of the Company (the "Board") appointed by the Board, each of whom is
intended to be a "non-employee director" (within the meaning of Rule 16b-3
promulgated under the Securities Exchange Act of 1934 ("Rule 16b-3")) and an
"outside director" (within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code")). Notwithstanding the foregoing, if and to
the extent that no Board Committee exists which has the authority to administer
the Management Stock Option Plan, the functions of the Board Committee will be
exercised by the Board.
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d. Eligibility and Types of Awards
-------------------------------
All eligible employees ("Eligible Employees") and consultants
("Consultants') of the Company and its affiliates are eligible to be granted
non-qualified stock options ("NQO's), restricted stock ("Restricted Stock") and
performance shares ("Performance Shares") under the Management Stock Option
Plan. Eligible Employees of the Company or any "subsidiary" or "parent" of the
Company (both within the meaning of Section 424 of the Code) shall also be
eligible for grants of incentive stock options ("ISO's"). Eligibility for the
grant of an award under the Plan (an "Award") and actual participation in the
Management Stock Option Plan will be determined by the Board Committee in its
sole discretion.
e. Available Shares
----------------
The Management Stock Option Plan authorizes the grant of Awards to
Eligible Employees and Consultants (each individually a "Participant") with
respect to a maximum of 10%, on a fully-diluted basis, of shares of New Parent
Common Stock ("Shares"), which Awards may be in the form of NQO's, ISO's,
Restricted Stock or Performance Shares, all as qualified by and set forth in the
Management Stock Option Plan; provided, however, that the maximum number of
Shares that may be granted under the Management Stock Option Plan with respect
to awards of ISO's shall be 400,000. If Shares under an Award are forfeited or
canceled for any reason whatsoever, then such Shares shall generally again be
available for Award grants under the Management Stock Option Plan.
f. Awards under the Plan
---------------------
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(i) Stock Options
NSO's and ISO's granted under the Plan will be subject to such terms
not inconsistent with the terms of the Management Stock Option Plan, including
exercise price per Share and conditions and timing of exercise, as may be
determined by the Board Committee and specified in the applicable Award
agreement or thereafter; provided, that any exercise price per Share may not be
less than 100% of the fair market value of a Share on the grant date. The
options that are intended to qualify as ISO's will also be subject to terms and
conditions that comply with the rules of Section 422 of the Code. Payment in
respect of the exercise price of an option granted to an Eligible Employee or
Consultant may be made (i) in cash, bank draft or money order; (ii) if the New
Parent Common Stock is traded on a national securities exchange, the Nasdaq
Stock Market, Inc. or quoted on a national quotation system sponsored by the
National Association of Securities Dealers, through a "cashless exercise"
procedure; or (iii) on such other terms and conditions as may be acceptable to
the Board Committee. Generally, upon a termination of employment or consultancy,
an individual will have a period of up to one year (based upon the type of
termination) to exercise then vested options. Options that are not exercisable
at the time of any such termination shall be canceled. Upon a Participant's
termination for "cause" (as defined in the Management Stock Option Plan) all
unexercised options, whether or not then vested, shall be canceled.
Notwithstanding the foregoing, in the event of any Acquisition Event (as defined
in the Management Stock Option Plan), the Board Committee, in its sole
discretion, may upon at least twenty-day's notice, cancel all outstanding
options; provided all such options subject to cancellation (whether or not then
vested) may be
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exercised in full by the grantee at any time during that twenty-day period; and
further provided that any such cancellation or exercise shall be null and void
if the Acquisition Event does not occur.
(ii) Restricted Stock
Shares of Restricted Stock granted under the Management Stock Option
Plan will be subject to such terms and conditions, as may be determined by the
Board Committee in its sole discretion. The Board Committee may condition the
grant or vesting of Restricted Stock upon the attainment of specified
Performance Goals, including established Performance Goals in accordance with
Code Section 162(m), or such other factors as the Board Committee may determine
in its sole discretion. The purchase price for Restricted Stock will be fixed by
the Board Committee, provided that such purchase price may be zero, to the
extent permitted by applicable law, and, to the extent not so permitted, such
purchase price may not be less than par value.
Unless otherwise determined by the Board Committee, the Participant
will have, with respect to the Shares of Restricted Stock, all of the rights of
a holder of shares of New Parent Common Stock including, without limitation, the
right to receive any dividends, the right to vote such shares and, subject to
and conditioned upon the full vesting of Shares of Restricted Stock, the right
to tender such shares. The Board Committee may, in its sole discretion,
determine at the time of grant that the payment of dividends will be deferred
until, and conditioned upon, the expiration of the applicable restriction
period. Unless otherwise permitted
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by the Board Committee, upon a Participant's termination of employment or
consultancy during a restriction period, all Shares subject to restriction will
vest or be forfeited in accordance with the Management Stock Option Plan and the
Participant's Award agreement.
(iii) Performance Shares
Performance awards granted under the Management Stock Option Plan will
consist of a right which is (a) denominated in cash or Shares, (b) payable in
amounts, as determined by the Board Committee, based upon the achievement of
such Performance Goals during such performance periods as the Board Committee
will establish, and (c) payable at such time and in such form as the Board
Committee will determine. Subject to the terms of the Management Stock Option
Plan and any applicable Award agreement, the Board Committee will determine the
Performance Goals to be achieved during any performance period, the length of
any performance period, the amount of any performance award and the amount and
kind of any payment or transfer to be made pursuant to any performance award.
Any such amounts awarded may be paid currently or on a deferred basis, in the
sole discretion of the Board Committee. Unless otherwise provided by the Board
Committee, upon a termination of employment or consultancy during a performance
period or during any other applicable period or restriction, the Performance
Shares will vest (to the extent permitted under Section 162(m) of the Code) or
be forfeited in accordance with the terms of the Award agreement.
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g. Change in Control
-----------------
Except as otherwise provided by the Board Committee, in the event of
Change in Control of the Company (as defined in the Management Stock Option
Plan), all outstanding Awards granted under the Management Stock Option Plan
will become fully vested and immediately exercisable and any period of
restriction (whether related to the passage of time or the satisfaction of
Performance Goals) shall be deemed satisfied in their entirety; provided,
however, that the Board Committee may, in its sole discretion, provide for the
purchase of any options by the Company or its affiliates (as defined in the
Management Stock Option Plan) for an amount of cash equal to the Change in
Control Price (as defined in the Management Stock Option Plan) over the
aggregate exercise price of such options. Notwithstanding the foregoing, unless
the Board Committee provides otherwise in an Award agreement, no acceleration of
exercisability will occur with respect to options granted under the Management
Stock Option Plan if the Board Committee reasonably determines in good faith,
prior to the occurrence of the Change in Control, that the options will be
honored or assumed, or new rights substituted therefore (each such honored,
accrued or substituted option being referred to in the Plan as an "Alternative
Option"), by a Participant's new employer (or the parent of a subsidiary of such
employer) immediately following the Change in Control, provided that (i) the
shares of stock subject to the Alternative Option are publicly traded and (ii)
the Alternative Option has substantially equivalent rights, benefits and
economic value, as determined by the Board Committee.
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h. Miscellaneous
(i) Transferability
No option will be transferable by the Participant otherwise than by
will or by the laws of descent and distribution. All options will be
exercisable, during the Participant's lifetime, only by the Participant. Shares
of Restricted Stock may not be transferred prior to the date on which shares are
issued, or, if later, the date on which any applicable restriction, performance
or deferral period lapses. No Award will, except as otherwise specifically
provided by law or in the Management Stock Option Plan, be transferable in any
manner, and any attempt to transfer any such Award will be void, and no such
Award will in any manner be liable for or subject to the debts, contracts,
liabilities, engagements or torts of any person who will be entitled to such
Award, nor will it be subject to attachment or legal process for or against such
person. Notwithstanding the foregoing, the Board Committee may determine at the
time of grant or thereafter that a non-qualified stock option that is otherwise
not transferable is transferable in whole or in part and in such circumstances,
and under such conditions, as specified by the Board Committee.
(ii) Adjustments
In the event that the Board Committee determines that any corporate
transaction or event affects the Shares such that an adjustment is deemed
appropriate in order to prevent dilution or enlargement of the benefits intended
to be made available to Participants under the Management Stock Option Plan,
then the Board Committee shall, in such manner as it deems
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equitable, make the adjustments that are necessary to preserve the intended
benefits under the Management Stock Option Plan.
(iii) Non-Qualified Plan
The Management Stock Option Plan is not subject to any of the
requirements of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). The Management Stock Option Plan is not, nor is it intended to be,
qualified under Section 401(a) of the Code.
i. Amendment and Termination
-------------------------
The Board or the Board Committee may at any time, and from time to
time, amend, in whole or in part, any or all of the provisions of the Management
Stock Option Plan (including any amendment deemed necessary to ensure that the
Company may comply with any regulatory requirement), or suspend or terminate it
entirely, retroactively or otherwise; provided, however, that, unless otherwise
required by law or specifically provided in the Management Stock Option Plan,
the rights of a Participant with respect to Awards granted prior to such
amendment, suspension or termination may not be impaired without the consent of
such Participant and, provided further, that without the approval of the
stockholders of the Company in accordance with the laws of the State of
Delaware, to the extent required by the applicable provisions of Rule 16b-3 or
Section 162(m) of the Code, or to the extent applicable to ISO's, Section 422 of
the Code, no amendment may be made that would (i) increase the aggregate number
of shares of New Parent Common Stock that may be issued under the Management
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Stock Option Plan; (ii) increase the maximum individual Participant limitations
for a fiscal year; (iii) change the classification of employees or Consultants
eligible for Award grants under the Management Stock Option Plan; (iv) extend
the maximum option term; (v) decrease the minimum option price of any option;
(vi) extend the maximum option period; (vii) materially alter the performance
criteria for the Award of Restricted Stock; or (viii) require stockholder
approval in order for the Management Stock Option Plan to continue to comply
with the applicable provisions of Section 162(m) of the Code or, to the extent
applicable to ISO's, Section 422 of the Code. In no event may the Management
Stock Option Plan be amended without stockholder approval in a manner that would
require such approval under the rules of any exchange or system on which the
Company's securities are listed or traded at the request of the Company.
j. Certain Federal Income Tax Consequences Relating to the
Management Stock Option Plan
----------------------------
The following summary of the Federal income tax consequences of Awards
under the Management Stock Option Plan is based on statutory authority intended
to reflect the current provisions of the Code and the regulations promulgated
thereunder, which are subject to change at any time (possibly with retroactive
effect). This discussion is limited to the U.S. federal income tax consequences
to individuals who are citizens or residents of the U.S., other than those
individuals who are taxed on a residence basis in a foreign country, and the
U.S. Federal tax effects on the Company in connection with the Management Stock
Option Plan and awards granted thereunder. The U.S. Federal income tax law is
technical and complex, and the discussion below represents only a general
summary.
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(i) Non-Qualified Stock Options
No income will be realized by an optionee upon grant of a nonqualified
stock option. Upon exercise of a nonqualified stock option, the optionee will
recognize ordinary compensation income in an amount equal to the excess, if any,
of the fair market value of the underlying stock over the option exercise price
(the "Spread") at the time of exercise. The Spread will be deductible by the
Company for federal income tax purposes subject to the possible limitations on
deductibility under Sections 280G and 162(m) of the Code of compensation paid to
executives covered by those sections. The optionee's tax basis in the underlying
Shares acquired by exercise of a nonqualified stock option will equal the
exercise price plus the amount taxable as compensation to the optionee. Upon
sale of the shares received by the optionee upon exercise of the nonqualified
stock option, any gain or loss is generally long-term or short-term capital gain
or loss, depending on the holding period. The optionee's holding period for
shares acquired pursuant to the exercise of a nonqualified stock option will
begin on the date of exercise of such option.
(ii) Incentive Stock Options
The Code generally requires that, for incentive stock option
treatment: (i) Shares acquired through exercise of an incentive stock option
cannot be disposed of before two years from the date of grant and one year from
the date of exercise, and (ii) at all times during the period beginning on the
date of grant of the option and ending on the day three months before the date
of exercise, the optionee was an employee of either the Company or its
affiliates.
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Incentive stock option holders will generally incur no federal income tax
liability at the time of grant or upon exercise of such options. However, the
Spread will be an item of adjustment which may give rise to "alternative minimum
tax" liability at the time of exercise. If the optionee does not dispose of the
shares before two years from the date of grant and one year from the date of
exercise, the difference between the exercise price and the amount realized upon
disposition of the shares will constitute long-term capital gain or loss, as the
case may be. Assuming both the holding periods are satisfied, no deduction will
be allowable to the Company for federal income tax purposes in connection with
the grant or exercise of the option or disposition of the shares. If, within two
years of the date of grant or within one year from the date of exercise, the
holder of shares acquired through the exercise of an incentive stock option
disposes of such shares, the optionee will generally realize ordinary taxable
compensation at the time of such disposition equal to the difference between the
exercise price and the lesser of the fair market value of the stock on the date
of initial exercise or the amount realized on the subsequent disposition, and
such amount will generally be deductible by the Company for federal income tax
purposes, subject to the possible limitations on deductibility under Sections
280G and 162(m) of the Code for compensation paid to executives covered by those
sections.
Notwithstanding the foregoing, pursuant to applicable rules under
Section 16(b) of the Securities Exchange Act of 1934, the grant of an option
(and not its exercise) to a person who is subject to the reporting and
short-swing profit provisions under Section 16 of the Exchange Act (a "Section
16 Person") may begin a six-month holding period that (absent a written election
(pursuant to Code Section 83(b)) filed with the Internal Revenue Service within
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30 days after the date of transfer of shares of New Parent Common Stock to
include the Spread in income) defers the timing of income recognition until the
end of the holding period (the "Deferral Period"). There will be no Deferral
Period if the option grant (a) is approved in advance by the Company's Board of
Directors (or a committee composed solely of two or more "Non-Employee
Directors" as defined under applicable law) or (b) approved in advance, or
subsequently ratified by the Company's shareholders no later than the next
annual meeting of shareholders. Consequently, the taxable event for the exercise
of an option granted the requirements described in clauses (a) or (b) above will
be the date of exercise.
The payment by an optionee of the exercise price, in full or in part,
with previously acquired shares will not affect the tax treatment of the
exercise described above. No gain or loss generally will be recognized by the
optionee upon the surrender of the previously acquired shares to the Company,
and shares received by the optionee, equal in number to the previously
surrendered shares, will have the same tax basis as the shares surrendered to
the Company and will have a holding period that includes the holding period of
the shares surrendered. The value of shares received by the optionee in excess
of the number of shares surrendered to the Company will be taxable to the
optionee. Such additional shares will have a tax basis equal to the fair market
value of such additional shares as of the date ordinary income is recognized,
and will have a holding period that begins on the date ordinary income is
recognized.
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(iii) Restricted Stock
An individual who is awarded Restricted Stock may elect under Section
83(b) of the Code to include in ordinary income, as compensation at the time
Restricted Stock is first issued, the excess of the fair market value of such
shares at the time of issuance over the amount paid, if any, for such shares.
Unless a Code Section 83(b) election is timely made (no later than the
expiration of the 30 day period following the time of issuance), no taxable
income will be recognized by the grantee until such shares are no longer subject
to a substantial risk of forfeiture (the "Restrictions"). However, when the
Restrictions lapse, the grantee will recognize ordinary income in an amount
equal to the excess of the fair market value of the New Parent Common Stock on
the date of lapse over the amount paid, if any, for such shares. Any ordinary
income recognized by an employee with respect to Restricted Stock will be
subject to both wage withholding and employment taxes.
If a Code Section 83(b) election is made, any dividends received on
shares which are subject to Restrictions will be treated as dividend income. If
such an election is not made, dividends received on the New Parent Common Stock
for the period prior to the time the Restrictions on such shares lapse will be
treated as additional compensation, and not dividend income, for federal income
tax purposes, and will be (except with regard to Consultants), subject to wage
withholding and employment taxes.
The tax basis in Restricted Stock will be equal to the sum of the
price paid for such shares, if any, and the amount of ordinary income recognized
with respect to the receipt of
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such shares or the lapse of Restrictions thereon. The holding period for
purposes of determining gain or loss on a subsequent sale will begin immediately
after the transfer of such shares to the grantee if a Code Section 83(b)
election is made with respect to such shares, or immediately after the
Restrictions on such shares lapse, if no Code Section 83(b) election is made.
In general, a deduction will be allowed to the Company for federal
income tax purposes (subject to the application of Code Sections 162(m) and
280(G)) in an amount equal to the ordinary income recognized by the grantee with
respect to Restricted Stock awarded pursuant to the Management Stock Option
Plan.
If, subsequent to the lapse of Restrictions on Restricted Stock, a
grantee sells such shares, the difference, if any, between the amount realized
from such sale and the tax basis of such shares will ordinarily result in
capital gain or loss. If a Code Section 83(b) election is made and, before the
Restrictions on the shares lapse, the shares which are subject to such election
are in effect forfeited: (i) the grantee will not be permitted to deduct the
amount included in income by reason of a Code Section 83(b) election, and (ii)
the grantee may recognize a loss in an amount equal to the excess, if any, of
the amount paid for the shares over the amount received upon such forfeiture
(which loss will ordinarily be a capital loss). In such event, the Company will
be required to include in its income the amount of any deduction allowable to it
in connection with the shares. A grantee will recognize gain in an amount equal
to the excess, if any, of the amount received by the grantee upon such resale or
forfeiture over the amount paid for the shares (which gain would ordinarily be
capital gain).
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(iv) Performance Shares
A grantee will not be taxed at the time of grant of Performance
Shares. If the performance targets and/or the other requirements for a payment
of Performance Shares are achieved, the grantee will receive distributions of
New Parent Common Stock and/or cash. The grantee will recognize ordinary income
in an amount equal to any cash received and the fair market value of the New
Parent Common Stock received, on the date of receipt. If the grantee is an
employee, the ordinary income recognize by the grantee will be subject to both
wage withholding and employment taxes.
The grantee's tax basis in any shares received will be equal to the
sum of the price paid for such shares, if any, and the amount of ordinary income
recognized by the grantee with respect to the receipt of such shares. The
holding period for such shares for purposes of determining gain or loss on
subsequent sale will begin immediately after the transfer to the grantee of such
shares.
In general, a deduction will be allowed to the Company for federal
income tax purposes (subject to the possible application of Sections 162(m) and
280G of the Code) in an amount equal to the ordinary income recognized by the
grantee. If the grantee sells such shares, the difference, if any, between the
amount realized from such sale and the tax basis of such shares will ordinarily
result in capital gain or loss.
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k. Future Plan Awards
------------------
Because future awards under the Management Stock Option Plan will be
based upon prospective factors including the nature of services to be rendered
by prospective employees and consultants and their potential contributions to
the success of the Company, actual awards cannot be determined at this time.
5. Cancellation and Surrender of Existing Securities and Agreements.
----------------------------------------------------------------
Except as may otherwise be provided in the Plan, on the Effective
Date, the promissory notes, share certificates, bonds and other instruments
evidencing any Claim or Equity Interest shall be deemed canceled without further
act or action under any applicable agreement, law, regulation, order or rule and
the obligations of the Debtors under the agreements, indentures and certificates
of designations governing such Claims and Equity Interests, as the case may be,
shall be discharged and released. In addition, on the Effective Date,
Reorganized Parent and Richard E. Snyder shall enter into an agreement providing
for Mr. Snyder's transfer to Parent of his entire interest in certain shares of
Old Parent Common Stock in full and complete satisfaction of obligations under a
non-recourse promissory note to Parent related thereto.
Each holder of a promissory note, share certificate, bond or other
instrument evidencing a Claim or Equity Interest, shall surrender such
promissory note, share certificate, bond or instrument to the Reorganized
Debtors (or their disbursing agent), unless such
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requirement is waived by the Reorganized Debtors. No distribution of property
hereunder shall be made to or on behalf of any such holders unless and until
such promissory note, share certificate, bond or instrument is received by the
Reorganized Debtors (or their disbursing agent), or the unavailability of such
promissory note, share certificate, bond or instrument is established to the
reasonable satisfaction of the Reorganized Debtors (or their disbursing agent),
or such requirement is waived by the Reorganized Debtors. The Reorganized
Debtors may require any holder that is unable to surrender or cause to be
surrendered any such promissory notes, share certificates, bonds or instruments
to deliver an affidavit of loss and indemnity and/or furnish a bond in form and
substance (including, without limitation, with respect to amount) reasonably
satisfactory to the Reorganized Debtors. Any holder that fails within the later
of one year after the Effective Date and the date of Allowance of its Claim or
Equity Interest (i) to surrender or cause to be surrendered such promissory
note, share certificate, bond or instrument, (ii) if requested, to execute and
deliver an affidavit of loss and indemnity reasonably satisfactory to the
Reorganized Debtors (or their disbursing agent), and (iii) if requested, to
furnish a bond reasonably satisfactory to the Reorganized Debtors (or their
disbursing agent), shall be deemed to have forfeited all rights, Claims and
Causes of Action against the Debtors and Reorganized Debtors and shall not
participate in any distribution hereunder.
6. Employment Contracts
--------------------
Except as otherwise provided in the Plan or as agreed among the
Informal Committees, the Debtors and the respective employee, on the Effective
Date, employment
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contracts of current employees of the Debtors will be assumed. On the Effective
Date, the current employment contract of Richard E. Snyder shall be deemed
canceled and terminated, and Reorganized Parent and Mr. Snyder shall enter into
a new revised employment contract which shall become automatically effective on
the Effective Date. The form of such new employment contract is attached to the
Restructuring Agreement which is annexed hereto as Exhibit "C". In addition, the
employment contracts of Philip Galanes, Richard Collins and Colin Finkelstein
shall be amended and, as amended, shall be effective on the Effective Date. The
forms of such amendments are collectively annexed hereto as Exhibit "F."
7. Registration Rights Agreements
------------------------------
On and after the Effective Date, Reorganized Parent and appropriate
holders of New Senior Notes and New Parent Common Stock shall enter into an
appropriate registration rights agreement(s).
8. Substantive Consolidation
-------------------------
Substantive consolidation is an equitable right that may be
effectuated in Chapter 11 cases involving affiliated debtors. Substantive
consolidation involves the pooling and merging of the assets and liabilities of
affiliated debtors. All of the debtors in the substantively consolidated group
are treated as if they were a single corporate and economic entity for purposes
of a Chapter 11 plan. Consequently, a creditor of one of the substantively
consolidated debtors is treated as a creditor of the substantively consolidated
group of debtors, and, for purposes of the plan, issues of individual corporate
ownership of property and
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individual corporate liability on obligations are ignored. Substantive
consolidation of two or more debtors' estates generally results in the deemed
consolidation of the assets and liabilities of such debtors, the deemed
elimination of intercompany claims, multiple and duplicative creditor claims,
joint and several liability claims and guarantees, and the payment of allowed
claims from a common fund.
Pursuant to the Plan, contemporaneously with the entry of the
Confirmation Order (but subject to the occurrence of the Effective Date), the
Debtors' estates shall be substantively consolidated. In particular, except as
expressly provided in the Plan, the Debtors and Reorganized Debtors shall
continue to maintain their separate corporate existence for all purposes other
than the treatment of Claims under the Plan. Thus, on the Effective Date: (i)
all assets (and all proceeds thereof) and liabilities of the Debtors shall be
deemed merged or treated as though they were merged into and with the assets and
liabilities of Parent, (ii) no distributions shall be made under the Plan on
account of intercompany Claims among the Debtors and all such Claims (including,
without limitation, Claims based upon the Publishing Notes) shall be eliminated,
(iii) all guarantees of the Debtors of the obligations of any other Debtor shall
be deemed eliminated and extinguished so that any Claim against any Debtor and
any guarantee thereof executed by any other Debtor and any joint or several
liability of any of the Debtors shall be deemed to be one obligation of the
consolidated Debtors, (iv) each and every Claim filed or to be filed in any of
the Chapter 11 Cases shall be deemed filed against the consolidated Debtors, and
shall be deemed one Claim against and obligation of the consolidated Debtors and
(v) for purposes of determining the availability of the right of set-off under
Section 553 of the
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Bankruptcy Code, the Debtors shall be treated as one entity so that, subject to
the other provisions of Section 553 of the Bankruptcy Code, debts due to any of
the Debtors may be set-off against the debts of any of the other Debtors. Such
substantive consolidation shall not (other than for purposes related to the
Plan) affect (i) the legal and corporate structures of the Reorganized Debtors,
and (ii) Subsidiary Equity Interests.
The Debtors believe that substantive consolidation is appropriate in
these cases and will facilitate confirmation of the Plan. Specifically, the
Debtors' operations and indebtedness are significantly interrelated. The Debtors
also share common management and have a centralized cash management system.
Therefore, the Debtors believe that the substantive consolidation of their
Chapter 11 cases is warranted and in the best interest of the Debtors'
creditors, shareholders and estates.
E. Funding for the Plan
The funds utilized to make Cash payments under the Plan have been
and/or will be generated from, among other things, the operation of the Debtors'
businesses, asset dispositions, and borrowing under the Post-Effective Date
Financing Facility. The Post- Effective Date Financing Facility, among other
things, shall (i) be effective on the Effective Date, (ii) be a senior secured
facility, (iii) provide for aggregate borrowings (including a working capital
line of credit) of up to $60 million, provided, that, on the Effective Date, the
maximum amount of borrowing availability under the Post-Effective Date Financing
Facility shall be $45 million with the remaining $15 million of availability
under such facility becoming
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automatically available for borrowing by the Reorganized Debtors upon their
attainment of certain levels of operating performance to be mutually agreed to
by the Debtors and the Informal Senior Note Committee in good faith, and (iv)
contain terms and conditions in form and substance acceptable to the Debtors.
F. Description of Other Provisions of the Plan
1. Disputed Claims
---------------
The Plan provides that with respect to any Disputed Claims and Equity
Interests, for the purposes of effectuating the provisions of the Plan and the
distributions to holders of Allowed Claims and Equity Interests, the Bankruptcy
Court, on or prior to the Effective Date or such date or dates thereafter as the
Bankruptcy Court shall set, may fix or liquidate the amount of such Disputed
Claims and Equity Interests pursuant to Section 502(c) of the Bankruptcy Code,
in which event the amounts so fixed or liquidated shall be deemed the maximum
amounts of the Disputed Claims and Equity Interests pursuant to Section 502(c)
of the Bankruptcy Code for purposes of distribution under the Plan. When a
Disputed Claim or Equity Interest becomes an Allowed Claim or Equity Interest,
the Reorganized Debtors shall distribute to the holder of such Allowed Claim or
Equity Interest, the property distributable to such holder as provided in the
Plan.
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2. Disputed Payments
-----------------
The Plan provides that in the event of any dispute between and among
holders of Claims or Equity Interests and/or the holders of a Disputed Claim or
Equity Interest as to the right of any Person to receive or retain any payment
or distribution to be made to such Person under the Plan, the Reorganized
Debtors may, in lieu of making such payment or distribution to such Person,
instead hold such payment or distribution, without interest, until the
disposition thereof shall be determined by a Final Order of the Bankruptcy Court
or other court with appropriate jurisdiction.
3. Unclaimed Property
------------------
Any distributions under the Plan that are unclaimed for a period of
one year after distribution thereof shall revert and be revested in the
Reorganized Debtors, and any entitlement of any holder of any Claim or Equity
Interest to such distributions shall be forfeited, extinguished, and forever
barred.
4. Issuance of New Securities
--------------------------
The Reorganized Debtors shall issue, in accordance with the terms of
the Plan, 5,000,000 shares of New Parent Common Stock, the New Senior Notes and
263,000 New Warrants. On the Effective Date, the Debtor will transmit written
instructions regarding the surrender of Old Senior Notes, Old Preferred Stock
Interests, and Old Common Stock Interests, and the distribution of shares of New
Parent Common Stock and New Warrants to those parties
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entitled to distributions thereof pursuant to the Plan. Reorganized Parent will
use its reasonable best efforts to cause the New Parent Common Stock and the New
Senior Notes to be listed for trading on a national securities exchange or the
NASDAQ National Market System. All shares of New Parent Common Stock to be
issued pursuant to the Plan (including, without limitation, upon exercise of the
New Warrants) shall be, upon issuance, fully paid and non-assessable, and shall
be subject to dilution only as may be expressly set forth in this Plan or in the
Plan Documents, and the holders thereof shall have no preemptive or other rights
to subscribe for additional shares.
5. Discharge
---------
Except as otherwise expressly provided in Section 1141 of the
Bankruptcy Code or the Plan, the distributions made pursuant to and in
accordance with the applicable terms and conditions of the Plan are in full and
final satisfaction, settlement, release and discharge as against the Debtors of
any debt that arose before the Effective Date, and any debt of a kind specified
in Section 502(g), 502(h), or 502(i) of the Bankruptcy Code, and all Claims and
Equity Interests of any nature, including, without limitation, any interest
accrued thereon from and after the Petition Date, whether or not (i) a proof of
Claim or Equity Interest based on such debt, obligation or equity interest is
filed or deemed filed under Section 501 of the Bankruptcy Code, (ii) such Claim
or Equity Interest is Allowed under Section 502 of the Bankruptcy Code or (iii)
the holder of such Claim or Equity Interest has accepted the Plan; provided,
however, that the foregoing discharge shall not apply to rights of holders of
Rescission or Damage Claims, and Indemnification Claims arising from or related
thereto, to pursue such claims against the
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Debtors solely to obtain a right or recovery against any applicable insurance
coverage of the Debtors or to seek indemnification, all as otherwise provided by
Section 7.3 of the Plan (but not to enforce a judgment on any other property of
the Debtors or Reorganized Debtors).
6. Termination of Subordination Rights
-----------------------------------
The classification and manner of satisfying all Claims and Equity
Interests under the Plan take into consideration all contractual, legal and
equitable subordination rights, whether arising under general principles of
equitable subordination, Sections 510(b) and (c) of the Bankruptcy Code or
otherwise, that a holder of a Claim or Equity Interest may have against other
Claim or Equity Interest holders with respect to any distribution made pursuant
to the Plan. On the Effective Date, all contractual, legal or equitable
subordination rights that a holder of a Claim or Equity Interest may have with
respect to any distribution to be made pursuant to the Plan shall be discharged
and terminated, and all actions related to the enforcement of such subordination
rights shall be permanently enjoined and distributions pursuant to the Plan
shall not be subject to payment to a beneficiary of such terminated
subordination rights, or to levy, garnishment, attachment or other legal process
by any beneficiary of such terminated subordination rights.
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7. Additional Releases9
-------------------
Without limiting the provisions of Section 9.2 of the Plan and except
as otherwise provided in the Plan, as of the Effective Date, in consideration
for, and as part of the treatment afforded to, the holders of Claims and Equity
Interests under the Plan, and for other valuable consideration, each of the
Released Parties shall be deemed forever released from any and all Causes of
Action that any Person may have asserted, could have asserted, or could in the
future assert, directly or indirectly, against any of the Released Parties
relating to the Debtors or the Chapter 11 Cases on or prior to the Effective
Date, provided, however, that the foregoing release shall not apply to (i)
Causes of Action that arise from obligations or rights created under or in
connection with the Plan or any agreement provided for or contemplated in the
Plan, and (ii) the rights of holders of Rescission or Damage Claims to pursue
such claims against present or former officers and directors of the Debtors as
named defendants in litigations respecting such Rescission or Damage Claims
solely for purposes of preserving or obtaining a right of recovery against any
applicable insurance coverage of the Debtors but not to enforce a judgment
against any property of any present or former officers and directors of the
Debtors except to the
- -------------------
9 The U.S. Trustee filed an objection to this Disclosure Statement regarding
the release provisions of the Plan. In summary, the U.S. Trustee has
objected to the Disclosure Statement on the grounds that a broad reading of
the release provisions contained in the Plan may be deemed to release
non-debtor parties from liability arising under any federal, state, city or
municipal (i) tax code, (ii) environmental law or (iii) criminal law.
Generally (and with all rights reserved), the Debtors do not believe that
the release provisions are intended to apply to the areas of concern which
the U.S. Trustee has communicated to the Debtors. The U.S. Trustee has
agreed to withdraw its objection as it relates to this Disclosure
Statement, but has reserved such objection as an objection to Confirmation
of the Plan. The Debtors are negotiating with the U.S. Trustee in an effort
to resolve the objection on a consensual basis.
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extent of the insurance proceeds of the Debtors and any other proceeds made
available under the indemnification rights as provided for in Section 7.3 of the
Plan. Notwithstanding anything in the Plan to the contrary, nothing in the Plan
shall discharge, release or exculpate any non-Debtor from any liability to the
United States of America and/or its agencies.
Except as, and only to the extent provided otherwise in the Plan, as
of the Effective Date, each of the Released Parties forever releases, waives and
discharges all known and unknown Causes of Action of any nature that such
Released Party has, had or may have against any other Released Party for all
acts and omissions related to the Debtors arising from or related to the Chapter
11 Cases through the Effective Date, other than Causes of Action that arise from
obligations or rights created under or in connection with the Plan or any
agreement provided for or contemplated in the Plan.
The Debtors believe that the third party release and injunction
provisions contained in the Plan are appropriate and essential elements under
the Plan and the Restructuring Agreement. The Debtors believe that such release
and injunction provisions are appropriate in that there is an identity of
interest between the Debtors and the Released Parties due to, among other
things, the Debtors' indemnification obligations to certain of the Released
Parties. In addition, the Released Parties have contributed and are contributing
valuable consideration to the Plan, including but not limited to, (i) the
significant concessions and compromises contained in the Restructuring Agreement
and the Plan, all of which were instrumental in stabilizing the Debtors' pre-
and post-Petition Date operations, (ii) the Released Parties have been integral
to the negotiation and formulation of the Restructuring Agreement and the Plan,
(iii) the Released
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Parties have agreed to accept impaired treatment and relinquish significant
rights under the Plan, absent which the substantial value and recoveries
provided under the Plan would not be possible and (iv) certain of the Released
Parties, who the Debtors believe are critical to the ongoing operations and
success of the Reorganized Debtors, have agreed to provide future services to
the Debtors, in consideration, inter alia, of the releases contained in the
Plan. Furthermore, such provisions are essential elements of the Restructuring
Agreement, pursuant to which members of the Informal Senior Note Committee,
members of the Informal TOPrS Committee and certain other signatory holders of
such securities, Mr. Richard E. Snyder and GPH, have all agreed to accept
impaired treatment under the Plan and all of which support the releases
contained in the Plan. In addition, all General Unsecured Claims will be paid in
full (including post-petition interest) pursuant to the Plan, and, thus holders
of General Unsecured Claims are not prejudiced by the releases contained in the
Plan.
8. Injunctions
-----------
As of the Effective Date and subject to its occurrence, all Persons
that have held, currently hold or may have asserted a Claim, a Cause of Action
or other debt, or liability, or an Equity Interest or other right of a holder of
an Equity Interest that is discharged, released or terminated pursuant to the
Plan, are permanently enjoined from commencing or continuing, in any manner or
in any place, any action or other proceeding, enforcing, attaching, collecting
or recovering in any manner any judgment, award, decree or order, creating,
perfecting or enforcing any lien or encumbrance, asserting a set-off right or
subrogation or recoupment of any kind against any debt, liability or obligation
due to any such releasing Person, and from commencing
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or continuing any action, in any manner or in any place where the foregoing does
not comply with or is inconsistent with the provisions hereof, provided,
however, that the foregoing injunctions shall not apply to rights of the holders
of Rescission or Damage Claims, and Indemnification Claims arising from or
related thereto, to pursue such claims against any Person that is discharged or
released pursuant to this Plan solely to obtain a right of recovery against any
applicable insurance coverage or to seek indemnification as otherwise provided
by Section 7.3 of the Plan but not to enforce a judgment against any property of
any Person that is discharged or released pursuant to this Plan except to the
extent of insurance proceeds or to seek indemnification as otherwise provided by
Section 7.3 of the Plan.
As of the Effective Date, except as otherwise provided in the Plan,
all Persons are permanently enjoined from commencing or continuing, in any
manner or in any place, any action or other proceeding, whether directly,
derivatively or otherwise against any or all of the Released Parties, on account
of or respecting any claims, debts, rights, Causes of Action or liabilities
released or discharged pursuant to the Plan, except to the extent expressly
permitted under the Plan.
Without limitation to the scope, extent, validity or enforceability of
the injunctive relief set forth in the Plan and in the Confirmation Order, by
accepting distributions pursuant to the Plan, each holder of an Allowed Claim or
Equity Interest receiving distributions pursuant to the Plan is deemed to have
specifically consented to the releases and injunctions set forth in the Plan.
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9. Exculpation
-----------
Pursuant to the Plan, neither the Debtors, Reorganized Debtors, the
Informal Committees, any official committee of creditors appointed in these
cases, or GPH, nor any of their respective members, officers, directors,
employees, advisors, agents or Professionals shall have or incur any liability
to any holder of a Claim or Equity Interest for any act or omission in
connection with, related to, or arising out of, the Chapter 11 Cases, the
preparation or formulation of the Plan, the pursuit of confirmation of the Plan,
the consummation of the Plan or the administration of the Plan or the property
to be distributed under the Plan, except for willful misconduct or gross
negligence, and, in all respects, the Debtors, Reorganized Debtors and each of
their respective members, officers, directors, employees, advisors, agents and
Professionals shall be entitled to rely upon the advice of counsel with respect
to their duties and responsibilities under the Plan; provided, however, that
nothing in the Plan shall, or shall be deemed to, release the Debtors or
Reorganized Debtors from, or exculpate the Debtors or Reorganized Debtors with
respect to, their respective obligations or covenants arising pursuant to the
Plan.
10. Section 1146 Exemption
----------------------
In accordance with Section 1146(c) of the Bankruptcy Code, (a) the
issuance, transfer or exchange of any security under the Plan or the making or
delivery of any instrument of transfer pursuant to, in implementation of, or as
contemplated by the Plan, including any merger agreements or agreements of
consolidation, deeds, bills of sale or assignments executed
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in connection with any of the transactions contemplated under the Plan, or the
revesting, transfer or sale of any real or personal property of the Debtors
pursuant to, in implementation of, or as contemplated by the Plan, (b) the
making, delivery, creation, assignment, amendment or recording of any note or
other obligation for the payment of money or any mortgage, deed of trust or
other security interest under, in furtherance of, or in connection with the
Plan, the issuance, renewal, modification or securing of indebtedness by such
means, and (c) the making, delivery or recording of any deed or other instrument
of transfer under, in furtherance of, or in connection with, the Plan,
including, without limitation, the Confirmation Order, shall not be subject to
any document recording tax, stamp tax, conveyance fee or other similar tax,
mortgage tax, real estate transfer tax, mortgage recording tax or other similar
tax or governmental assessment. Consistent with the foregoing, each recorder of
deeds or similar official for any county, city or governmental unit in which any
instrument hereunder is to be recorded shall, pursuant to the Confirmation
Order, be ordered and directed to accept such instrument, without requiring the
payment of any documentary stamp tax, deed stamps, stamp tax, transfer tax,
intangible tax or similar tax.
11. Full and Final Satisfaction
---------------------------
Pursuant to the Plan, all payments and all distributions shall be in
full and final satisfaction, settlement, release and discharge of all Claims and
Equity Interests, except as otherwise provided in the Plan.
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12. Cram-Down
---------
If any impaired Class entitled to vote shall not accept the Plan by
the requisite majorities provided in Sections 1126(c) or 1126(d) of the
Bankruptcy Code as applicable, or if any impaired Class is deemed to have
rejected the Plan, the Debtors reserve the right (a) to undertake to have the
Bankruptcy Court confirm the Plan under Section 1129(b) of the Bankruptcy Code
and (b) to amend the Plan to the extent necessary to obtain entry of the
Confirmation Order. Without limiting the foregoing, in the event that any Class
of Claims or Equity Interest holders ranking in priority below class 6 (General
Unsecured Claims) votes to reject the Plan (and the Bankruptcy Court determines
that, as a result thereof, the Plan is unconfirmable), the Debtors reserve the
right to amend the Plan to provide that all Classes ranking in priority below
class 6 (i.e., Classes 7, 8, 9 and 10) shall not receive or retain any property
under the Plan, including, without limitation, that Classes 8 and 9 would not
receive the New Warrants currently contemplated to be distributed under the
Plan. In such case, Classes 7, 8, 9 and 10 would be deemed to reject the Plan,
in which event, the Debtors would then seek to confirm the Plan under Section
1129(b) of the Bankruptcy Code without re-soliciting votes to accept or reject
the Plan and Ballots cast respecting such Classes would be disregarded.10
- -------------------
10 GPH has reserved the right not to support the Plan or to invoke its other
rights under the Restructuring Agreement in the event that the Debtors
amend the Plan to provide that Classes 7, 8, 9 and 10 do not receive or
retain any property under the Plan.
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13. Disbursement of Funds and Delivery of Distribution
--------------------------------------------------
Subject to Bankruptcy Rule 9010, all distributions under the Plan
shall be made by the Reorganized Debtors (or their disbursing agent) to the
holder of each Allowed Claim at the address of such holder as listed on the
Schedules as of the Distribution Record Date, unless the Debtors or Reorganized
Debtors have been notified in writing of a change of address, including, without
limitation, by the filing of a proof of claim or notice of transfer of claim
filed by such holder that provides an address for such holder different from the
address reflected on the Schedules. Any payment of Cash made by the Reorganized
Debtors (or their disbursing agent) pursuant to the Plan shall be made by check
drawn on a domestic bank. Any payment or distribution required to be made under
the Plan on a day other than a Business Day shall be made on the next succeeding
Business Day.
Whenever any payment of a fraction of a cent would otherwise be called
for, the actual payment shall reflect a rounding of such fraction to the nearest
whole cent (rounding down in the case of .50 or less and rounding up in the case
of more than .50). No fractional New Senior Notes shall be distributed under the
Plan. Whenever any payment of a fraction of a dollar of principal amount of New
Senior Notes would otherwise be called for, the actual New Senior Note
distributed shall reflect a rounding of such fraction to the nearest whole
dollar of principal amount (rounding down in the case of .50 or less and
rounding up in the case of more than .50). No fractional shares of New Parent
Common Stock or New Warrants shall be distributed under the Plan. Fractional
interests shall be combined into as many whole shares of New Parent Common Stock
or New Warrants, as the case may be, as possible and shall be
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redistributed to holders of Claims and Equity Interests (as applicable) with
fractional interests, in descending order, until all such whole shares of New
Parent Common Stock or New Warrants are distributed.
As of the close of business on the Distribution Record Date, the
claims register (for Claims) and the transfer ledgers (for Old Senior Notes,
TOPrS Certificates and Equity Interests) shall be closed, and there shall be no
further changes in the record holders of any Claims or Equity Interests. The
Debtors, Reorganized Debtors and the respective indenture trustees for all the
Old Senior Notes and TOPrS Certificates, as the case may be, shall have no
obligation to recognize any transfer of any Claims or Equity Interests occurring
after the close of business on the Distribution Record Date, and shall instead
be entitled to recognize and deal, for all purposes under the Plan (except as to
voting to accept or reject the Plan pursuant to Section 6.1 of the Plan), with
only those holders of record as of the close of business on the Distribution
Record Date.
Except as to applications for allowances of compensation and
reimbursement of expenses under Sections 330 and 503 of the Bankruptcy Code
(with respect to which procedures respecting objections shall be governed by
Section 2.1(b) of the Plan and the Confirmation Order or other Final Order), the
Debtors or Reorganized Debtors shall have the exclusive right to make and file
objections to Administrative Expense Claims, Claims and Equity Interests
subsequent to the Confirmation Date. All objections shall be litigated to Final
Order; provided, however, that the Reorganized Debtors shall have the authority
to compromise, settle, otherwise resolve or withdraw any objections, subject to
approval of the Bankruptcy Court. Unless
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otherwise ordered by the Bankruptcy Court, the Debtors or Reorganized Debtors
shall file all objections to Administrative Expense Claims that are the subject
of proofs of claim or requests for payment filed with the Bankruptcy Court
(other than applications for allowances of compensation and reimbursement of
expenses), Claims and Equity Interests and serve such objections upon the holder
of the Administrative Expense Claim, Claim or Equity Interest as to which the
objection is made as soon as is practicable, but in no event later than 60 days
after the Effective Date or such later date as may be approved by the Bankruptcy
Court.
14. Avoidance and Recovery Actions
------------------------------
As of and subject to the occurrence of the Effective Date, the Debtors
and the Reorganized Debtors, for and on behalf of themselves and their Estates,
will waive and release any of the Causes of Action under Sections 510, 544, 547,
548, 550 and 553 of the Bankruptcy Code.
15. Retention of Jurisdiction
-------------------------
The Bankruptcy Court shall have exclusive jurisdiction of all matters
arising out of, and related to, the Chapter 11 Cases and the Plan pursuant to,
and for the purposes of, Sections 105(a) and 1142 of the Bankruptcy Code and
for, among other things, the following purposes:
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(a) to hear and determine any and all objections to the
allowance of any Claims or any controversies as to the classification of any
Claims, provided that only Debtors may file objections to Claims;
(b) to hear and determine any and all applications by
Professionals for compensation and reimbursement of expenses;
(c) to hear and determine any and all pending applications
for the rejection and disaffirmance of executory contracts and unexpired leases,
and fix and allow any Claims resulting therefrom;
(d) to liquidate any Disputed Claim;
(e) to enforce the provisions of the Plan, including the
injunction, exculpation and releases provided for in the Plan;
(f) to enable the Debtors to prosecute any and all
proceedings which have been or may be brought prior to the Effective Date to set
aside liens or encumbrances and to recover any transfers, assets, properties, or
damages to which the Debtors may be entitled under applicable provisions of the
Bankruptcy Code or any federal state, or local laws;
(g) to correct any defect, cure any omission, or reconcile
any inconsistency in the Plan or in the Confirmation Order as may be necessary
to carry out its purpose and the intent of the Plan;
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(h) to determine any Claim or liability to a governmental
unit which may be asserted as a result of the transactions contemplated herein;
(i) to hear and determine matters concerning state, local,
and federal taxes in accordance with Sections 346, 505 and 1146 of the
Bankruptcy Code; and
(j) to determine such other matters as may be provided for
in the Confirmation Order or as may be authorized under the provisions of the
Bankruptcy Code.
16. Executory Contracts and Unexpired Leases
----------------------------------------
Any unexpired lease or executory contract that has not been expressly
rejected by the Debtors or treated in the Plan with the Bankruptcy Court's
approval on or prior to the Confirmation Date shall, as of the Confirmation Date
(subject to the occurrence of the Effective Date), be deemed to have been
assumed by the Debtors unless there is pending before the Bankruptcy Court on
the Confirmation Date a motion to reject such unexpired lease or executory
contract or such executory contract or unexpired lease is otherwise designated
for rejection; provided that (a) such lease or executory contract is ultimately
rejected and (b) the filing of the Confirmation Order shall be deemed to be a
rejection of all then outstanding unexercised stock options, warrants and
similar rights. In accordance with Section 1123(a)(5)(G) of the Bankruptcy Code,
on the Effective Date, or as soon as practicable thereafter, the Reorganized
Debtors shall cure all defaults under any executory contract or unexpired lease
assumed pursuant to the Plan by making a Cash payment in an amount agreed to
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between the Reorganized Debtors and the claimant, or as otherwise fixed pursuant
to a Final Order.
17. Bar Date for Filing Proofs of Claims Relating to Executory
Contracts and Unexpired Leases Rejected Pursuant to the Plan
------------------------------------------------------------
Claims arising out of the rejection of an executory contract or
unexpired lease designated for rejection pursuant to the Confirmation Order must
be filed with the Bankruptcy Court and/or served upon the Debtors or Reorganized
Debtors or as otherwise may be provided in the Confirmation Order by no later
than 30 days after the notice of entry of an order approving such rejection. Any
Claims not filed within such time will be forever barred from assertion against
the Debtors, their estates, the Reorganized Debtors and their property, and the
holders thereof shall not be entitled to any distribution under the Plan or
otherwise from the Debtors or Reorganized Debtors. Unless otherwise ordered by
the Bankruptcy Court, all Claims arising from the rejection of executory
contracts and unexpired leases shall be treated as General Unsecured Claims
under the Plan.
18. Indemnification Claims
----------------------
(a) Notwithstanding anything to the contrary contained
herein, all Persons holding or asserting Indemnification Claims (whether
directly, by subrogation or otherwise) shall be entitled to obtain recovery on
account of such Claims solely from the proceeds of any applicable directors' and
officers' insurance policy maintained by the Debtors or Reorganized Debtors, as
the case may be, and shall not, under any circumstances, be entitled to
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obtain a recovery in respect of such Indemnification Claims from the Reorganized
Debtors; provided, however, that the Reorganized Debtors shall remain
responsible for, and shall pay, in respect of any and all Indemnification
Claims, all retention amounts and coinsurance obligations arising under, or
necessary to maintain, its directors' and officers' insurance policies. The
Debtors or Reorganized Debtors, as the case may be, shall continue and maintain
all presently existing directors' and officers' insurance policies, and all such
policies shall remain in full force and effect following Confirmation. The
Debtors shall maintain any prior directors' and officers' insurance policies and
renew existing policies as they expire at comparable or greater coverage levels.
(b) As set forth in Section 7.3(b) of the Plan, in the event
that: (i) the Bankruptcy Court does not approve any or all of the material
provisions of Article 9 of the Plan (i.e., releases and injunctions), and (ii)
the Plan is not terminated pursuant to Section 12.5 thereof, then all
Indemnification Claims shall be assumed by the Reorganized Debtors without
limitation.11
19. Compensation and Benefit Programs
---------------------------------
Except as otherwise provided in the Plan, all employment and severance
practices and policies and all compensation and benefit plans, policies, and
programs of the Debtors applicable to their directors, officers or employees,
including, without limitation, all savings
- -----------------------
11 The Informal Committees, under the Plan, have the right to cause the Plan
to not become effective if Section 7.3(b) is made relevant and enforceable,
and have advised the Debtors that, as of the date hereof, they would cause
the Plan to not become effective in such event.
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plans, retirement plans, health care plans, severance benefit plans, incentive
plans, workers' compensation programs and life, disability and other insurance
plans are treated either as executory contracts pursuant to Section 7.1 of the
Plan or as permitted under applicable non- bankruptcy law.
Included in the foregoing compensation and benefit plans to be assumed
pursuant to the Plan is the Debtors' 1999 Bonus Plan. Pursuant to the Debtors'
1999 Bonus Plan, senior and certain middle level management of the Debtors are
eligible to receive a bonus if certain performance targets are obtained by the
Debtors. Such participants are classified into one of five groups, based on
employment position, and, depending on the group in which they are classified,
are eligible to receive bonuses in varying percentages of their base salary
depending upon the level of operating performance achieved.
20. Retiree Benefits
----------------
Payment of any Retiree Benefits shall be continued solely to the
extent, and for the duration of the period, the Debtors are contractually or
legally obligated to provide such benefits, subject to any and all rights of the
Debtors under applicable law.
21. Post-Confirmation Fees, Final Decree
------------------------------------
The Reorganized Debtor shall be responsible for the payment of any
post- confirmation fees due pursuant to 28 U.S.C.ss. 1930(a)(6) and the filing
of post-confirmation
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reports, until a final decree is entered. A final decree shall be entered as
soon as practicable after distributions have commenced under the Plan.
22. Continuation of Bankruptcy Injunction or Stays
----------------------------------------------
All injunctions or stays provided for in the Chapter 11 Cases under
Sections 105 or 362 of the Bankruptcy Code, or otherwise, and in existence on
the Confirmation Date, shall remain in full force and effect until the Effective
Date.
23. Revesting of Assets
-------------------
Except as otherwise provided by the Plan, upon the Effective Date,
pursuant to Section 5.10 of the Plan, title to all properties and assets dealt
with by the Plan shall pass to the Reorganized Debtors free and clear of all
Claims, Liens, encumbrances and interests of creditors and of equity security
holders (except those Claims, Liens, encumbrances and interests created pursuant
to this Plan) and the Confirmation Order shall be a judicial determination of
discharge and extinguishment of all Claims, Liens or Equity Interests (except
those created pursuant to this Plan). Notwithstanding the foregoing, nothing in
Section 5.10 of the Plan shall impact, discharge or extinguish any restriction
contained in any license agreements (or rights thereunder) to which the Debtors
are a party.
24. General Release of Liens
------------------------
Except as otherwise provided in the Plan in connection with the
treatment afforded to holders of Class 2 (General Secured Claims), the New
Senior Notes and the Post-
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Effective Date Financing Facility, or in any contract, instrument, indenture or
other agreement or document created in connection with the Plan or the
implementation thereof, on the Effective Date, all mortgages, deeds of trust,
liens or other security interests against property of the Estates are released
and extinguished, and all the right, title and interest of any holder of such
mortgages, deeds of trust, liens or other security interests will revert to the
Reorganized Debtors as applicable, and the successors and assigns thereof.
25. Conditions to Effective Date of the Plan
----------------------------------------
The Plan shall not become effective unless and until the following
conditions shall have been satisfied or waived pursuant to Section 10.3 of the
Plan:
(a) the Confirmation Order and the Substantive Consolidation
Order, in form and substance reasonably acceptable to the Debtors, GPH, and the
Informal Committees, shall have been entered contemporaneously by the Bankruptcy
Court and shall have become a Final Order;
(b) the Reorganized Debtors shall have credit availability
under the Post-Effective Date Financing Facility to provide the Reorganized
Debtors with financing sufficient to meet their Cash obligations under the Plan
and their business requirements as of and after the Effective Date;
(c) each of the Plan Documents and the New Parent Common
Stock, New Senior Notes and New Warrants, in form and substance reasonably
acceptable to the
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Debtors, GPH, and the Informal Committees, shall have been effected or executed
and delivered and the New Common Stock, New Senior Notes and New Warrants shall
be validly issued and outstanding;
(d) if the Indemnification Claims are to be assumed by the
Reorganized Debtors pursuant to Section 7.3(b) hereof or otherwise, then each of
the Informal Committees shall have consented to such assumption; and
(e) all actions, other documents and agreements necessary to
implement the Plan shall have been effected or executed and delivered.
In the event that one or more of the conditions specified in Section
10.1 of the Plan have not occurred on or before 120 days after the Confirmation
Date, upon notification submitted by the Debtors to the Bankruptcy Court (a) the
Confirmation Order shall be vacated, (b) no distributions under the Plan shall
be made, (c) the Debtors and all holders of Claims and Equity Interests shall be
restored to the status quo ante as of the day immediately preceding the
Confirmation Date as though the Confirmation Date never occurred and (d) the
Debtors' obligations with respect to the Claims and Equity Interests shall
remain unchanged and nothing contained herein shall constitute or be deemed a
waiver or release of any Claims or Equity Interests by or against the Debtors or
any other Person or to prejudice in any manner the rights of the Debtors or any
Person in any further proceedings involving the Debtors.
Upon written consent of each of the Informal Committees and GPH, the
Debtors may waive, by a writing signed by an authorized representative of the
Debtors and subsequently
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filed with the Bankruptcy Court, one or more of the conditions precedent to
effectiveness of the Plan as set forth above.
26. Consolidation and Dissolution of Non-Debtor Subsidiaries
--------------------------------------------------------
The Debtors are analyzing their current corporate structure with a
view toward streamlining and simplifying same. Accordingly, the Debtors may, on
or prior to the Effective Date, merge or otherwise consolidate certain
non-debtor subsidiaries into Publishing or other non-debtor affiliates, and to
dissolve certain other obsolete non-debtor affiliates, each pursuant to
applicable state law.
G. Post-Confirmation Officers and Directors
The officers of the respective Debtors immediately prior to the
Effective Date shall serve as the initial officers of the respective Reorganized
Debtors on and after the Effective Date. Set forth below is the name,
compensation and position of Reorganized Parent's key officers on the Effective
Date.
Post-Confirmation
Name Title Base Salary
------------------------- --------------------------- -------------------
Richard E. Snyder Chairman of the Board and $750,000
Chief Executive Officer
Philip Galanes Executive Vice President, $375,000
Chief Administrative Officer,
General Counsel and
Secretary
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Post-Confirmation
Name Title Base Salary
------------------------- --------------------------- -------------------
Richard K. Collins Executive Vice President, $350,000
and Chief Operating Officer
Colin Finkelstein Executive Vice President and $300,000
Chief Financial Officer
In addition to the post-confirmation base salary set forth above, such
officers (and certain other employees) will also be entitled to participate in
the Debtors' 1999 Bonus Plan as set forth in Section IV.F.19. hereof. The
initial members of the post-Confirmation board of directors of Reorganized
Parent shall consist of the following: (i) Richard E. Snyder, (ii) three (3)
members selected by the Informal TOPrS Committee, and (iii) three (3) members
selected by the Informal Senior Note Committee; provided, however, that (i) the
nominees of each Informal Committee shall be reasonably acceptable to the other
Informal Committee, and (ii) each of the nominees of the Informal Committees
shall be discussed, prior to formal nomination, among the Informal Committees
and current management of the Debtors. The designation of the board members
selected by the Informal Committees, along with the designation of the board
members for Reorganized Publishing and Reorganized Video, shall be filed with
the Bankruptcy Court on or prior to the commencement date of the Confirmation
Hearing, or such later date as the Bankruptcy Court may establish.
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V.
ACCEPTANCE AND CONFIRMATION OF THE PLAN
The following is a brief summary of the provisions of the Bankruptcy
Code respecting acceptance and confirmation of a plan of reorganization. Holders
of Claims and Equity Interests are encouraged to review the relevant provisions
of the Bankruptcy Code and/or to consult their own attorneys.
A. Acceptance of the Plan
This Disclosure Statement is provided in connection with the
solicitation of acceptances of the Plan. The Bankruptcy Code defines acceptance
of a plan of reorganization by a class of Claims as acceptance by holders of at
least two-thirds in dollar amount, and more than one-half in number, of the
allowed Claims of that class that have actually voted or are deemed to have
voted to accept or reject a plan. The Bankruptcy Code defines acceptance of a
plan of reorganization by a class of interests as acceptance by at least
two-thirds in amount of the allowed interests of that class that have actually
voted or are deemed to have voted to accept or reject a plan.
If one or more impaired Classes rejects the Plan, the Debtors may, in
their discretion, nevertheless seek confirmation of the Plan if the Debtors
believe that they will be able to meet the requirements of Section 1129(b) of
the Bankruptcy Code for Confirmation of the Plan (which are set forth below),
despite lack of acceptance by all impaired classes. Also, in
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the event the Bankruptcy Court should determine that the Plan as presently
constituted is not confirmable, the Debtors reserve the right to amend the Plan
to the extent necessary to obtain entry of the Confirmation Order. (See Section
IV.F.12 of this Disclosure Statement).
B. Confirmation
1. Confirmation Hearing
--------------------
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court,
after notice, to hold a hearing on confirmation of a plan. Notice of the
Confirmation Hearing of the Plan has been provided to all known holders of
Claims and Equity Interests or their representatives along with this Disclosure
Statement. The Confirmation Hearing may be adjourned from time to time by the
Bankruptcy Court without further notice except for an announcement of the
adjourned date made at the Confirmation Hearing or any subsequent adjourned
Confirmation Hearing.
Section 1128(b) of the Bankruptcy Code provides that any party in
interest may object to confirmation of a plan. Any objection to Confirmation of
the Plan must be filed and served as required pursuant to the Disclosure
Statement Approval Order.
2. Statutory Requirements for Confirmation of the Plan
---------------------------------------------------
At the Confirmation Hearing, the Debtors will request that the
Bankruptcy Court determine that the Plan satisfies the requirements of Section
1129 of the Bankruptcy Code. If
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so, the Bankruptcy Court shall enter an order confirming the Plan. The
applicable requirements of Section 1129 of the Bankruptcy Code are as follows:
(a) The Plan must comply with the applicable provisions of
the Bankruptcy Code;
(b) The Debtors must have complied with the applicable
provisions of the Bankruptcy Code;
(c) The Plan has been proposed in good faith and not by any
means forbidden by law;
(d) Any payment made or promised to be made by the Debtors
under the Plan for services or for costs and expenses in, or in connection with,
these Chapter 11 Cases, or in connection with the Plan and incident to the
Chapter 11 Cases, has been disclosed to the Bankruptcy Court, and any such
payment made before Chapter 11 of the Plan is reasonable, or if such payment is
to be fixed after Confirmation of the Plan, such payment is subject to the
approval of the Bankruptcy Court as reasonable;
(e) The Debtors have disclosed the identity and affiliations
of any individual proposed to serve, after Confirmation of the Plan, as a
director, officer, or voting trustee of each of the Debtors under the Plan.
Moreover, the appointment to, or continuance in, such office of such individual,
is consistent with the interests of holders of Claims and Equity Interests and
with public policy, and the Debtors have disclosed the identity of any insider
that
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the Reorganized Debtors will employ or retain, and the nature of any
compensation for such insider;
(f) Best Interests of Creditors Test. With respect to each
Class of impaired Claims or Equity Interests, either each holder of a Claim or
Equity Interest of such Class has accepted the Plan, or will receive or retain
under the Plan on account of such Claim or Equity Interest, property of a value,
as of the Effective Date of the Plan, that is not less than the amount that such
holder would receive or retain if the Debtors were liquidated on such date under
Chapter 7 of the Bankruptcy Code. In a Chapter 7 liquidation, creditors and
interest holders of a debtor are paid from available assets generally in the
following order, with no lower class receiving any payments until all amounts
due to senior classes have either been paid in full or payment in full is
provided for: (i) first to secured creditors (to the extent of the value of
their collateral), (ii) next to priority creditors, (iii) next to unsecured
creditors, (iv) next to debt expressly subordinated by its terms or by order of
the Bankruptcy Court, and (v) last to holders of equity interests. Attached
hereto as Exhibit "D" is a liquidation analysis prepared by the Debtors (the
"Liquidation Analysis"). As set forth therein, in light of the foregoing
priority, the Debtors believe that if the Chapter 11 cases were converted to a
Chapter 7 liquidation, holders of Old Senior Note Claims, would receive
significantly less than they will receive under the Plan. Moreover, holders of
TOPrS Claims, General Unsecured Claims and Equity Interests would receive no
recovery in the event of a Chapter 7 liquidation.12 In contrast, under the Plan,
- -------------------
12 While the Liquidation Analysis indicates that the holder of the GPH Claim
would receive a better recovery in liquidation than under the Plan,
pursuant to the Restructuring Agreement, GPH supports confirmation of the
Plan.
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holders of the TOPrS Claims will receive 50% of the New Parent Common Stock,
holders of General Unsecured Claims will be paid in full, and holders of Equity
Interests will receive an allocation of the New Warrants;
(g) Each Class of Claims or Equity Interests has either
accepted the Plan or is not impaired under the Plan;
(h) Except to the extent that the holder of a particular
Claim has agreed to a different treatment of such Claim, the Plan provides that
Allowed Administrative and Priority Claims (other than Allowed Priority Tax
Claims) will be paid in full on the Effective Date and that Allowed Priority Tax
Claims will receive on account of such Claims deferred Cash payments, over a
period not exceeding six years after the date of assessment of such Claim, of a
value, as of the Effective Date, equal to the Allowed amount of such Claim;
(i) At least one impaired class of Claims has accepted the
Plan, determined without including any acceptance of the Plan by any insider
holding a Claim of such Class;
(j) Feasibility. Confirmation of the Plan is not likely to
be followed by the liquidation, or the need for further financial reorganization
of the Debtors or any successor to the Debtors under the Plan. Attached hereto
as Exhibit "E" are projections for approximately three (3) years following
confirmation of the Plan and a pro forma balance sheet as of the Effective Date
which demonstrate that, given estimated expenses and income, and taking into
account cash reserves and borrowings under the Post-Effective Date Financing
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Facility, the Reorganized Debtors will be able to satisfy their obligations
under the Plan, as well as their obligations arising in connection with their
ongoing business operations. As discussed in Section IV.E. of this Disclosure
Statement, the Post-Effective Date Financing Facility, among other things, will
provide for aggregate borrowings (including a working capital line of credit) of
up to $60 million; provided, that, on the Effective Date, the maximum amount of
borrowing availability under such facility shall be $45 million with the
remaining $15 million of availability under such facility becoming automatically
available for borrowing by the Reorganized Debtors upon their attainment of
certain levels of operating performance to be mutually agreed upon by the
Debtors and the Informal Senior Note Committee in good faith.
3. Confirmation Without Acceptance by All Impaired Classes
-------------------------------------------------------
Section 1129(b) of the Bankruptcy Code allows a Bankruptcy Court to
confirm a plan, even if such plan has not been accepted by all impaired classes
entitled to vote on such plan, provided that such plan has been accepted by at
least one impaired class. If any impaired classes reject or are deemed to have
rejected the Plan, the Debtors reserve their right to seek the application of
the statutory requirements set forth in Section 1129(b) of the Bankruptcy Code
for Confirmation of the Plan despite the lack of acceptance by all impaired
classes.
Section 1129(b) of the Bankruptcy Code provides that notwithstanding
the failure of an impaired class to accept a plan of reorganization, the plan
shall be confirmed, on request of the proponent of the plan, in a procedure
commonly known as "cram-down," so long as the plan
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does not "discriminate unfairly" and is "fair and equitable" with respect to
each class of Claims or interests that is impaired under and has not accepted
the plan.
The condition that a plan be "fair and equitable" with respect to a
non-accepting class of secured Claims includes the requirements that (a) the
holders of such secured Claims retain the liens securing such Claims to the
extent of the allowed amount of the Claims, whether the property subject to the
liens is retained by the debtor or transferred to another entity under the plan,
and (b) each holder of a secured Claim in the class receive deferred cash
payments totaling at least the allowed amount of such Claim with a present
value, as of the effective date of the plan, at least equivalent to the value of
the secured claimant's interest in the debtor's property subject to the liens.
The condition that a plan be "fair and equitable" with respect to a
non-accepting class of unsecured Claims includes the requirement that either (a)
such class receive or retain under the plan property of a value as of the
effective date of the plan equal to the allowed amount of such Claim, or (b) if
the class does not receive such amount, no class junior to the non-accepting
class will receive a distribution under the plan.
The condition that a plan be "fair and equitable" with respect to a
non-accepting class of equity interests includes the requirements that either
(a) the plan provides that each holder of an equity interest in such class
receive or retain under the plan, on account of such equity interest, property
of a value, as of the effective date of the plan, equal to the greater of (i)
the allowed amount of any fixed liquidation preference to which such holder is
entitled,
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(ii) any fixed redemption price to which such holder is entitled, or (iii) the
value of such equity interest, or (b) if the class does not receive such amount,
no class of equity interests junior to the non-accepting class will receive a
distribution under the plan.
VI.
VALUATION
A. Reorganization Value of Reorganized Debtors
The Debtors have been advised by Conway, Del Genio, Gries & Co., their
financial advisors (hereinafter, the "Financial Advisors"), with respect to the
reorganization value of the Reorganized Debtors. Solely for purposes of the
Plan, the estimated range of the reorganization value was assumed by the
Debtors, based upon advice from the Financial Advisors, to be approximately $157
million to $162 million based upon an assumed Effective Date of June 30, 1999.
THE ASSUMED RANGE OF THE REORGANIZATION VALUE OF THE REORGANIZED
DEBTORS REFLECTS WORK PERFORMED BY THE FINANCIAL ADVISORS ON THE BASIS OF
INFORMATION IN RESPECT OF THE BUSINESS AND ASSETS OF THE DEBTORS AVAILABLE TO
THE FINANCIAL ADVISORS AS OF APRIL 30, 1999. NEITHER THE FINANCIAL ADVISORS NOR
THE DEBTORS HAS UPDATED THE ESTIMATED RANGE OF THE REORGANIZATION
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ENTERPRISE VALUE TO REFLECT INFORMATION AVAILABLE TO THE DEBTORS OR THE
FINANCIAL ADVISORS SUBSEQUENT TO APRIL 30, 1999.
Based upon the assumed range of the reorganization enterprise value of
the Reorganized Debtors of between $157 million to $162 million, the Debtors
have employed an imputed estimate of the range of the reorganization equity
value for Reorganized Parent of approximately $50 million to $55 million or
approximately $10 per share to $11 per share of New Parent Common Stock (based
upon the assumed distribution of 5,000,000 shares of New Parent Common Stock
under the Plan and an aggregate amount of 5,000,000 shares outstanding upon
completion of such distribution).
The foregoing estimates of the reorganization value of the Reorganized
Debtors are based on a number of assumptions, including a successful
reorganization of the Debtors' business and finances in a timely manner, the
implementation of the Reorganized Debtors' business plan (including obtaining
post-consummation financing), the achievement of the forecasts reflected in the
Projections, market conditions as of April 30, 1999 continuing through the
assumed Effective Date of June 30, 1999, and the Plan becoming effective in
accordance with its terms, on a basis consistent with the estimates and other
assumptions discussed herein.
B. The New Warrants
The Plan provides for the distribution of the New Warrants to the
holders of Old Preferred Stock Interests and Old Common Stock Interests. The
exercise of the New Warrants requires the payment to Reorganized Parent of Cash
at the time of exercise. Notwithstanding,
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for purposes of this analysis, it is assumed that all New Warrants are issued as
of the Effective Date. The Debtors have computed the theoretical value of a New
Warrant to be in a range from approximately $0.38 to $0.58 per New Warrant, with
an aggregate value in a range from approximately $100,000 to $150,000.
The theoretical value range for the New Warrants was determined by
applying the Black-Scholes valuation model. The Black-Scholes valuation model is
a complex mathematical formula used to value options that takes into account a
number of factors, including assumptions regarding the price of the underlying
stock and the volatility of such price, the exercise price of the option, the
term of the option, and prevailing interest rates. An adjustment is made to the
option value calculated using the Black-Scholes model to account for the
dilution effect of the New Warrants. For the purposes of this analysis, the
following material assumptions were used: 1) 50% to 55% volatility, 2) exercise
price equal to $46.05, 3) 3 year term to maturity, 4) an interest rate based on
the 3 year U.S. Treasury Bond.
Due to the highly subjective nature of certain of these assumptions
and estimates and other factors, the assumed values of the New Warrants
determined in this manner are inherently uncertain and do not purport to
constitute estimates of the actual values of the New Warrants as of the
Effective Date or any other date. There can be no assurance that a market for
the New Warrants will develop. Accordingly, no assurance can be given that a
holder of such New Warrants will be able to sell such securities or receive the
theoretical stated value should such sale be made.
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IN ESTIMATING THE RANGE OF THE REORGANIZATION VALUE OF THE REORGANIZED
DEBTORS AND THE NEW WARRANTS, THE FINANCIAL ADVISORS: (I) REVIEWED CERTAIN
HISTORICAL FINANCIAL INFORMATION OF THE DEBTORS FOR RECENT YEARS AND INTERIM
PERIODS, (II) REVIEWED CERTAIN INTERNAL FINANCIAL PROJECTIONS, PREPARED AND
PROVIDED BY MANAGEMENT RELATING TO THEIR BUSINESS AND THEIR PROSPECTS, (III) MET
WITH CERTAIN MEMBERS OF SENIOR MANAGEMENT TO DISCUSS OPERATIONS AND FUTURE
PROSPECTS, (IV) REVIEWED PUBLICLY AVAILABLE FINANCIAL DATA AND CONSIDERED THE
MARKET VALUES OF PUBLIC COMPANIES WHICH THE FINANCIAL ADVISORS DEEMED GENERALLY
COMPARABLE TO THE OPERATING BUSINESS OF THE DEBTORS, (V) CONSIDERED CERTAIN
ECONOMIC AND INDUSTRY INFORMATION RELEVANT TO THE OPERATING BUSINESS, AND (VI)
REVIEWED CERTAIN ANALYSES PREPARED BY OTHER FIRMS RETAINED BY THE DEBTORS AND
CONDUCTED SUCH OTHER STUDIES, ANALYSES, INQUIRIES, AND INVESTIGATIONS AS THEY
DEEMED APPROPRIATE. ALTHOUGH THE FINANCIAL ADVISORS CONDUCTED A REVIEW AND
ANALYSIS OF THE DEBTORS' BUSINESSES, OPERATING ASSETS AND LIABILITIES AND THE
DEBTORS' BUSINESS PLANS, THEY ASSUMED AND RELIED ON THE ACCURACY AND
COMPLETENESS OF ALL (I) THE FINANCIAL AND OTHER INFORMATION FURNISHED TO THEM BY
THE DEBTORS AND BY OTHER FIRMS RETAINED BY THE DEBTORS, AND (II) PUBLICLY
AVAILABLE
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INFORMATION. IN ADDITION, THE FINANCIAL ADVISORS DID NOT INDEPENDENTLY VERIFY
MANAGEMENT'S PROJECTIONS IN CONNECTION WITH SUCH ESTIMATES OF THE REORGANIZATION
VALUE, AND NO INDEPENDENT VALUATIONS OR APPRAISALS OF THE DEBTORS WERE SOUGHT OR
OBTAINED IN CONNECTION HEREWITH. ESTIMATES OF THE REORGANIZATION VALUE DO NOT
PURPORT TO BE APPRAISALS OR NECESSARILY REFLECT THE VALUES WHICH MAY BE REALIZED
IF ASSETS ARE SOLD AS A GOING CONCERN, IN LIQUIDATION, OR OTHERWISE.
IN THE CASE OF THE REORGANIZED DEBTORS, THE ESTIMATES OF THE
REORGANIZATION VALUE AND THE NEW WARRANTS PREPARED BY THE FINANCIAL ADVISORS
REPRESENT THE HYPOTHETICAL REORGANIZATION ENTERPRISE VALUE OF THE REORGANIZED
DEBTORS AND THE NEW WARRANTS, RESPECTIVELY. SUCH ESTIMATES WERE DEVELOPED SOLELY
FOR PURPOSES OF THE FORMULATION AND NEGOTIATION OF THE PLAN AND THE ANALYSIS OF
IMPLIED RELATIVE RECOVERIES TO CREDITORS THEREUNDER. SUCH ESTIMATES REFLECT
COMPUTATIONS OF THE RANGE OF THE ESTIMATED REORGANIZATION ENTERPRISE VALUE OF
THE REORGANIZED DEBTORS AND THE NEW WARRANTS THROUGH THE APPLICATION OF VARIOUS
VALUATION TECHNIQUES AND DO NOT PURPORT TO REFLECT OR CONSTITUTE APPRAISALS,
LIQUIDATION VALUES OR ESTIMATES OF THE ACTUAL
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MARKET VALUE THAT MAY BE REALIZED THROUGH THE SALE OF ANY SECURITIES TO BE
ISSUED PURSUANT TO THE PLAN, WHICH MAY BE SIGNIFICANTLY DIFFERENT THAN THE
AMOUNTS SET FORTH HEREIN.
THE VALUE OF AN OPERATING BUSINESS IS SUBJECT TO NUMEROUS
UNCERTAINTIES AND CONTINGENCIES WHICH ARE DIFFICULT TO PREDICT, AND WILL
FLUCTUATE WITH CHANGES IN FACTORS AFFECTING THE FINANCIAL CONDITION AND
PROSPECTS OF SUCH A BUSINESS. AS A RESULT, THE ESTIMATE OF THE RANGE OF THE
REORGANIZATION ENTERPRISE VALUE OF THE DEBTORS SET FORTH HEREIN IS NOT
NECESSARILY INDICATIVE OF ACTUAL OUTCOMES, WHICH MAY BE SIGNIFICANTLY MORE OR
LESS FAVORABLE THAN THOSE SET FORTH HEREIN. BECAUSE SUCH ESTIMATES ARE
INHERENTLY SUBJECT TO UNCERTAINTIES, NEITHER THE FINANCIAL ADVISORS, NOR ANY
OTHER PERSON, ASSUMES RESPONSIBILITY FOR ITS ACCURACY. IN ADDITION, THE
VALUATION OF NEWLY-ISSUED SECURITIES IS SUBJECT TO ADDITIONAL UNCERTAINTIES AND
CONTINGENCIES, ALL OF WHICH ARE DIFFICULT TO PREDICT. ACTUAL MARKET PRICES OF
SUCH SECURITIES AT ISSUANCE WILL DEPEND UPON, AMONG OTHER THINGS, PREVAILING
INTEREST RATES, CONDITIONS IN THE FINANCIAL MARKETS, THE ANTICIPATED INITIAL
SECURITIES HOLDINGS OF PRE-PETITION CREDITORS, SOME OF WHICH MAY PREFER TO
LIQUIDATE THEIR INVESTMENT RATHER THAN HOLD IT ON A
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LONG-TERM BASIS, AND OTHER FACTORS WHICH GENERALLY INFLUENCE THE PRICES OF
SECURITIES.
THE ESTIMATES OF THE REORGANIZATION VALUE DETERMINED BY THE FINANCIAL
ADVISORS REPRESENT ESTIMATED REORGANIZATION VALUES AND DO NOT REFLECT VALUES
THAT COULD BE ATTAINABLE IN THE PUBLIC OR PRIVATE MARKETS. THE IMPUTED ESTIMATE
OF THE RANGE OF THE REORGANIZATION EQUITY VALUE OF REORGANIZED PARENT ASCRIBED
IN THE ANALYSIS DOES NOT PURPORT TO BE AN ESTIMATE OF THE POST-REORGANIZATION
MARKET TRADING VALUE. ANY SUCH TRADING VALUE MAY BE MATERIALLY DIFFERENT FROM
THE IMPUTED ESTIMATE OF THE REORGANIZATION EQUITY VALUE RANGE FOR REORGANIZED
PARENT ASSOCIATED WITH THE FINANCIAL ADVISORS' VALUATION ANALYSIS.
VII.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following summary addresses certain material federal income tax
consequences of the Plan to the Debtors and holders of Old Senior Notes, TOPrS
Certificates, the GPH Notes, and the holders of the Debtor's Old Preferred Stock
Interests and Old Common Stock Interests. The summary is based upon the Debtors'
interpretation of provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury Regulations promulgated
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thereunder, judicial authority, and current Internal Revenue Service ("IRS")
administrative rulings and practice, all of which are subject to change
(possibly with retroactive effect), which could significantly affect the federal
income tax consequences discussed below.
The Debtors' interpretation of the federal income tax consequences is
not binding on the IRS, and the Debtors have not and do not intend to request a
ruling from the IRS with respect to any of the federal income tax aspects of the
Plan. In addition, this summary does not discuss any aspects of state, local, or
foreign tax laws, and this summary does not purport to set forth all aspects of
federal income taxation that may be relevant to certain types of holders of
Claims (e.g., broker-dealers, mutual funds, regulated investment companies,
banks, insurance companies, tax-exempt organizations, investors in pass-through
entities, and foreign persons).
THE FOLLOWING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS
FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, HOLDERS OF
CLAIMS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES OF THE PLAN, INCLUDING THE APPLICABILITY AND EFFECT OF STATE,
LOCAL, FOREIGN, AND OTHER TAX LAWS.
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A. Federal Income Tax Consequences to the Debtors
1. Cancellation of Indebtedness Income
-----------------------------------
In general, for federal income tax purposes, a debtor will realize
cancellation of indebtedness income ("COD Income") if a creditor accepts less
than full payment in satisfaction of a debt. The amount of COD Income, if any,
realized by the debtor will generally equal the positive difference between the
amount of the existing debt discharged or canceled and the consideration
exchanged therefor which, in general, will equal the sum of (a) the issue price
of any new debt, and (b) the fair market value of stock or other property issued
to the creditors. As discussed in more detail below, the Debtors anticipate that
the implementation of the Plan will cause it to realize COD Income of
approximately $150.5 million, based on certain assumptions regarding the fair
value of the New Parent Common Stock and the issue price of the New Senior Notes
following the implementation of the Plan. If these assumptions do not prove to
be accurate, the Debtors will realize more COD income.
Pursuant to the Plan, the Debtors will exchange (a) $87 million
principal amount of New Senior Notes to be issued by Reorganized Publishing and
42.5% of New Parent Common Stock for $150 million principal amount of Old Senior
Notes and accrued and unpaid interest thereon (approximately $11 million)
through the Effective Date of the Plan, (b) 50.0% of New Parent Common Stock for
approximately $109.8 million principal amount of TOPrS Certificates and accrued
interest thereon (approximately $5.2 million) through the Effective Date of the
Plan; (c) 5% of New Parent Common Stock for $10 million principal amount of the
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GPH Notes and accrued interest thereon (approximately $239,000) through the
Effective Date of the Plan). The Debtors' Old Preferred Stock Interests and Old
Common Stock Interests will receive New Warrants (with the terms described in
Section 2 hereof) to purchase New Parent Common Stock pursuant to the Plan.
In general, the issue price of a debt instrument issued for property
(including another debt instrument) will be the debt instrument's "stated
redemption price at maturity," where neither the debt instrument nor the
property for which it is issued are publicly traded, and all interest payments
consist of "qualified stated interest" at a rate equal to or greater than the
applicable federal rate ("AFR") for the debt instrument. Qualified stated
interest is stated interest at the lowest rate provided for over the term of the
debt instrument that is unconditionally payable in cash or in property (other
than debt instruments of the issuer) at least annually at a fixed rate (or
subject to certain conditions, based on one or more indices). The stated
redemption price at maturity of a debt instrument is the total of all future
payments to be made under the debt instrument other than payments of qualified
stated interest.
In the event all interest payments do not consist of "qualified stated
interest" at the AFR, the issue price of the debt instrument will, in general,
equal its "stated principal amount" where the debt instrument provides for
"adequate stated interest." The stated principal amount of a debt instrument, is
the aggregate amount of all payments due under the debt instrument excluding any
amount of stated interest. Adequate stated interest exists where (a) the debt
instrument has a single fixed rate of interest that is paid or compounded at
least annually and that rate is equal to or greater than the AFR for the debt
instrument, or (b) the stated
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principal amount is less than or equal to the present value of all payments
under the debt instrument discounted at the AFR as of the issue date.
For purposes of these rules, the issuance of additional debt
instruments, pursuant to an unconditional right of the issuer to issue
additional debt ("PIK instrument" -- payment in kind) in payment of interest, is
aggregated with the original debt instrument and is not considered to be a
payment made on the original debt instrument. Therefore, the issue date of the
PIK instrument is the same as the original debt instrument, i.e., in general the
issuance of a PIK instrument will be treated as the deferral of cash interest
payments on the original debt instrument.
If the debt instrument is publicly traded (whether or not the property
for which it is exchanged is publicly traded), its issue price will be its fair
market value on the issue date. On the other hand, if the debt instrument is not
publicly traded, but the property for which it is exchanged is publicly traded,
the issue price of the debt instrument will be equal to the fair market value of
the property on the issue date of the debt instrument. The issue date is
generally the date on which a substantial amount of the debt instrument is
issued.
Property is considered "publicly traded" under Treasury Regulations,
if, in general, at any time during the 60 day period ending 30 days after the
issue date, it is traded on a recognized securities exchange, or is listed on a
quotation medium that is a system of general circulation providing a reasonable
basis to determine fair market value by disseminating either recent price
quotations of one or more identified brokers, dealers or traders, or actual
prices of
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recent sales transactions. The Plan provides that the Debtors will undertake all
reasonable efforts to ensure that the New Senior Notes will be listed on a
national securities exchange or the NASDAQ National Market System. However, in
no event will the New Senior Notes be listed prior to 75 days from the time of
issue and it is not expected that the New Senior Notes will be "publicly traded"
prior to that time.
The New Senior Notes have a five year term and provide for semi-annual
cash interest payments of 10 percent per year or, at the election of the
Debtors, PIK interest at 13.5 percent per year during the first three years of
the Note. As the New Senior Notes are issued with adequate stated interest, in
the event they are not "publicly traded" (as defined above), their issue price
should equal their stated principal amount, or $87 million. In the event that
the New Senior Notes are publicly traded, the issue price of the New Senior
Notes will be determined based upon their fair market value on their issue date,
which may be less, or greater than, their stated principal amount.
The Debtors anticipate that the fair market value of the New Parent
Common Stock, as of the Effective Date of the Plan, will be approximately $50
million. The Debtors anticipate that in the event the New Senior Notes are
"publicly traded", their issue price may be significantly less than their stated
principal amount of $87 million.
The Debtors, therefore, believe that, as a result of the
implementation of the Plan, they will realize COD Income of approximately $150.5
million (assuming that the New Senior Notes have an issue price equal to their
$87 million stated principal amount and the New Parent
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Common Stock has a fair market value of at least $50 million). Should the New
Senior Notes be "publicly traded" (as defined above) at a discount to their
stated principal amount, the amount of COD Income realized by the Debtors will
increase by the amount of such discount.
The COD Income realized by the Debtors as a result of the exchanges
described above will not be included in the Debtors' gross income because the
Debtors are under the jurisdiction of a court in a case under the Bankruptcy
Code. Instead, the Debtors will be required to reduce their tax attributes,
including their NOL carryovers, by the amount of such debt cancellation.
2. Interest Expense and Original Issue Discount
--------------------------------------------
The New Senior Notes will have stated interest payable, of 10 percent
per year if paid in cash or, at the option of the Debtors, 13.5 percent per year
for the first three years of the Note if paid with a payment in-kind note
("PIK") having the same maturity date and conditions as the original instrument.
The New Senior Notes also provide for mandatory semi-annual amortization
payments of $8.33 million, commencing with the first semi-annual payment during
the fourth year after the Effective Date of the Plan.
For purposes of the original issue discount ("OID") rules, the
issuer's right to pay interest by issuing PIK instruments is not considered to
be a payment on the original debt instrument, but is instead, aggregated with
the original debt instrument, i.e. the issue date of a PIK instrument is the
same as the original debt instrument, and is treated as the deferral of cash
interest on the original debt instrument. Because the Debtors have the
unconditional right to
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issue a PIK instrument in lieu of the payment of cash interest on the New Senior
Notes, none of the interest whether or not actually paid in cash will be
considered to be "qualified stated interest" and the New Senior Notes will be
issued with OID.
In addition, in the event that the New Senior Notes are publicly
traded and their fair market value as of their issue date is less than their
face amount, they will be deemed to have been issued with additional OID equal
to such difference. Conversely, if the fair market value of the New Senior Notes
on their issue date is in excess of their face amount, the amount of OID will be
reduced by such excess.
Because the interest yield to maturity on the New Senior Notes will be
lower if the Debtors pay cash interest at 10 percent, as opposed to issuing a
PIK instrument at 13.5 percent, they will be considered to have paid cash
interest for purposes of calculating OID. Therefore, OID at the 10 percent rate
accrues during the first accrual period. If the PIK instrument is instead
issued, the debt instrument (i.e., the New Senior Note) is considered reissued
at its adjusted issue price. (i.e. its original issue price plus prior accruals
of OID, less payments if any), and OID will accrue in the second accrual period
again based on the assumption that cash interest will be paid.
For example, a holder of a New Senior Note with a stated principal
amount and issue price of $1,000 will accrue $50 of OID during the first six
month interest accrual period. If at that time, a PIK instrument (for $67.50) is
issued in lieu of cash interest, a holder will accrue $55.08 of OID during the
second six month accrual period, consisting of $53.38,
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calculated as if cash interest at 10 percent would be paid, and $1.70,
representing the amortization, on a constant yield basis, of the excess of the
principal amount of the instrument ($1,067.50) over its adjusted issue price
($1,050).
OID, in general, will be includible in a holder's taxable income and
deductible by the issuer in accordance with a constant yield method based on a
compounding of interest.
3. NOL Carryovers and Other Tax Attributes
---------------------------------------
Parent is the parent of an affiliated group of corporations, including
Publishing and Video which file a consolidated federal income tax return (the
"Debtor Group"). The Debtor Group's net operating loss ("NOL") carryovers for
regular federal income tax purposes, as of December 26, 1998, were approximately
$305 million. Although the Debtors believe that the amount of NOLs to be
accurate, because the Debtor Group's tax returns for all of the tax years in
which the NOLs were incurred have not been audited by the IRS, that amount may
be subject to review and possible disallowance by the IRS.
Section 382 of the Code provides rules restricting the use of a
corporation's NOL carryovers and certain other tax attributes following an
"ownership change." A corporation will be considered as undergoing an ownership
change if at any time during a rolling three-year period (the "testing period")
the percentage of stock owned by one or more five-percent shareholders or deemed
five-percent shareholders (as defined under technical rules under Section 382)
increases by more than 50 percentage points over the lowest percentage of stock
owned by each of such shareholders during the testing period. In the case of an
affiliated group
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filing consolidated returns, whether an ownership change has occurred is
measured, in general, with respect to the stock ownership of the parent
corporation of the loss group or loss subgroup.
If an ownership change occurs pursuant to the consummation of a
bankruptcy debt restructuring and Section 382(1)(5) (as described below) does
not apply, the NOLs available each year to offset income of the loss
corporation's group is limited (to the extent not previously limited) to the
product of (a) the aggregate fair market value (after taking into account any
increase in value as a result of such bankruptcy restructuring) of the
outstanding stock of the common parent of the group, and (b) the federal
long-term tax-exempt interest rate in effect on the date of the ownership
change, plus the portion of any such limitation amount not utilized in prior
years (the "Section 382 limitation"). (If an ownership change occurs prior to,
and not as a result of the consummation of a bankruptcy debt restructuring, the
aggregate fair market value of the common stock referred to in clause (a) of the
preceding sentence is the stock's value before the ownership change, whether or
not the ownership change occurs while the loss corporation is under the
jurisdiction of the bankruptcy court). If the group ceases the conduct of its
historic business within the two-year period following the date of the ownership
change, the ability of the group to utilize NOLs under the foregoing formula
restriction is eliminated entirely.
In addition, NOL carryovers may be used without restriction during a
five-year period (the "recognition period"), beginning with the date of an
ownership change, to offset "built-in gains" (generally the excess of the fair
market value of the assets of the corporation over their adjusted tax basis --
in the case of an affiliated consolidated group, built-in gains or
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losses are computed on a group basis taking into account each member's assets
but disregarding stock owned by a member in any other member corporation)
existing at the time of the ownership change and recognized during the
recognition period, up to the amount of the net built-in gain on the date of the
ownership change, provided that on the date of the ownership change the amount
of net built-in gain with respect to the assets of the corporation (excluding
cash, cash equivalents and certain other assets) exceeds the lesser of
$10,000,000 or 15% of the fair market value of such assets. (Conversely, if a
corporation has a net unrealized built-in loss exceeding the threshold amount,
any portion of such net unrealized built-in loss recognized during the
recognition period is subject to the Section 382 limitation).
The Debtor Group believes that it has not undergone an "ownership
change" as of the date hereof and that it will undergo an "ownership change" as
a result of the implementation of the Plan. There can be no assurance that the
Debtor Group will not undergo an ownership change prior to the implementation of
the Plan.
Unless a debtor elects for it not to apply, Section 382(1)(5) of the
Code provides that in the case of a debtor under the jurisdiction of a
bankruptcy court in a Title 11 case, assuming no prior ownership change, the
annual formula limitations imposed by Section 382 of the Code (as discussed
above) will not apply to any ownership change resulting from such a proceeding
if qualifying creditors and shareholders (determined immediately before such
ownership change) own, after such ownership change as a result of being
shareholders or creditors immediately before such change, 50 percent or more of
the stock of the loss corporation (or stock of a corporation controlling the
loss corporation, if such controlling
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corporation is also in bankruptcy). "Qualifying creditors" are persons that were
creditors as of a date eighteen months before filing of the petition under Title
11 or persons whose claims arose in the ordinary course of the trade or business
of the loss corporation and in each case the debt was at all times beneficially
owned by such persons. Any debt owned immediately before an ownership change by
a creditor who does not become a direct or indirect 5% shareholder of the
reorganized debtor generally will be treated as always having been owned by such
creditor, except in the case of any creditor whose participation in formulating
the plan of reorganization makes evident to the debtor that such creditor has
not owned the debt for the requisite period.
A cost of applying Section 382(1)(5) of the Code is that NOL
carryovers must be reduced by any deduction of interest claimed by the loss
corporation, with respect to any indebtedness converted into stock, for any
taxable year ending during the three-year period preceding the taxable year of
the ownership change and the portion of the year of the ownership change prior
to the date of the ownership change. Any NOL reduction arising from the
application of Section 382(1)(5) will not again be taken into account in
computing the amount of COD Income realized by the Debtors.
In addition, if Section 382(1)(5) is applicable and is applied, a
second ownership change within two years will result in Section 382(1)(5) being
inapplicable retroactively, and the Debtors' Section 382 limitation for the
second ownership change will be zero.
As of the date hereof, the Debtors have not determined whether they
will satisfy the "qualifying creditors and shareholders" requirement with
respect to the application of
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Section 382(1)(5), as described above. Prior to the implementation of the Plan,
the Debtors will determine whether it satisfies such requirement and, if so,
whether it will be preferable to choose to apply the approach incorporated in
Section 382(1)(5).
If an ownership change occurs on the Effective Date and Section
382(1)(5) is not applied, the NOL carryovers available each year to offset
income would, in general, then be limited under Section 382(1)(6) of the Code,
assuming no prior ownership change, to the product of (i) the fair market value
of the Debtors' common stock immediately after the ownership change and (ii) the
federal long-term tax-exempt interest rate in effect on the date of the
ownership change (currently approximately 5 percent), plus the portion of any
such limitation amount not utilized in prior years.
4. Alternative Minimum Tax
-----------------------
In general, an "alternative minimum tax" ("AMT") is imposed on a
corporation's "alternative minimum taxable income" at a rate of 20% to the
extent such tax exceeds the corporation's regular federal income tax. In
computing taxable income for AMT purposes, certain tax deductions and other
beneficial allowances are modified or eliminated. In particular, even though a
corporation might be able to offset all of its taxable income for regular
federal income tax purposes by available NOL carryovers, only 90% of a
corporation's taxable income for AMT purposes may be offset by available NOL
carryovers (as recomputed for AMT purposes), resulting in an effective AMT of
2%.
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Any AMT that a corporation pays generally will be allowed as a
nonrefundable credit against its regular federal income tax liability in future
taxable years when the corporation is no longer subject to the AMT.
B. Federal Income Tax Consequences to Holders of Old Senior Notes, TOPrS
Certificates, GPH Notes, Old Preferred Stock Interests and Old Common
Stock Interests
1. Overview
--------
Pursuant to the Plan, holders of (a) TOPrS Certificates with a
principal amount of $110 million (joint debt obligations of Parent and
Publishing) will receive 50% of New Parent Common Stock; (b) the GPH loan with a
principal amount of $10 million, (a debt obligation of Video) will receive 5% of
New Parent Common Stock; (c) Old Senior Notes (debt obligations of Publishing)
will receive New Senior Notes of Publishing with a principal amount of $87
million and 42.5% of New Parent Common Stock. As discussed below, the Debtors
believe that for federal income tax purposes the TOPrS Certificates and the Old
Senior Notes constitute "securities" but that the GPH loan and New Senior Notes
will not constitute "securities".
The term "security" is not defined in the Code or in the regulations
issued thereunder and has not been clearly defined by judicial decisions. The
determination of whether a particular debt constitutes a "security" depends upon
an overall evaluation of the nature of the debt. One of the most significant
factors considered in determining whether a particular debt is a security is its
original term. In general, debt obligations issued with a weighted average
maturity at issuance of less than five years (e.g., trade debt and revolving
credit obligations) or
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which are secured do not constitute securities, whereas debt obligations with a
weighted average maturity at issuance of 10 years or more constitute securities.
The status of debt instruments with a weighted average maturity of five years or
more but less than ten years is unclear. Because the New Senior Notes are
secured obligations of Publishing and the mandatory semi-annual amortization
payments to be made on the New Senior Notes may reduce their weighted average
maturity to less than five years, for example, if only cash interest is paid on
the New Senior Notes, the Debtors believe that the New Senior Notes do not
constitute a security.
The Debtors intend to take the position that the exchanges
contemplated by the Plan, as described above, will be treated for federal income
tax purposes as transfers of property (the securities evidenced by the TOPrS
Certificates, a portion of the Old Senior Notes and the debt obligation
evidenced by the GPH loan) to Reorganized Parent in exchange for New Parent
Common Stock in an exchange governed by Section 351 of the Code. (In the case of
the TOPrS Certificate holders, because the TOPrS Certificates are also
obligations of Parent, the exchange may also be treated as a reorganization
i.e., a recapitalization governed by Section 368(a)(1)(E) of the Code.) As more
fully discussed below, a holder's exchange of Old Senior Notes for New Senior
Notes of Reorganized Publishing will be a taxable exchange in which such holder
will recognize gain or loss.
2. Old Senior Notes
----------------
Pursuant to the Plan, holders of Old Senior Notes will exchange a
portion of such notes for New Senior Notes of Reorganized Publishing and will
exchange the remainder of their
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Old Senior Notes for New Parent Common Stock. Although the method for allocating
the portion of Old Senior Notes exchanged for New Senior Notes and the portion
of Old Senior Notes exchanged for New Parent Common Stock is not entirely clear,
the Debtors believe that the determination of the portion of Old Senior Notes
exchanged for each category of consideration received, i.e., New Senior Notes
and New Parent Common Stock should be based on the fair market value of the
stock and issue price of the notes. For example (not taking accrued interest
into account), if $1,000 principal amount of Old Senior Notes are exchanged for
$600 (issue price) of New Senior Notes and $200 (fair market value) of New
Parent Common Stock, approximately $750 principal amount of Old Senior Notes
will be treated as exchanged for $600 (issue price) of New Senior Notes and
approximately $250 principal amount of Old Senior Notes will be treated as
exchanged for $200 (fair market value) New Parent Common Stock.
As discussed above, the Debtors intend to take the position that the
exchange of Old Senior Notes for New Common Stock will be treated as a transfer
of property in an exchange governed by Section 351 of the Code. Assuming the
exchange is governed by Section 351 of the Code, each holder of an Old Senior
Note who exchanges a portion of such Note for New Parent Common Stock (other
than in payment of accrued interest, See "Accrued Interest" below) will not
recognize gain or loss upon such exchange. A holder's tax basis in the New
Parent Common Stock received will equal its basis in the Old Senior Notes
exchanged therefor, determined as discussed above. A holder's holding period for
the New Parent Common Stock received will include the holder's holding period
for the Old Senior Notes. If the exchange were
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not governed by Section 351 of the Code, the exchange would be taxable and each
holder would recognize gain or loss accordingly.
Because the Debtors believe that the New Senior Notes will not be
classified as "securities", the exchange of a portion of the Old Senior Notes
(determined as discussed above) for New Senior Notes will be taxable. A holder
will be required to recognize gain or loss equal to the difference between (i)
the holder's adjusted tax basis in the Old Senior Notes exchanged, and (ii) the
issue price of the New Senior Notes received. The character of any gain or loss
as long-term or short-term capital gain or loss or as ordinary income or loss
will be determined by a number of factors, including the tax status of the
holder, whether the Old Senior Notes constitute a capital asset in the hands of
the holder, whether the Old Senior Notes have been held for more than one year,
and whether the Old Senior Notes were purchased after they had been issued at a
discount. Holders will be subject to limitations on their ability to offset
capital losses against ordinary income. Holders who are individuals, did not
purchase the Old Senior Notes at a discount and who have held the Old Senior
Notes as a capital asset for more than 12 months at the time of the exchange,
are entitled to a preferential tax rate of 20% on long-term capital gains.
A holder's tax basis in New Senior Notes received in exchange for Old
Senior Notes will equal the issue price of the New Senior Notes. The holding
period for the New Senior Notes will begin on the day following their issuance.
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3. TOPrS Certificates
------------------
In general, each holder of a TOPrS Certificate who exchanges such
instrument for New Parent Common Stock (other than in payment for accrued
interest, See "Accrued Interest" below) will not recognize gain or loss upon
such exchange. A holder's tax basis in the New Parent Common Stock received will
equal its basis in the TOPrS Certificates exchanged therefor and its holding
period will include the period in which the TOPrS Certificates were held.
4. GPH Notes
---------
In general, under Section 351 of the Code, the holder of the GPH loan
who exchanges such instrument for New Parent Common Stock (other than in payment
for accrued interest, See "Accrued Interest" below) will not recognize gain or
loss upon such exchange. A holder's tax basis in the New Parent Common Stock
received will equal its basis in the GPH loan exchanged therefor and its holding
period will include the period in which the GPH loan was held.
5. Old Preferred Stock Interests and Old Common Stock Interests
------------------------------------------------------------
Holders of Old Preferred Stock Interests and Old Common Stock
Interests will receive New Warrants (with the terms described in Section IV.D.2
hereof) in exchange for such Interests. A Holder will recognize gain or loss
measured by the difference between its basis in the shares exchanged and the
fair market value of the New Warrants received. The character of
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such gain or loss, as long-term or short-term capital gain or loss, or as
ordinary income or loss will be determined by a number of factors as discussed
above -- See "Old Senior Notes" above, including the tax status of the holder
and whether the claim constitutes a capital asset in the hands of the holder.
6. Accrued Interest
----------------
To the extent New Senior Notes and/or New Parent Common Stock are
received by holders of Old Senior Notes, TOPrS Certificates or the GPH Notes in
discharge of a claim for accrued interest, such property in an amount equal to
the issue price of the New Senior Notes and the fair market value of the New
Parent Common Stock received will be taxable to the holder as interest income
(if not previously included in the holder's gross income). A holder's basis in
such property will be equal to the amount of interest income received, and the
holder's holding period will begin on the day after the Effective Date of the
Plan. The Debtors intend to take the position that property distributed pursuant
to the Plan will first be allocable to principal. Each holder should consult its
own tax advisor concerning the allocation of amounts received pursuant to the
Plan to interest.
7. Interest and Original Issue Discount
------------------------------------
The New Senior Notes will be issued with OID. In general, as discussed
above, the excess of the stated redemption price at maturity of a New Senior
Note over its issue price will constitute OID. The stated redemption price at
maturity of a New Senior Note is the sum of all scheduled amounts payable,
including interest (because interest payable in cash or in kind at
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the option of the issuer is not qualified stated interest). OID, is in general,
includible in a holder's federal taxable income in accordance with a constant
yield method based on a compounding of interest.
At the election of the Debtors, PIK interest, of 13.5 percent per year
during the first three years in lieu of 10 percent cash interest, may be paid on
the New Senior Notes. The possible exercise of such election and/or additional
OID that may result if the New Senior Notes are "publicly traded" and initially
trade at a discount to their stated principal amount may result in a holder
being required to include OID in gross income in advance of the receipt of cash
interest payments.
Each cash payment on a New Senior Note, including cash payments of
stated interest and the semi-annual $8.33 million amortization payments
scheduled to commence in the fourth year of the New Senior Notes, will be
treated as a payment of OID to the extent that OID has accrued as of the date
such payment is due (and has not been paid), and any excess will be treated as a
payment of principal.
8. Market Discount and Bond Premium. A holder of an Old Senior
Note or TOPrS Certificate may have acquired such instrument at a "market
discount", (i.e., a price below its stated redemption price at maturity or, with
respect to an OID instrument, its adjusted issue price) or at a bond or
acquisition "premium" (i.e. a price above its stated redemption price at
maturity or, with respect to an OID instrument, its adjusted issue price).
Generally, accrued market discount is treated as ordinary income to the extent
of any gain recognized upon a
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taxable disposition of the Old Senior Notes or TOPrS Certificates. In a
non-taxable exchange, accrued market discount is carried forward to the stock
and/or securities received in the exchange and with respect to any bond received
in the exchange treated as accrued market discount attributable to such bond,
and with respect to any stock received will be treated as ordinary income to the
extent of gain recognized on a subsequent taxable disposition of such stock. In
a reorganization, bond premium is generally carried forward to the debt
instrument received in the exchange. Bond premium is generally an offset to
interest income and will reduce the holder's basis in the obligation by the
amount amortized.
In addition, Section 108(e)(7) of the Code provides that a creditor
that receives stock in exchange for debt, is required to the extent that gain is
recognized upon a subsequent disposition of such stock, to "recapture" as
ordinary income any bad debt deductions taken by the creditor with respect to
such debt and any ordinary loss claimed by the creditor upon the receipt of the
stock in satisfaction of such debt, reduced by any amount included in income
upon the receipt of the stock.
9. Information Reporting and Backup Withholding
--------------------------------------------
The Debtor Group will be required to file information returns with the
IRS with respect to payments made to certain holders of the Old Senior Notes,
TOPrS Certificates, GPH Notes and Old Preferred Stock Interests and Old Common
Stock Interests as a result of distributions pursuant to the Plan. In addition,
certain holders may be subject to a 31% backup withholding tax in respect of
certain payments, e.g., interest, if they do not provide their
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taxpayer identification numbers. Amounts withheld under the backup withholding
rules are allowed as a refund or credit against holders' United States federal
income tax liability.
THE FOREGOING SUMMARY HAS BEEN PROVIDED FOR INFORMATIONAL PURPOSES
ONLY AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING WITH A TAX PROFESSIONAL.
ALL CREDITORS ARE STRONGLY URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE PLAN.
VIII.
RISK FACTORS
HOLDERS OF OLD SENIOR NOTES, TOPrS CERTIFICATES, GPH NOTES, HOLDERS OF
EQUITY INTERESTS AND ALL OTHER IMPAIRED CREDITORS SHOULD READ AND CONSIDER
CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION SET
FORTH IN THIS DISCLOSURE STATEMENT (AND THE DOCUMENTS DELIVERED TOGETHER
HEREWITH AND/OR INCORPORATED BY REFERENCE HEREIN), PRIOR TO VOTING TO ACCEPT OR
REJECT THE PLAN.
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A. Leverage
Although the Plan will restructure a significant amount of the
Debtors' indebtedness, the Reorganized Debtors will remain leveraged. The degree
to which the Reorganized Debtors are leveraged could have important
consequences, including the following: (i) the Reorganized Debtors' ability to
obtain additional financing in the future for working capital, capital
expenditures, product development, acquisitions, general corporate purposes or
other purposes may be impaired, (ii) a substantial portion of the Reorganized
Debtors' cash flow from operations could be dedicated to the payment of the
principal of and interest on its indebtedness, and (iii) the Reorganized
Debtors' degree of leverage may make it more vulnerable to economic downturns
and may limit its ability to withstand competitive pressures.
B. Dependence on Key Personnel
The Debtors are dependent on the continued services of certain senior
executives, including Richard E. Snyder, Chairman of the Board and Chief
Executive Officer of Parent; Philip Galanes, Executive Vice President, Chief
Administrative Officer, General Counsel and Secretary of Parent; Colin
Finkelstein, Executive Vice President and Chief Financial Officer of Parent; and
Richard Collins, Executive Vice President and Chief Operating Officer of Parent.
The Debtors believe the loss of the services of one or more of these individuals
could have a material adverse effect on the Reorganized Debtors.
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C. Dependence on and Relationships with Key Customers and Licensors
The loss of the sales to any of the Debtors' largest customers would
cause a substantial decrease in business and would have a material adverse
effect on the Debtors. Additionally, the Debtors believe that the variety and
popularity of characters (whether licensed or owned) is among the most important
factors that differentiate their products from those of their competitors. The
loss of any principal licenses would have a material adverse effect on the
Debtors. In addition, the loss of a significant license by the Debtors would
impair their distribution capabilities which, in turn, could adversely affect
its ability to obtain new licenses and to renew existing licenses on favorable
terms, if at all.
The Debtors' relationships with a number of their significant
customers and licensors have been contentious from time to time because of
disputes, in the case of their customers, relating to prior pricing, return and
merchandising policies and, in the case of its licensors, alleged non-compliance
by the Debtors with certain license terms. While management has taken steps to
repair these relationships, there can be no assurance that such relationships,
or other relationships with customers and/or licensors, will not again become
contentious in the future, which could have a material adverse effect on the
Debtors.
D. Competitive Conditions
The children's publishing market is highly competitive. Competition is
based primarily on price, quality, distribution, marketing and licenses. In mass
market sales, the Debtors face competition primarily from smaller competitors.
In the trade and speciality trade
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categories, Golden Books' principal competitors are large publishing companies.
Golden Books also competes for a share of consumer spending on children's
entertainment and educational products against companies that market a broad
range of products utilizing a broad range of technologies that are unrelated to
those marketed by Golden Books.
The market for licenses also is highly competitive and Golden Books
competes against many other licensees for significant licenses. In recent years,
licensors have fragmented licenses, which has reduced the cost of purchasing a
license. As a result, smaller bidders have been able to enter the market for
licenses, which has resulted in increased competition in this market. Many of
Golden Books' significant competitors have greater financial resources than
Golden Books and, in selected markets, greater experience than Golden Books.
E. Risks Relating to Intellectual Properties
The value of the materials in Golden Books' library, both to Golden
Books as a licensor and as an end user, is subject to consumer taste. There can
be no assurance that these properties will be attractive to third-party
licensees or that they will be suitable for inclusion in Golden Books' products.
If properties that are being exploited cease to be attractive to third-party
licensees, licensing revenue from such licenses will decrease.
In view of the complex nature of Golden Books' intellectual property
rights, there is a risk of third-parties asserting claims of ownership or
infringement or asserting a right to payment with respect to the exploitation of
such properties. There can be no assurance that Golden Books would prevail in
any such claim. In addition, Golden Books' ability to
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demonstrate, maintain or enforce these rights may be difficult. Impairment or
difficulty in demonstrating the Golden Books' ownership or license rights in
such properties could adversely affect the ability of Golden Books to generate
revenue from or use such properties. In many cases, the rights owned or being
acquired by Golden Books are limited in scope, do not extend to exploitation in
all present or future media or in perpetuity and may not include the right to
create derivative works, such as merchandising and character rights, remakes or
sequels.
F. Projected Financial Information
The Debtors failed to operate profitably for several years preceding
the Chapter 11 filing. The financial projections annexed as Exhibit "E" to this
Disclosure Statement are dependent upon the successful implementation of the
business plan and the validity of the other assumptions contained therein. These
projections reflect numerous assumptions, including Confirmation and
consummation of the Plan in accordance with its terms, the anticipated future
performance of the Debtors, industry performance, certain assumptions with
respect to competitors of the Debtors, general business and economic conditions,
and other matters, many of which are beyond the control of the Debtors. In
addition, unanticipated events and circumstances occurring subsequent to the
preparation of the projections may affect the actual financial results of the
Debtors. Although the Debtors believe that the projections are reasonably
attainable, variations between the actual financial results and those projected
may occur and be material.
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G. Lack of Market for Securities Issued Pursuant to Plan
There is no currently existing market for the New Senior Notes, New
Parent Common Stock or New Warrants and there can be no assurance that an active
trading market will develop or as to the degree of price volatility in any such
particular market. Accordingly, no assurance can be given that a holder of
securities issued pursuant to the Plan will be able to sell such securities in
the future or as to the price at which any such sale may occur. If such market
were to exist, the liquidity of the market for such securities and the prices at
which such securities will trade will depend upon many factors, including the
number of holders, investor expectations for the Debtors, and other factors
beyond the Debtors' control.
H. Certain Bankruptcy Related Considerations
1. Risk of Non-Confirmation of the Plan
------------------------------------
Although the Debtors believes that the Plan will satisfy all
requirements necessary for Confirmation by the Bankruptcy Court, there can be no
assurance that the Bankruptcy Court will reach the same conclusion. There can
also be no assurance that modifications of the Plan will not be required for
Confirmation, that such negotiations would not adversely affect the holders of
the Old Senior Notes, TOPrS Certificates, GPH Notes, or Equity Interests or that
such modifications would not necessitate the resolicitation of votes.
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2. Nonconsensual Confirmation
--------------------------
In the event any impaired class of claims or equity interests does not
accept a plan of reorganization, a bankruptcy court may nevertheless confirm
such plan of reorganization at the proponent's request if at least one impaired
class has accepted the plan of reorganization (with such acceptance being
determined without including the acceptance of any "insider" in such class) and,
as to each impaired class which has not accepted the plan of reorganization, the
bankruptcy court determines that the plan of reorganization "does not
discriminate unfairly" and is "fair and equitable" with respect to non-accepting
impaired classes. In the event that any impaired Class of Claims or Equity
Interests fails to accept the Plan in accordance with Section 1129(a)(8) of the
Bankruptcy Code, the Debtors reserve the right to request nonconsensual
Confirmation of the Plan in accordance with Section 1129(b) of the Bankruptcy
Code. (See Section IV.F.12. of the Disclosure Statement).
I. Dividends
The Debtors presently intend to retain earnings, if any, for working
capital and to fund capital expenditures. Accordingly, there is no present
intention to pay Cash dividends on any shares of New Parent Common Stock.
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IX.
EXEMPTIONS FROM SECURITIES ACT
REGISTRATION; REGISTRATION RIGHTS
The Plan contemplates the issuance of certain securities to holders of
Allowed Claims and Allowed Equity Interests. Section 1145 of the Bankruptcy Code
creates certain exemptions from the registration and licensing requirements of
federal and state securities laws with respect to the issuance and distribution
of securities by a debtor under a plan of reorganization to holders of claims or
interests wholly or principally in exchange for those claims or interests.
A. Issuance of New Securities Pursuant to the Plan
With respect to the New Senior Notes, New Parent Common Stock and New
Warrants to be issued on the Effective Date, the Debtors intend to rely upon the
exemption from the registration requirements of the Securities Act (and the
equivalent state securities or "blue sky" laws) provided by Section 1145(a)(1)
of the Bankruptcy Code. Generally, Section 1145(a)(1) of the Bankruptcy Code
exempts the issuance of securities from the requirements of the Securities Act
and the equivalent state securities and "blue sky" laws if the following
conditions are satisfied (i) the securities are issued by a debtor, an affiliate
participating in a joint plan of reorganization with the debtor, or a successor
of the debtor under a plan of reorganization, (ii) the recipients of the
securities hold a claim against, an interest in, or a claim for an
administrative expense against, the debtor, and (iii) the securities are issued
entirely in
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exchange for the recipient's claim against or interest in the debtor, or are
issued "principally" in such exchange and "partly" for Cash or property. The
Debtors believe that the issuance of securities contemplated by the Plan will
satisfy the aforementioned requirements and therefore is exempt from federal and
state securities law, although as discussed in Section B below, under certain
circumstances, subsequent transfers of such securities may be subject to
registration requirements under such securities laws.
B. Subsequent Transfer of Securities Issued Under the Plan
The securities issued pursuant to the Plan may be resold by the
holders thereof without restriction unless, as more fully described below, any
such holder is deemed to be an "underwriter" with respect to such securities, as
defined in Section 1145(b)(1) of the Bankruptcy Code. Generally, Section
1145(b)(1) of the Bankruptcy Code defines an "underwriter" as any person who (1)
purchases a claim against, or interest in, a bankruptcy case, with a view
towards the distribution of any security to be received in exchange for such
claim or interest, (2) offers to sell securities issued under a bankruptcy plan
on behalf of the holders of such securities, (3) offers to buy securities issued
under a bankruptcy plan from persons receiving such securities, if the offer to
buy is made with a view towards distribution of such securities, or (4) is an
issuer as contemplated by Section 2(11) of the Securities Act. Although the
definition of the term "issuer" appears in Section 2(4) of the Securities Act,
the reference (contained in Section 1145(b)(1)(D) of the Bankruptcy Code) to
Section 2(11) of the Securities Act purports to include as "underwriters" all
persons who, directly or indirectly, through one or more intermediaries,
control, are controlled by, or are under common control with, an issuer of
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securities. "Control" (as such term is defined in Rule 405 of Regulation C under
the Securities Act) means the possession, direct or indirect, of the power to
direct or cause the direction of the policies of a person, whether through the
ownership of voting securities, by contract or otherwise. Accordingly, an
officer or director of a reorganized debtor (or its successor) under a plan of
reorganization may be deemed to be a "control person," particularly if such
management position is coupled with the ownership of a significant percentage of
the debtor's (or successor's) voting securities. Moreover, the legislative
history of Section 1145 of the Bankruptcy Code suggests that a creditor who owns
at least 10% of the voting securities of a reorganized debtor may be presumed to
be a "control person."
C. Registration Rights
As discussed above, although upon their issuance pursuant to Section
1145(a)(1) of the Bankruptcy Code the New Senior Notes, New Warrants and shares
of New Parent Common Stock may generally be resold by the holders thereof
without registration under the Securities Act (or under equivalent state
securities or "blue sky" laws), a holder may be unable to resell his or its
securities if such holder is deemed to be (a) an "underwriter" within the
meaning of Section 1145(b)(1) of the Bankruptcy Code, or (b) an "affiliate" or
"control person" of the Debtors within the meaning of the Securities Act. In
order to enable holders of New Parent Common Stock, New Warrants and New Senior
Notes to sell their securities without restriction (and to obviate the need to
satisfy the requirements relating to applicable exemptions from federal and
state securities law registration), the Debtors have agreed to provide certain
holders of New Parent Common Stock, New Warrants and New Senior Notes with
certain
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registration rights under an agreement which will be entered into among such
holders and the Reorganized Debtors on and after the Effective Date.
THE FOREGOING SUMMARY DISCUSSION IS GENERAL IN NATURE AND HAS BEEN
INCLUDED IN THIS DISCLOSURE STATEMENT SOLELY FOR INFORMATIONAL PURPOSES. THE
DEBTORS MAKE NO REPRESENTATIONS CONCERNING, AND DO NOT HEREBY PROVIDE ANY
OPINION OR ADVICE WITH RESPECT TO, THE SECURITIES LAW AND BANKRUPTCY LAW MATTERS
DESCRIBED ABOVE. IN LIGHT OF THE COMPLEX AND SUBJECTIVE INTERPRETIVE NATURE OF
WHETHER A PARTICULAR RECIPIENT OF SECURITIES UNDER THE PLAN MAY BE DEEMED TO BE
AN "UNDERWRITER" WITHIN THE MEANING OF SECTION 1145(b)(1) OF THE BANKRUPTCY CODE
AND/OR AN "AFFILIATE" OR "CONTROL PERSON" UNDER APPLICABLE FEDERAL AND STATE
SECURITIES LAWS AND, CONSEQUENTLY, THE UNCERTAINTY CONCERNING THE AVAILABILITY
OF EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
EQUIVALENT STATE SECURITIES AND "BLUE SKY" LAWS, GOLDEN BOOKS ENCOURAGES
POTENTIAL RECIPIENTS OF NEW SENIOR NOTES, NEW WARRANTS AND NEW PARENT COMMON
STOCK TO CONSIDER CAREFULLY AND CONSULT WITH HIS, HER, OR ITS OWN LEGAL
ADVISOR(S) WITH RESPECT TO SUCH (AND ANY RELATED) MATTERS.
150
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X.
ALTERNATIVES TO THE PLAN AND CONSEQUENCES OF REJECTION
Among the possible consequences if the Plan is rejected or if the
Bankruptcy Court refuses to confirm the Plan are the following: (1) an
alternative plan could be proposed or confirmed; or (2) the Chapter 11 Cases
could be converted to liquidation cases under Chapter 7 of the Bankruptcy Code.
A. Alternative Plans
As previously mentioned, with respect to an alternative plan, the
Debtors and their professional advisors have explored various alternative
scenarios and believe that the Plan enables holders of Claims and Equity
Interests to realize the maximum recovery under the circumstances. The Debtors
believe the Plan is the best plan that can be proposed and serves the best
interests of the Debtors and other parties-in-interest.
B. Chapter 7 Liquidation
For a discussion of a Chapter 7 liquidation, see Section V(B)(2) above
entitled "Acceptance and Confirmation of the Plan -- Confirmation -- Statutory
Requirement for Confirmation of the Plan."
151
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XI.
RECOMMENDATION AND CONCLUSION
The Debtors, the Informal Senior Note Committee and the Informal TOPrS
Committee, and their respective professional advisors, have analyzed different
scenarios and believe that the Plan will provide for a larger distribution to
holders of Claims and Equity Interests than would otherwise result if an
alternative restructuring plan were proposed or the assets of the Debtors were
liquidated. In addition, any alternative other than Confirmation of the Plan
could result in extensive delays and increased administrative expenses resulting
in potentially smaller distributions to the holders of Claims and Equity
Interests. Accordingly, the Debtors, the Informal Senior Note Committee and the
Informal TOPrS Committee recommend confirmation of the Plan and urge all holders
of impaired Claims and Equity Interests to vote to accept the Plan, and to
evidence such acceptance by returning their Ballots so that they will be
received by no later than the Voting Deadline.
152
<PAGE>
Date: New York, New York
May 13, 1999
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.,
(for itself and on behalf of each of the above-
captioned Debtors and Debtors-in-Possession)
By: /s/ Richard E. Snyder
---------------------------------------------
Richard E. Snyder
Chairman of the Board and Chief Executive Officer
PROSKAUER ROSE LLP
Counsel to the Debtors and
Debtors-in-Possession
By: /s/ Alan B. Hyman
--------------------------
Alan B. Hyman (AH-6655)
A Member of the Firm
1585 Broadway
New York, New York 10036
(212) 969-3000
153
<PAGE>
TABLE OF CONTENTS
Page
I. INTRODUCTION AND SUMMARY..................................................1
A. Overview..............................................................1
B. Summary of Classification and Treatment Under the Plan................2
C. Voting and Confirmation Procedures...................................13
1. Who May Vote....................................................14
2. Voting Instructions.............................................15
3. Acceptance or Rejection of the Plan.............................17
4. Confirmation Hearing............................................17
5. Objections......................................................18
II. BACKGROUND AND EVENTS PRECIPITATING
CHAPTER 11 FILING AND SOLICITATION......................................19
A. Overview of the Debtors and their Business Operations................19
1. Children's Publishing Division..................................20
2. Adult Publishing Division.......................................21
3. Entertainment Group Division....................................21
4. Commercial Printing Division....................................22
B. Pre-Petition Debt Structure of the Debtors...........................22
1. Pre-Petition Working Capital Facility...........................23
2. The Old Senior Notes............................................24
3. GPH Claims......................................................25
4. TOPrS Certificates..............................................26
C. Pre-Petition Capital Structure.......................................27
D. Events Precipitating Chapter 11 Filing...............................28
E. Pre-Petition Asset Disposition and Expense Reduction Efforts.........34
III. SIGNIFICANT POST-PETITION EVENTS.........................................35
A. Commencement Of Chapter 11 Cases.....................................35
B. First Day Orders.....................................................35
C. Professional Retentions..............................................36
D. Post-Petition Financing..............................................36
E. Sale of Assets of the Adult Publishing Division......................38
F. Extension of Time to Assume or Reject Leases.........................38
G. Claims Process and Bar Date..........................................39
1. Schedules and Statements........................................39
2. Bar Date Order..................................................39
IV. OVERVIEW OF THE PLAN.....................................................40
A. General..............................................................40
i
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B. Classification of Claims and Equity Interests........................41
C. Treatment of Claims and Equity Interests Under the Plan..............43
1. Unclassified Categories of Claims...............................44
a. Category 1 -- Administrative Expense Claims..................44
b. Category 2 -- Priority Tax Claims............................46
2. Unimpaired Classes of Claims....................................47
a. Class 1-- Priority Claims....................................47
b. Class 2-- General Secured Claims.............................48
c. Class 6-- General Unsecured Claims...........................49
d. Class 11-- Subsidiary Equity Interests.......................50
3. Impaired Classes................................................50
a. Class 3-- Old Senior Note Claims.............................51
b. Class 4-- GPH Claims.........................................54
c. Class 5-- TOPrS Claims.......................................55
d. Class 7-- Debt Securities Rescission or Damage Claims........56
e. Class 8-- Old Preferred Stock Interests......................57
f. Class 9-- Old Common Stock Interests.........................57
g. Class 10-- Equity Interest Rescission or Damage Claims
.............................................58
D. Description of Transactions to Be Implemented in Connection
with the Plan........................................................59
1. New Senior Notes................................................59
2. New Warrants....................................................59
3. Reorganized Debtors' Charters...................................60
4. Management Stock Option Plan....................................60
a. General; Ratification.......................................60
b. Purpose.....................................................62
c. Administration..............................................62
d. Eligibility and Types of Awards.............................63
e. Available Shares............................................63
f. Awards under the Plan.......................................63
g. Change in Control...........................................67
h. Miscellaneous...............................................68
i. Amendment and Termination...................................69
j. Certain Federal Income Tax Consequences Relating to the
Management Stock Option Plan...........................70
k. Future Plan Awards..........................................77
5. Cancellation and Surrender of Existing Securities
and Agreements..................................................77
6. Employment Contracts............................................78
7. Registration Rights Agreements..................................79
8. Substantive Consolidation.......................................79
E. Funding for the Plan.................................................81
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F. Description of Other Provisions of the Plan..........................82
1. Disputed Claims................................................82
2. Disputed Payments..............................................83
3. Unclaimed Property.............................................83
4. Issuance of New Securities.....................................83
5. Discharge......................................................84
6. Termination of Subordination Rights............................85
7. Additional Releases............................................86
8. Injunctions....................................................88
9. Exculpation....................................................90
10. Section 1146 Exemption.........................................90
11. Full and Final Satisfaction....................................91
12. Cram-Down......................................................92
13. Disbursement of Funds and Delivery of Distribution.............93
14. Avoidance and Recovery Actions.................................95
15. Retention of Jurisdiction......................................95
16. Executory Contracts and Unexpired Leases.......................97
17. Bar Date for Filing Proofs of Claims Relating to Executory
Contracts and Unexpired Leases Rejected Pursuant to the Plan...98
18. Indemnification Claims.........................................98
19. Compensation and Benefit Programs..............................99
20. Retiree Benefits..............................................100
21. Post-Confirmation Fees, Final Decree..........................100
22. Continuation of Bankruptcy Injunction or Stays................101
23. Revesting of Assets...........................................101
24. General Release of Liens......................................101
25. Conditions to Effective Date of the Plan......................102
26. Consolidation and Dissolution of Non-Debtor Subsidiaries......104
G. Post-Confirmation Officers and Directors............................104
V. ACCEPTANCE AND CONFIRMATION OF THE PLAN.................................106
A. Acceptance of the Plan..............................................106
B. Confirmation........................................................107
1. Confirmation Hearing...........................................107
2. Statutory Requirements for Confirmation of the Plan............107
3. Confirmation Without Acceptance by All Impaired Classes........111
VI. VALUATION...............................................................113
A. Reorganization Value of Reorganized Debtors.........................113
B. The New Warrants....................................................114
VII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN.....................119
A. Federal Income Tax Consequences to the Debtors......................121
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1. Cancellation of Indebtedness Income............................121
2. Interest Expense and Original Issue Discount...................125
3. NOL Carryovers and Other Tax Attributes........................127
4. Alternative Minimum Tax........................................131
B. Federal Income Tax Consequences to Holders of Old Senior
Notes, TOPrS........................................................132
1. Overview.......................................................132
2. Old Senior Notes...............................................133
3. TOPrS Certificates.............................................136
4. GPH Notes......................................................136
5. Old Preferred Stock Interests and Old Common Stock Interests...136
6. Accrued Interest...............................................137
7. Interest and Original Issue Discount...........................137
8. Market Discount and Bond Premium...............................138
9. Information Reporting and Backup Withholding...................139
VIII.RISK FACTORS............................................................140
A. Leverage............................................................141
B. Dependence on Key Personnel.........................................141
C. Dependence on and Relationships with Key Customers and
Licensors...........................................................142
D. Competitive Conditions..............................................142
E. Risks Relating to Intellectual Properties...........................143
F. Projected Financial Information.....................................144
G. Lack of Market for Securities Issued Pursuant to Plan...............145
H. Certain Bankruptcy Related Considerations...........................145
1. Risk of Non-Confirmation of the Plan............................145
2. Nonconsensual Confirmation......................................146
I. Dividends...........................................................146
IX. EXEMPTIONS FROM SECURITIES ACT
REGISTRATION; REGISTRATION RIGHTS.......................................147
A. Issuance of New Securities Pursuant to the Plan.....................147
B. Subsequent Transfer of Securities Issued Under the Plan.............148
C. Registration Rights.................................................149
X. ALTERNATIVES TO THE PLAN AND CONSEQUENCES OF REJECTION..................151
A. Alternative Plans...................................................151
B. Chapter 7 Liquidation...............................................151
XI. RECOMMENDATION AND CONCLUSION...........................................152
iv
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EXHIBITS
A - Amended Plan of Reorganization
B - Form 10-K for the fiscal year ended December 26, 1998
C - Restructuring Agreement
D - Liquidation Analysis
E - Pro Forma balance sheet and financial projections
F - Forms of Amendments to Certain Employment Agreements
G - Form of Management Stock Option Plan
H - Form of Reorganized Debtors' Charters
v
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EXHIBITS
--------
Exhibits to the Disclosure Statement have been filed with the
Bankruptcy Court under separate cover.
vi
EXHIBIT T3F
CROSS-REFERENCE TABLE*
Trust Indenture Act Section Indenture Section
310(a)(1)................................................... 7.10
(a)(2) .................................................. 7.10
(a)(3) .................................................. N.A.
(a)(4) .................................................. N.A.
(a)(5) .................................................. 7.10
(b)...................................................... 7.08; 7.10; 13.02
(c)...................................................... N.A.
311(a)...................................................... 7.11
(b)...................................................... 7.11
(c)...................................................... N.A.
312(a)...................................................... 2.05
(b)...................................................... 13.03
(c)...................................................... 13.03
313(a)...................................................... 7.06
(b)(1)................................................... 12.03
(b)(2)................................................... 7.06
(c)...................................................... 7.06; 13.02
(d)...................................................... 7.06
314(a)...................................................... 4.10; 13.02
(b)...................................................... 12.02
(c)(1)................................................... 7.02; 13.04
(c)(2)................................................... 7.02; 13.04
(c)(3)................................................... N.A.
(d)......................................................12.03; 12.04; 12.05
(e)...................................................... N.A.
(f)...................................................... N.A.
315(a)...................................................... 7.01(b)
(b)...................................................... 7.05, 12.02
(c)...................................................... 7.01(a)
(d)...................................................... 7.01(c)
(e)...................................................... 6.11
316(a)(last sentence)....................................... 2.09
(a)(1)(A)................................................ 6.05
(a)(1)(B)................................................ 6.04
(a)(2)................................................... N.A.
(b)...................................................... 6.07
317(a)(1)................................................... 6.08
(a)(2)................................................... 6.09
(b)...................................................... 2.04
318(a)...................................................... 13.01
(b)...................................................... N.A.
(c)...................................................... 13.01
"N.A." means not applicable.
- --------
* This Cross-Reference Table is not part of the Indenture
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
GOLDEN BOOKS PUBLISHING COMPANY, INC.
Pursuant to Sections 245 and 242
of the General Corporation Law of the State of Delaware
The undersigned, the Chairman and Chief Executive Officer of Golden
Books Publishing Company, Inc. (the "Corporation"), certifies that:
1. The Corporation was originally incorporated under the name of WPC,
Inc. and the Corporation's original certificate of incorporation was filed with
the Delaware Secretary of State on March 1, 1979 (the "Certificate of
Incorporation").
2. The text of the Certificate of Incorporation of the Corporation, as
amended heretofore, is hereby amended and, as so amended, restated to read in
its entirety as follows:
FIRST: Name. The name of the corporation is Golden Books Publishing
Company, Inc.
SECOND: Address: Registered Office and Agent. The address of its
registered office in the State of Delaware is c/o United Corporate Services,
Inc., 15 East North Street in the city of Dover, County of Kent, State of
Delaware. The name of its registered agent at such address is United Corporate
Services, Inc.
THIRD: Purposes. The purpose of the corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: Capital Stock. The total number of shares of stock which the
Corporation shall have authority to issue is one hundred (100) consisting of one
class only, designated Common Stock, par value $.01 per share.
Notwithstanding anything to the contrary contained herein, to the
extent, and only for so long as is, required by Section 1123(a)(6) of Title 11,
United States Code, 11 U.S.C. ss.ss. 101 et seq. (the "Bankruptcy Code"), the
Corporation shall not issue any shares of non-voting equity securities.
1
<PAGE>
FIFTH: Directors. The number of directors which shall constitute the
whole Board of Directors shall be fixed by or in the same manner provided in the
by-laws of the Corporation. The Corporation hereby confers the power to adopt,
amend or repeal the by-laws of the Corporation upon the directors.
SIXTH: Limitation of Liability. No director of the Corporation shall be
liable to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, provided that this provision shall not eliminate
or limit the liability of a director (a) for any breach of the director's duty
of loyalty to the Corporation or its stockholders, (b) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the General Corporation Law or (d) for any
transaction from which the director derived any improper personal benefits. Any
amendment, modification or repeal of the foregoing sentence shall not adversely
affect any right or protection of a director of the Corporation hereunder in
respect of any act or omission occurring prior to the time of such amendment,
repeal or modification.
SEVENTH: Indemnification. To the extent not prohibited by law, the
Corporation shall indemnify any person who is or was made, or threatened to be
made, a party to any threatened, pending or completed action, suit or proceeding
(a "Proceeding"), whether civil, criminal, administrative or investigative,
including, without limitation, an action by or in the right of the Corporation
to procure a judgment in its favor, by reasons of the fact that such person, or
a person of whom such person is the legal representative, is or was a director
or officer of the Corporation, or, at the request of its Corporation, is or was
serving while a director or officer of the Corporation as a director or officer
of any other corporation or in a capacity with comparable authority or
responsibilities for any partnership, joint venture, trust, employee benefit
plan or other enterprise (an "Other Entity"), against judgements, fines,
penalties, excise taxes, amounts paid in settlement and costs, charges and
expenses (including attorneys' fees, disbursements and other charges). Persons
who are not directors or officers of the Corporation (or otherwise entitled to
indemnification pursuant to the preceding sentences) may be similarly
indemnified in respect of service to the Corporation or to an Other Entity at
the request of the Corporation or to an Other Entity at the request of the
Corporation to the extent the Board at any time specifies that such persons are
entitled to the benefits of this Section SEVENTH.
2
<PAGE>
IN WITNESS WHEREOF, this Amended and Restated Certificate of
Incorporation of the Corporation, which restated, integrates and amends the
provisions of the Certificate of Incorporation of the Corporation, has been
executed by Richard E. Snyder, acting in his capacity as Chairman and Chief
Executive Officer of the Corporation, this ___ day of _______, 1999.
GOLDEN BOOKS PUBLISHING
COMPANY, INC.
____________________________________
Richard E. Snyder
Chairman and Chief Executive Officer
[CORPORATE SEAL]
Attest:
By:____________________
Philip Galanes
Secretary
3
BY-LAWS
OF
GOLDEN BOOKS PUBLISHING COMPANY, INC.
(As Amended and Restated as of __________, 1999)
1. MEETINGS OF STOCKHOLDERS.
1.1 Annual Meeting. The annual meeting of stockholders shall be held on
the day established for the annual meeting of stockholders of Golden Books
Family Entertainment, Inc., a Delaware corporation, or as soon thereafter as
practicable, and shall be held at a place and time determined by the board of
directors (the "Board").
1.2 Special Meetings. Special meetings of the stockholders may be
called by resolution of the Board or by the chairman of the board. Special
meetings of the stockholders shall be called by the chairman of the board or
secretary upon the written request (stating the purpose or purposes of the
meeting) of a majority of the directors then in office or of the holders of a
majority of the outstanding shares entitled to vote. Only business related to
the purposes set forth in the notice of the meeting may be transacted at a
special meeting.
1.3 Place and Time of Meetings. Meetings of the stockholders may be
held in or outside Delaware at the place and time specified by the Board or the
directors or stockholders requesting the meeting.
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<PAGE>
1.4 Notice of Meetings; Waiver of Notice. Written notice of each
meeting of stockholders shall be given to each stockholder entitled to vote at
the meeting, except that (a) it shall not be necessary to give notice to any
stockholder who submits a signed waiver of notice before or after the meeting,
and (b) no notice of an adjourned meeting need be given except when required
under Section 1.5 of these by-laws or by law. Each notice of a meeting shall be
given, personally or by mail, not less than 10 or more than 60 days before the
meeting and shall state the time and place of the meeting, and unless it is the
annual meeting, shall state at whose direction or request the meeting is called
and the purposes for which it is called. If mailed, notice shall be considered
given when mailed to a stockholder at his address on the corporation's records.
The attendance of any stockholder at a meeting, without protesting at the
beginning of the meeting that the meeting is not lawfully called or convened,
shall constitute a waiver of notice by that stockholder.
1.5 Quorum. At any meeting of stockholders, the presence in person or
by proxy of the holders of a majority of the shares entitled to vote shall
constitute a quorum for the transaction of any business. In the absence of a
quorum, a majority in voting interest of those present or, if no stockholders
are present, any officer entitled to preside at or to act as secretary of the
meeting, may adjourn the meeting until a quorum is present. At any adjourned
meeting at which a quorum is present, any action may be taken which might have
been taken at the meeting as originally called. No notice of an adjourned
meeting need be given if the time and place are announced at the meeting at
which the adjournment is taken except that, if adjournment is for more than
thirty days or if, after the adjournment, a new
-2-
<PAGE>
record date is fixed for the meeting, notice of the adjourned meeting shall be
given pursuant to Section 1.4.
1.6 Voting; Proxies. Each stockholder of record shall be entitled to
one vote for every share registered in his name. Corporate action to be taken by
stockholder vote, other than the election of directors, shall be authorized by a
majority of the votes cast at a meeting of stockholders, except as otherwise
provided by law or by Section 1.8 of these by-laws. Directors shall be elected
in the manner provided in Section 2.1 of these by-laws. Voting need not be by
ballot unless requested by a majority of the stockholders entitled to vote at
the meeting or ordered by the chairman of the meeting. Each stockholder entitled
to vote at any meeting of stockholders or to express consent to or dissent from
corporate action in writing without a meeting may authorize another person to
act for him by proxy. Every proxy must be signed by the stockholder or his
attorney-in-fact. No proxy shall be valid after three years from its date unless
it provides otherwise.
1.7 List of Stockholders. Not less than 10 days prior to the date of
any meeting of stockholders, the secretary of the corporation shall prepare a
complete list of stockholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in his name. For a period of not less than 10 days prior to
the meeting, the list shall be available during ordinary business hours for
inspection by any stockholder for any purpose germane to the meeting. During
this period, the list shall be kept either (a) at a place specified in the
notice of the meeting which is within the city where the meeting is to be held
or (b) at the place where the meeting is to be
-3-
<PAGE>
held. The list shall also be available for inspection by stockholders at the
time and place of the meeting.
1.8. Action by Consent Without a Meeting. Any action required or
permitted to be taken at any meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voting. Prompt notice of the taking of any such
action shall be given to those stockholders who did not consent in writing.
2. BOARD OF DIRECTORS.
2.1 Number, Qualification, Election and Term of Directors. The business
of the corporation shall be managed by the entire Board, which shall consist of
four directors. The number of directors may be changed by resolution of a
majority of the Board or by a majority of the stockholders, but no decrease may
shorten the term of any incumbent director. Directors shall be elected at each
annual meeting of stockholders by a plurality of the votes cast and shall hold
office until the next annual meeting of stockholders and until the election and
qualification of their respective successors, subject to the provisions of
Section 2.9. As used in these by-laws, the term "entire Board" means the total
number of directors which the corporation would have if there were no vacancies
on the Board.
-4-
<PAGE>
2.2 Quorum and Manner of Acting. A majority of the entire Board shall
constitute a quorum for the transaction of business at any meeting, except as
provided in Section 2.10 of these by-laws. Action of the Board shall be
authorized by the vote of a majority of the directors present at the time of the
vote if there is a quorum, unless otherwise provided by law or these by-laws. In
the absence of a quorum a majority of the directors present may adjourn any
meeting from time to time until a quorum is present.
2.3 Place of Meetings. Meetings of the Board may be held in or outside
Delaware.
2.4 Annual and Regular Meetings. Annual meetings of the Board, for the
election of officers and consideration of other matters, shall be held either
(a) without notice immediately after the annual meeting of stockholders and at
the same place, or (b) as soon as practicable after the annual meeting of
stockholders, on notice as provided in Section 2.6 of these by-laws. Regular
meetings of the Board may be held without notice at such times and places as the
Board determines. If the day fixed for a regular meeting is a legal holiday, the
meeting shall be held on the next business day.
2.5 Special Meetings. Special meetings of the Board may be called by
the chairman of the board, or by a majority of the directors.
2.6 Notice of Meetings; Waiver of Notice. Notice of the time and place
of each special meeting of the Board, and of each annual meeting not held
immediately after the annual meeting of stockholders and at the same place,
shall be given to each director by
-5-
<PAGE>
mailing it to him at his residence or usual place of business at least two days
before the meeting, or by delivering or telephoning or telegraphing it to him at
least one day before the meeting. Notice of a special meeting shall also state
the purpose or purposes for which the meeting is called. Notice need not be
given to any director who submits a signed waiver of notice before or after the
meeting or who attends the meeting without protesting at the beginning of the
meeting the transaction of any business because the meeting was not lawfully
called or convened. Notice of any adjourned meeting need not be given, other
than by announcement at the meeting at which the adjournment is taken.
2.7 Board or Committee Action Without a Meeting. Any action required or
permitted to be taken by the Board or by any committee of the Board may be taken
without a meeting if all of the members of the Board or of the committees
consent in writing to the adoption of a resolution authorizing the action. The
resolution and the written consents by the members of the Board or the committee
shall be filed with the minutes of the proceeding of the Board or of the
committee.
2.8 Participation in Board or Committee Meetings by Conference
Telephone. Any or all members of the Board or of any committee of the Board may
participate in a meeting of the Board or of the committee by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at the meeting.
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<PAGE>
2.9 Resignation and Removal of Directors. Any director may resign at
any time by delivering his resignation in writing to the chairman of the board
or the secretary of the corporation, to take effect at the time specified in the
resignation; the acceptance of a resignation, unless required by its terms,
shall not be necessary to make it effective. Any or all of the directors may be
removed at any time, either with or without cause, by majority vote of the
stockholders.
2.10 Vacancies. Any vacancy in the Board, including one created by an
increase in the number of directors, may be filled for the unexpired term by a
majority vote of the remaining directors, though less than a quorum.
2.11 Compensation. Directors shall receive such compensation as the
Board determines, together with reimbursement of their reasonable expenses in
connection with the performance of their duties. A director may also be paid for
serving the corporation, its affiliates or subsidiaries in other capacities.
3. COMMITTEES.
3.1 Executive Committee. The Board, by resolution adopted by a majority
of the entire Board, may designate an Executive Committee of one or more
directors which shall have all the powers and authority of the Board, except as
otherwise provided in the resolution, section 141(c) of the Delaware General
Corporation Law, or any other applicable law. The members of the Executive
Committee shall serve at the pleasure of the Board. All action of the Executive
Committee shall be reported to the Board at its next meeting.
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<PAGE>
3.2 Other Committees. The Board, by resolution adopted by a majority of
the entire Board, may designate other committees of directors of one or more
directors, which shall serve at the Board's pleasure and have such powers and
duties as the Board determines.
3.3 Rules Applicable to Committees. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In the absence or
disqualification of any member of a committee, the member or members present at
a meeting of the committee and not disqualified, whether or not a quorum, may
unanimously appoint another director to act at the meeting in place of the
absent or disqualified member. All action of a committee shall be reported to
the Board at its next meeting. Each committee shall adopt rules of procedure and
shall meet as provided by those rules or by resolutions of the Board.
4. OFFICERS.
4.1 Number; Security. The executive officers of the corporation shall
be the chairman of the board, the president, one or more vice presidents
(including one or more executive vice presidents, if the Board so determines), a
secretary and a treasurer. Any two or more offices may be held by the same
person. The Board may require any officer, agent or employee to give security
for the faithful performance of his duties.
4.2 Election; Term of Office. The executive officers of the corporation
shall be elected annually by the Board, and each such officer shall hold office
until the next
-8-
<PAGE>
annual meeting of the Board and until the election of his successor, subject to
the provisions of Section 4.4.
4.3 Subordinate Officers. The Board may appoint subordinate officers
(including assistant secretaries and assistant treasurers), agents or employees,
each of whom shall hold office for such period and have such powers and duties
as the Board determines. The Board may delegate to any executive officer or to
any committee the power to appoint and define the powers and duties of any
subordinate officers, agents or employees.
4.4 Resignation and Removal of Officers. Any officer may resign at any
time by delivering his resignation in writing to chairman of the board, the
president or secretary of the corporation, to take effect at the time specified
in the resignation; the acceptance of a resignation, unless required by its
terms, shall not be necessary to make it effective. Any officer elected or
appointed by the Board or appointed by an executive officer or by a committee
may be removed by the Board either with or without cause, and in the case of an
officer appointed by an executive officer or by a committee, by the officer or
committee which appointed him or by the chairman of the board.
4.5 Vacancies. A vacancy in any office may be filled for the unexpired
term in the manner prescribed in Sections 4.2 and 4.3 of these by-laws for
election or appointment to the office.
-9-
<PAGE>
4.6 Chairman of the Board. The chairman of the board shall preside at
all meetings of the Board and of the stockholders, and shall have such powers
and duties as the Board assigns to him.
4.7 The President. The president shall serve as the chief executive and
operating officer of the corporation, subject to the control of the Board, and
the chairman of the board.
4.8 Vice President. Each vice president shall have such powers and
duties as the Board or the chairman of the board assigns to him.
4.9 The Treasurer. The treasurer shall be the chief financial officer
of the corporation and shall be in charge of the corporation's books and
accounts. Subject to the control of the Board, he shall have such other powers
and duties as the Board or the chairman of the board assigns to him.
4.10 The Secretary. The secretary shall be the secretary of, and keep
the minutes of, all meetings of the Board and of the stockholders, shall be
responsible for giving notice of all meetings of stockholders and of the Board,
and shall keep the seal and, when authorized by the Board, apply it to any
instrument requiring it. Subject to the control of the Board, he shall have such
powers and duties as the Board or the chairman of the board assigns to him. In
the absence of the secretary from any meeting, the minutes shall be kept by the
person appointed for that purpose by the presiding officer.
-10-
<PAGE>
4.11 Salaries. The Board may fix the officers' salaries, if any, or it
may authorize the chairman of the board to fix the salary of any other officer.
5. SHARES.
5.1 Certificates. The corporation's shares shall be represented by
certificates in the form approved by the Board. Each certificate shall be signed
by the chairman of the board, the president or an executive vice president, and
by the secretary or the treasurer, and shall be sealed with the corporation's
seal or a facsimile of the seal. Any or all of the signatures on the certificate
may be a facsimile.
5.2 Transfers. Shares shall be transferable only on the corporation's
books, upon surrender of the certificate for the shares, properly endorsed. The
Board may require satisfactory surety before issuing a new certificate to
replace a certificate claimed to have been lost or destroyed.
5.3 Determination of Stockholders of Record. The Board may fix, in
advance, a date as the record date for the determination of stockholders
entitled to notice of or to vote at any meeting of the stockholders, or to
express consent to or dissent from any proposal without a meeting, or to receive
payment of any dividend or the allotment of any rights, or for the purpose of
any other action. The record date may not be more than 60 or less than 10 days
before the date of the meeting or more than 60 days before any other action.
-11-
<PAGE>
6. INDEMNIFICATION.
The corporation shall indemnify and advance litigation expenses to the
fullest extent permitted by Section 145 of the General Corporation Law of
Delaware, as amended from time to time and consistent with the corporation's
Certificate of Incorporation, to each person who is or was an officer or
director of the corporation and is or was a party or is threatened to be made a
party to any action, suit or proceeding by reason of the fact that such officer
or director is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
7. MISCELLANEOUS.
7.1 Seal. The Board shall adopt a corporate seal, which shall be in the
form of a circle and shall bear the corporation's name and the year and state in
which it was incorporated.
7.2 Fiscal Year. The Board may determine the corporation's fiscal year.
Until changed by the Board, the last day of the corporation's fiscal year shall
be the last Saturday in December in each year, and the following fiscal year
shall begin on the next day.
7.3 Voting of Shares in Other Corporations. Shares in other
corporations which are held by the corporation may be represented and voted by
the Board, chairman of the board, the president or an executive vice president
of this corporation or by a proxy or proxies
-12-
<PAGE>
appointed by one of them. The Board may, however, appoint some other person to
vote the shares.
7.4 Amendments. By-laws may be amended, repealed or adopted by the
stockholders or by a majority of the entire Board, but any by-law adopted by the
Board may be amended or repealed by the stockholders.
-13-
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
- --------------------------------------------------------------------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE TRUST
INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2)
HSBC Bank USA
(Exact name of trustee as specified in its charter)
New York 16-1057879
(Jurisdiction of incorporation (I.R.S. Employer
or organization if not a U.S. Identification No.)
national bank)
140 Broadway, New York, NY 10005-1180
(212) 658-1000 (Zip Code)
(Address of principal executive offices)
Warren L. Tischler
Senior Vice President
HSBC Bank USA
140 Broadway
New York, New York 10005-1180
Tel: (212) 658-5167
(Name, address and telephone number of agent for service)
Golden Books Publishing Company, Inc.
(Exact name of obligor as specified in its charter)
Delaware 39-0975399
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
888 Seventh Avenue
New York, New York 10106
(212) 547-6700 (Zip Code)
(Address of principal executive offices)
10% Senior Secured Notes due 2004
(Title of Indenture Securities)
<PAGE>
General
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to which it
is subject.
State of New York Banking Department.
Federal Deposit Insurance Corporation, Washington, D.C.
Board of Governors of the Federal Reserve System, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Yes.
Item 2. Affiliations with Obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None
<PAGE>
Item 16. List of Exhibits.
Exhibit
T1A(i) - Copy of the Organization Certificate of HSBC
Bank USA as amended on December 17, 1998.
T1A(ii) - Certificate of the State of New York Banking
Department dated December 31, 1993 as to the
authority of HSBC Bank USA to commence
business, as amended effective on March 29,
1999.
T1A(iii) - Not applicable.
T1A(iv) - Copy of the existing By-Laws of HSBC Bank USA
as adopted on January 20, 1994 as amended on
October 23, 1997.
T1A(v) - Not applicable.
T1A(vi) * - Consent of HSBC Bank USA required by Section
321(b) of the Trust Indenture Act of 1939.
T1A(vii) - Copy of the latest report of condition of the
trustee (March 31, 1999), published pursuant
to law or the requirement of its supervisory
or examining authority.
T1A(viii) - Not applicable.
TlA(ix) - Not applicable.
* Exhibits previously filed with the Securities and Exchange
Commission with Registration No. 33-53693 and incorporated herein by
reference thereto.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the Trustee,
HSBC Bank USA, a banking corporation and trust company organized under the laws
of the State of New York, has duly caused this statement of eligibility to be
signed on its behalf by the undersigned, thereunto duly authorized, all in the
City of New York and State of New York on the 1st day of July, 1999.
HSBC BANK USA
By: /s/ Metin Caner
-----------------------------------------
Metin Caner
Vice President
<PAGE>
Exhibit T1A(i)
CERTIFICATE OF AMENDMENT
OF THE ORGANIZATION CERTIFICATE OF
MARINE MIDLAND BANK
UNDER SECTION 8005 OF THE BANKING LAW
1. The name of the corporation is Marine Midland Bank.
2. The Organization Certificate of Marine Midland Bank was filed by the
Superintendent of Banks on December 31, 1993, and amended effective February 28,
1997.
3. Section FIRST of the Organization Certificate of Marine Midland Bank is
hereby amended to read as follows:
FIRST. That the name by which the corporation is to be known is HSBC
Bank USA.
4. The foregoing amendment was authorized by the Board of Directors of
Marine Midland Bank at a regular meeting held on December 17, 1998, and by the
unanimous written consent of HSBC Americas, Inc., the sole shareholder of Marine
Midland Bank.
/s/ I. Malcolm Burnett
------------------------------------------
I. Malcolm Burnett
President and Chief Executive Officer
/s/ Philip S. Toohey
------------------------------------------
Philip S. Toohey
Secretary
<PAGE>
STATE OF NEW YORK )
) SS.:
COUNTY OF ERIE )
On this 11th, day of February, 1999, before me personally came I. Malcolm
Burnett, to me known, who, being by me duly sworn, did depose and say that he
resides in East Aurora, New York, that he is President and Chief Executive
Officer of Marine Midland Bank, the corporation described in and which executed
the foregoing instrument; and that he signed his name thereto by order of the
Board of Directors of said corporation; and he verified that the information
contained therein is true.
/s/ Vicki L. Barbus
----------------------------------------
Notary Public
STATE OF NEW YORK )
) SS.:
COUNTY OF ERIE )
On this 11th day of February, 1999, before me personally came Philip S.
Toohey, to me known, who, being by me duly sworn, did depose and say that he
resides in Orchard Park, New York, that he is Executive Vice President General
Counsel and Secretary of Marine Midland Bank, the corporation described in and
which executed the foregoing instrument; and that he signed his name thereto by
order of the Board of Directors of said corporation; and he verified that the
information contained therein is true.
/s/ Vicki L. Barbus
----------------------------------------
Notary Public
<PAGE>
Exhibit T1A(ii)
State of New York,
Banking Department
I, ROBERT H. McCORMICK, Deputy Superintendent of Banks of the State of New York,
DO HEREBY APPROVE the annexed certificate entitled "Certificate of Amendment of
the Organization Certificate of MARINE MIDLAND BANK under Section 8005 of the
Banking Law" dated February 11, 1999, providing for a change of name from MARINE
MIDLAND BANK to HSBC BANK USA effective March 29,1999.
WITNESS, my hand and official seal of the Banking Department at the City of New
York, this 4th day of March in the Year of our Lord one thousand nine hundred
and ninety-nine.
/s/ Robert H. McCormick
----------------------------------------
<PAGE>
State of New York
Banking Department
Know all Men by these Presents, Whereas, the organization certificate of MARINE
MIDLAND BANK of Buffalo, New York has heretofore been duly approved and said
MARINE MIDLAND BANK has complied with the provisions of Chapter 2 of the
Consolidated Laws, in respect of the conversion of MARINE MIDLAND BANK, N.A.
into a State trust company under the name MARINE MIDLAND BANK,
Now Therefore, I, DERRICK D. CEPHAS, as Superintendent of Banks of the
State of New York, do hereby authorize the said MARINE MIDLAND BANK to transact
the business of a Trust Company at One Marine Midland Center, Buffalo, Erie
County within this State.
In Witness Whereof, I have hereunto set
my hand and affixed the official seal of
the Banking Department, this 31st day of
December in the year one thousand nine
hundred and ninety-three.
/s/ Derrick D. Cephas
-----------------------------------
Superintendent
<PAGE>
State of New York,
Banking Department
I, MANUEL KURSKY, Deputy Superintendent of Banks of the State of New York, DO
HEREBY APPROVE the annexed certificate entitled "Certificate of Amendment of the
Organization Certificate of MARINE MIDLAND BANK under Section 8005 of the
Banking Law" dated February 28, 1997, providing for increase of capital stock
from $185,000,000 to $225,000,000.
IN WITNESS WHEREOF, I have hereunto set my hand
and affixed the official seal of the Banking
Department at New York, New York, this 28th day of
February, 1997.
/s/ Manuel Kursky
------------------------------------
Deputy Superintendent of Banks
<PAGE>
ORGANIZATION CERTIFICATE
OF
" Marine Midland Bank "
We, the undersigned all being of full age, all but one of us being citizens
of the United States and all of us being residents of the State of New York,
having associated ourselves together for the purpose of forming a trust company
under and pursuant to the Banking Law of the State of New York, do hereby
certify:
FIRST. That the name by which the corporation is to be known is Marine
Midland Bank
SECOND. That the place where its principal office is to be located is
Buffalo, New York
THIRD. That the amount of its capital stock is to be One Hundred
Eighty-five Million and no/100 Dollars ($185,000,000.00) and the number of
shares into which such capital stock is to be divided is 1,850,000 with a par
value of $100.00 each.
FOURTH. The shares are not to be classified as preferred and common.
If the shares are to be classified,
(a) The number and par value of shares to be included in each class are as
follows:
not applicable
- --------------------------------------------------------------------------------
(b) All the designations, preferences, privileges and voting powers of the
shares of each class, and the restrictions or qualifications thereof
are as follows:
not applicable
- --------------------------------------------------------------------------------
(Attach additional pages if required)
<PAGE>
(c) The number of shares of common stock which are to be reserved for
issuance in exchange for preferred shares or otherwise to replace any
capital stock represented by preferred shares is none
FIFTH. The name, place of residence and citizenship of each incorporator,
and the number of shares subscribed for by each are:
Full name Residence *Citizenship No. of
Shares
James H. Cleave New York Canada 0
- --------------------- --------- -------------- ------
John M. Endries New York New York 0
- --------------------- --------- -------------- ------
Bernard J. Kennedy New York New York 0
- --------------------- --------- -------------- ------
Northrup R. Knox New York New York 0
- --------------------- --------- -------------- ------
Henry J. Nowak New York New York 0
- --------------------- --------- -------------- ------
- ---------
* If a citizen of New York or a contiguous state, insert name of such
state.
SIXTH. The term of existence of the corporation is to be perpetual
SEVENTH. The number of directors is to be not less than seven or more than
thirty
EIGHTH. The names of the incorporators who shall be the directors until the
first annual meeting of stockholders are:
James H. Cleave John M. Endries Bernard J. Kennedy
- ----------------- ---------------- ------------------
Northrup R. Knox Henry J. Nowak
- ----------------- ----------------
<PAGE>
NINTH. The corporation is to exercise the powers conferred by Section 100
of the Banking Law.
IN WITNESS WHEREOF, We have made, signed and acknowledged this certificate
in duplicate, this 16th day of September 1993
/s/ James H. Cleave
---------------------- -------------------------------
/s/ John M. Endries
---------------------- -------------------------------
/s/ Bernard J. Kennedy
---------------------- -------------------------------
/s/ Northrup R. Knox
---------------------- -------------------------------
/s/ Henry J. Nowak
---------------------- -------------------------------
STATE OF NEW YORK
ss.:
County of Erie
On this 16th day of September 1993 personally appeared before me
James H. Cleave, John M. Endries, Bernard J. Kennedy,
Northrup R. Knox, Henry J. Nowak
-----------------------------
- ---------------------- ------------------- -----------------------------
- ---------------------- ------------------- -----------------------------
- ---------------------- ------------------- -----------------------------
to me known to be the persons described in and who executed the foregoing
certificate, and severally acknowledged that they executed the same.
/s/ Helen Kujawa
-------------------------------
Attach County Clerk's certificate authenticating
signature of Notary Public who takes acknowledgments.
<PAGE>
NINTH. The corporation is to exercise the powers conferred by Section 100
of the Banking Law.
IN WITNESS WHEREOF, We have made, signed and acknowledged this certificate
in duplicate, this 16th day of September 1993
/s/ James H. Cleave
- --------------------------------- -------------------------------
/s/ John M. Endries
- --------------------------------- -------------------------------
/s/ Bernard J. Kennedy
- --------------------------------- -------------------------------
/s/ Northrup R. Knox
- --------------------------------- -------------------------------
/s/ Henry J. Nowak
- --------------------------------- -------------------------------
STATE of NEW YORK
ss.:
County of Erie
On this 16th day of September 1993 personally appeared before me
James H. Cleave, John M. Endries, Bernard J. Kennedy,
Northrup R. Knox, Henry J. Nowak
-----------------------------
- ---------------------- ------------------- -----------------------------
- ---------------------- ------------------- -----------------------------
STATE OF NEW YORK, ss.
COUNTY OF ERIE
I, David J. Swarts, Clerk of the County
of Erie, and also Clerk of the Supreme
and County Courts for said County, the
same being Courts of Record, do hereby
certify that Helen Kujawa whose name is
subscribed to the deposition,
certificate of acknowledgment of proof
of the annexed instrument, was at the
time of taking the same a NOTARY PUBLIC
in and for the State of New York, duly
commissioned and sworn and qualified to
act as such throughout the State of New
York; that pursuant to law a commission,
or a certificate of his appointment and
qualifications and his autograph
signature, have been filed in my office:
that as such Notary Public he was duly
authorized by the laws of the State of
New York to administer oaths and
affirmations to receive and certify the
acknowledgment of proof of deeds,
mortgages, powers of attorney and other
written instruments for lands, tenements
and hereditaments to be read in evidence
or recorded in this State, to protect
notes and to take and certify affidavits
and depositions; and that I am well
acquainted with the handwriting of such
Notary Public, or have compared the
signature on the annexed instrument with
his autograph signature deposited in my
office, and believe that the signature
is genuine.
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of said
County and Courts at Buffalo, this 17 day of September, 1993
N.P. No. 7502 /s/ David J. Swarts
-------------------------------
David J. Swarts
Clerk
<PAGE>
ORGANIZATION CERTIFICATE
OF
" Marine Midland Bank __________________
_______________________________________"
Received this ___________________ day of
____________________________ 19__
Superintendent of Banks
Filed for examination this _____________
day of ____________________________ 19__
__________________________________
Superintendent of Banks
__________________ by the Banking Board,
at a meeting held on the _______________
day of ____________________________ 19__
__________________________________
Secretary of the Banking Board
________________________________________
this ________ day of ______________ 19__
__________________________________
Superintendent of Banks
Filed in the office of
________________________________________
this ________ day of ______________ 19__
________________________________________
Recorded in the office of
________________________________________
this ________ day of ______________ 19__
========================================
<PAGE>
Exhibit T I A(iv)
(Adopted January 20, 1994;
Amended October 23, 1997;
Name Changed March 29, 1999)
BY-LAWS
Of
HSBC BANK USA
(Formerly known as MARINE MIDLAND BANK)
ARTICLE I
STOCKHOLDERS' MEETINGS
Section 1.1 Annual Meeting.
The annual meeting of the stockholders for the election of
directors and the transaction of such other business as may properly come before
the meeting shall be held in April each year at the office of the Bank, One HSBC
Center, City of Buffalo, State of New York.
Section 1.2 Special Meetings.
Except as otherwise specifically provided by statute, special
meetings of the stockholders may be called for any purpose at any time by the
Board of Directors, the Chairman of the Board, the President, the Chief
Executive Officer or the Secretary at such place and time and on such day as may
be designated in the notice of meeting. Business transacted at all special
meetings of stockholders shall be confined to the purposes stated in the notice
of meeting.
Section 1.3 Quorum.
The holders of a majority of the stock issued and outstanding,
and entitled to vote thereat present in person or represented by proxy, shall
constitute a quorum at all meetings of stockholders, unless otherwise provided
by law.
Section 1.4 Voting.
a. At any meeting of the stockholders each stockholder may vote in
person or by proxy duly authorized in writing. Each stockholder shall at every
meeting of stockholders be entitled to one vote for each share of stock held by
such stockholder. A majority of the votes cast shall decide every question or
matter submitted to the stockholders at any meeting, unless otherwise provided
by law or by the Organization Certificate.
1
<PAGE>
b. Any action required to be taken at an annual or special meeting of
stockholders may be taken without a meeting by written consent setting forth the
action and signed by the holders of all of outstanding shares entitled to vote
thereon.
Section 1.5 Notice of Meeting.
Written notice of each meeting of stockholders stating the
place, date and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called and the person or persons
calling the meeting, shall be delivered personally or shall be mailed postage
prepaid to each stockholder entitled to vote at such meeting, directed to the
stockholder at his or her address as it appears on the records of the Bank, not
less than ten or more than fifty days before the date of the meeting.
ARTICLE II
DIRECTORS
Section 2.1 Board of Directors.
The Board of Directors (the "Board") shall have power to
manage and administer the business and affairs of the Bank and, except as
expressly limited by law, all corporate powers of the Bank shall be vested in
and may be exercised by the Board unless such powers are required by statute,
the Organization Certificate or these By-Laws to be exercised by the
stockholders.
Section 2.2 Number and Term.
The Board shall consist of not less than seven or more than
thirty directors, the exact number within such minimum and maximum limits to be
fixed and determined from time to time by resolution of a majority of the entire
Board or by resolution of the stockholders at any meeting of stockholders.
Unless sooner removed or disqualified, each director shall hold office until the
next annual meeting of the stockholders and until the director's successor has
been elected and qualified.
Section 2.3 Organization Meeting.
At its first meeting after each annual meeting of
stockholders, the Board shall choose a Chairman of the Board, a President and a
Chief Executive Officer from its own members and otherwise organize the new
Board and appoint officers of the Bank for the succeeding year.
Section 2.4 Chairman of the Board.
The Chairman of the Board shall preside at all meetings of
the Board and of stockholders and perform such duties as shall be assigned from
time to time by the Board. In the
2
<PAGE>
absence of the Chairman of the Executive Committee, the Chairman of the Board
shall act as Chairman of the Executive Committee. Except as may be otherwise
provided by the By-Laws or the Board, the Chairman of the Board shall be a
member ex officio of all committees authorized by these By-Laws or the Board.
The Chairman of the Board shall be kept informed by the executive officers about
the affairs of the Bank.
Section 2.5 Regular Meetings.
The regular meetings of the Board shall be held each month
at the time and location designated by the Board. No notice of a regular meeting
shall be required if the meeting is held according to a schedule of regular
meetings approved by the Board.
Section 2.6 Special Meetings.
Special meetings of the Board may be called by the Chairman
of the Board, the President, the Chief Executive Officer or the Secretary or at
the written request of any three or more directors. Each member of the Board
shall be given notice stating the time and place of each such special meeting by
telegram, telephone or similar electronic means or in person at least one day
prior to such meeting, or by mail at least three days prior.
Section 2.7 Quorum.
One third of the entire Board shall constitute a quorum at
any meeting, except when otherwise provided by law. If a quorum is not present
at any meeting, a majority of the directors present may adjourn the meeting, and
the meeting may be held, as adjourned, without further notice provided that a
quorum is then present. The act of a majority of the directors present at any
meeting at which there is a quorum shall be the act of the Board, unless
otherwise specifically provided by statute, the Organization Certificate or
these By-Laws.
Section 2.8 Vacancies.
When any vacancy occurs among the directors, the remaining
members of the Board may appoint a director to fill each such vacancy at any
regular meeting of the Board or at a special meeting called for that purpose.
Any director so appointed shall hold office until the next annual meeting of the
stockholders and until the director's successor has been elected and qualified,
unless sooner displaced.
Section 2.9 Removal of Directors.
Any director may be removed either with or without cause, at
any time, by a vote of the holders of a majority of the shares of the Bank at
any meeting of stockholders called for that purpose. A director may be removed
for cause by vote of a majority of the entire Board.
3
<PAGE>
Section 2.10 Compensation of Directors.
The Board shall fix the amounts to be paid directors for
their services as directors and for their attendance at the meetings of the
Board or of committees or otherwise. No director who receives a salary from the
Bank shall receive any fee for attending meetings of the Board or of any of its
committees.
Section 2.11 Action by the Board.
Except as otherwise provided by law, corporate action to be
taken by the Board shall mean such action at a meeting of the Board or the
Executive Committee of the Board. Any one or more members of the Board of any
committee may participate in a meeting of the Board or committee by means of a
conference telephone or similar communications equipment allowing all persons
participating in the meeting to hear each other at the same time. Participation
by such means shall constitute presence in person at a meeting.
Section 2.12 Waiver of Notice.
Notice of a meeting need not be given to any director who
submits a signed waiver of notice before or after the meeting or who attends the
meeting without protesting the lack of such notice prior to or at the
commencement of the meeting.
Section 2.13 Advisory and Regional Boards.
The Board, the Chairman of the Board, the President, the
Chief Executive Officer or any Regional President may establish Advisory Boards
or Regional Boards and committees thereof for any one or more of the Bank's
regions, offices, or departments and make or authorize appointments to be made
thereto. Appointees to such boards and committees need not be stockholders,
directors or officers of the Bank, and they shall have and perform only such
functions as may be assigned to them by, shall serve at the pleasure of, and
shall be compensated by fees fixed by the Board, the Chairman of the Board, the
President, the Chief Executive Officer or the Regional President making the
appointment.
4
<PAGE>
ARTICLE III
COMMITTEES OF THE BOARD
Section 3.1 Executive Committee.
a. There shall be an Executive Committee which shall be composed of at
least five members elected by the Board from among its members at its first
meeting following the annual meeting of stockholders to serve for the ensuing
year and shall include the Chairman of the Board, the President, the Chief
Executive Officer and the Chairman of the Executive Committee, all of which
offices may be held by one person. The Chairman of the Board may appoint one or
more directors as alternate members to serve in place of any absent members of
the Executive Committee. Any vacancy in the Executive Committee shall be filled
by the Board, but until its next regular Board meeting may be filled temporarily
by the Chairman of the Board.
b. The Executive Committee shall possess and exercise all of the
powers of the Board except (i) when the latter is in session and (ii) as
provided otherwise in the New York Banking Law.
Section 3.2 Chairman of the Executive Committee.
The Board shall appoint one of its members to be Chairman of
the Executive Committee. The Chairman of the Board, the President or the Chief
Executive Officer may at the same time be appointed Chairman of the Executive
Committee. The Chairman of the Executive Committee shall preside at all meetings
of the Executive Committee, and the Chairman of the Executive Committee shall,
in the absence of the Chairman of the Board, the President and the Chief
Executive Officer, preside at all meetings of stockholders and the Board. The
Chairman of the Executive Committee shall also perform such other duties and be
vested with such other powers as may from time to time be conferred upon him or
her by these By-Laws or as shall be assigned to him or her from time to time by
the Board or the Chief Executive Officer.
Section 3.3 Meetings of the Executive Committee.
Meetings of the Executive Committee may be called by the
Chairman of the Board, the Chairman of the Executive Committee, the President,
the Chief Executive Officer or the Secretary and may be held at any place and at
any time designated in the notice thereof. Each member of the Executive
Committee shall be given notice stating the time and place of each such meeting,
by telegram, telephone or similar electronic means or in person at least one day
prior to such meeting, or by mail at least three days prior.
Section 3.4 Examining Committee.
The Board shall designate an Examining Committee, which
shall hold office until the next annual meeting of the Board following the
annual meeting of stockholders, consisting of not less than three of its
members, other than officers of the Bank, and whose duty it shall be to
5
<PAGE>
make an examination at least once during each calendar year and within 15 months
of the last such examination into the affairs of the Bank including the
administration of fiduciary powers, or cause suitable examinations to be made by
auditors responsible only to the Board and to report the result of such
examination in writing to the Board. Such report shall state whether the Bank is
in a sound condition, whether adequate internal controls and procedures are
being maintained and shall recommend to the Board such changes in the manner of
conducting the affairs of the Bank as shall be deemed advisable. The committee
shall at such time ascertain whether the Bank's fiduciary responsibilities have
been administered in accordance with law and sound fiduciary principles.
Section 3.5 Other Committees.
The Board may appoint, from time to time, from its own
members, committees of the Board of three or more persons, for such purposes and
with such powers as the Board may determine.
ARTICLE IV
OFFICERS
Section 4.1 Appointment of Officers.
At its annual meeting following the annual meeting of
stockholders, the Board shall appoint from among its members a Chairman of the
Board, a President, a Chief Executive Officer and a Secretary. The Chairman of
the Board or the President may also be appointed as the Chief Executive Officer.
At such meeting, the Board shall also appoint one or more Vice Presidents, and
may at such meeting or at other meetings of the Board appoint such other
officers as it may determine from time to time. The Board may also authorize a
committee of the Board to appoint such officers as are not required to be
appointed by the Board at a meeting.
Section 4.2 Duties of President.
In the absence of the Chairman of the Board, the President
shall preside at all meetings of the Board and of stockholders and in the
absence of the Chairman of the Executive Committee and the Chairman of the Board
shall preside at all meetings of the Executive Committee. Except as may be
otherwise provided by the By-Laws or the Board, the President shall be a member
ex officio of all committees authorized by these By-Laws of the Board. The
President shall have general executive powers, shall participate actively in all
major policy decisions and shall have and may exercise any and all other powers
and duties pertaining by law, regulation or practice to the Office of President
or imposed by these By-Laws. The President shall also have and may exercise such
further powers and duties as from time to time may be conferred or assigned by
the Board or the Chief Executive Officer.
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<PAGE>
Section 4.3 Duties of Chief Executive Officer.
The Chief Executive Officer shall exercise general
supervision over the policies and business affairs of the Bank and the carrying
out of the policies adopted or approved by the Board. Except as otherwise
provided by these By-Laws, the Chief Executive Officer shall have the power to
determine the duties of the officers of the Bank and to employ and discharge
officers and employees. Except as otherwise provided by the By-Laws or the
Board, the Chief Executive Officer shall be a member ex officio of all
committees authorized by these By-Laws or created by the Board. In the absence
of the Chairman of the Board and the President, the Chief Executive Officer
shall preside at all meetings of the Board and of stockholders.
Section 4.4 Duties of Vice Presidents.
Each Vice President shall have such titles, seniority,
powers and duties as may be assigned by the Board, a committee of the Board, the
President or the Chief Executive Officer.
Section 4.5 Secretary.
The Secretary shall be Secretary of the Board and of the
Bank and shall keep accurate minutes of all meetings of stockholders and of the
Board. The Secretary shall attend to the giving of all notices required to be
given by these By-Laws; shall be custodian of the corporate seal, records,
documents and papers of the Bank; shall provide for the keeping of proper
records of all transactions of the Bank; shall have and may exercise any and all
other powers and duties pertaining by law, regulation or practice to the office
of Secretary or imposed by these By-Laws; and shall also perform such other
duties as may be assigned from time to time by the Board, the President or the
Chief Executive Officer.
Section 4.6 Other Officers.
The President or the Chief Executive Officer or his or her
designee may appoint all officers whose appointment does not require approval by
the Board or a committee of the Board and assign to them such titles as from
time to time may appear to be required or desirable to transact the business of
the Bank. Each such officer shall have such powers and duties as may be assigned
by the Board, the President or the Chief Executive Officer.
Section 4.7 Tenure of Office.
The Chairman of the Board, the President, the Chief
Executive Officer, the Chairman of the Executive Committee, the Secretary and
the Vice Presidents shall hold office for the current year for which the Board
was elected and until their successors have been appointed and qualified, unless
they shall resign, become disqualified or be removed. All other officers shall
hold office until their successors have been appointed and qualify, unless they
shall resign, become disqualified or be removed. All other officers shall hold
office until their successors have been appointed and qualify, unless they shall
resign, become disqualified or be removed. The Board shall have the power to
remove the Chairman of the Board, the President, the Chief Executive Officer,
the
7
<PAGE>
Chairman of the Executive Committee and the Secretary. The Board or the Chief
Executive Officer or his or her designee shall have the power to remove all
other officers and employees. Any vacancy occurring in the offices of Chairman
of the Board, President or Chief Executive Officer shall be filled promptly by
the Board.
Section 4.8 Compensation.
The Board shall by resolution determine from time to time
the officers whose compensation will require approval by the Board or a
committee of the Board. The Chief Executive Officer shall fix the compensation
of all officers and employees whose compensation does not require approval by
the Board or a committee of the Board.
Section 4.9 Auditor.
The Board or the Chief Executive Officer shall appoint an
officer to fill the position of Auditor for the Bank and assign to such officer
such title as is deemed appropriate. The Auditor shall perform all duties
incident to the audit of all departments and offices and of all affairs of the
Bank. The Auditor shall be responsible to the Chief Executive Officer. The
Auditor may at any time report to the Board any matter concerning the affairs of
the Bank that, in the Auditor's judgment, should be brought to its attention.
Section 4.10 Regional Presidents.
The Board may appoint one or more Regional Presidents. Each
Regional President shall have such powers and duties as may be assigned by the
Board or the Chief Executive Officer.
ARTICLE V
FIDUCIARY POWERS
Section 5.1 Fiduciary Responsibility.
The Board shall appoint an officer or officers or a
committee or committees of this Bank whose duties shall be to manage, supervise
and direct the fiduciary activities of the Bank as assigned by the Board. Such
officer or committee shall do or cause to be done all things necessary or proper
in carrying on the assigned activities in accordance with provisions of law and
applicable regulations and shall act pursuant to opinion of counsel where such
opinion is deemed necessary. Opinions of counsel shall be retained on file in
connection with all important matters pertaining to fiduciary activities. The
officer or committee shall be responsible for all assets and documents held by
the Bank in connection with fiduciary matters assigned by the Board.
8
<PAGE>
Section 5.2 Fiduciary Files.
Files shall be maintained containing all fiduciary records
necessary to assure that fiduciary responsibilities have been properly
undertaken and discharged.
Section 5.3 Fiduciary Investments.
Funds held in a fiduciary capacity shall be invested in
accordance with the instrument establishing the fiduciary relationship and
applicable law. Where such instrument does not specify the character and class
of investments to be made and does not vest in the Bank a discretion in the
matter, funds held pursuant to such instrument shall be invested in investments
in which corporate fiduciaries may invest under applicable law.
ARTICLE VI
STOCK AND STOCK CERTIFICATES
Section 6.1 Transfers.
Shares of the stock of the Bank shall be transferable on the
books of the Bank, only by the person named in the certificate or by an
attorney, lawfully constituted in writing, and upon surrender of the certificate
therefor. Every person becoming a stockholder by such transfer shall, in
proportion to his or her shares, succeed to all rights of the prior holder of
such shares.
Section 6.2 Stock Certificates.
The certificates of stock of the Bank shall be numbered and
shall be entered in the books of the Bank as they are issued. They shall exhibit
the holder's name and number of shares and shall be signed by the Chairman of
the Board, the President, the Chief Executive Officer or any Vice President and
by the Secretary or an Assistant Secretary.
ARTICLE VII
CORPORATE SEAL
Section 7.1 Corporate Seal.
The Chairman of the Board, the President, the Chief
Executive Officer, the Secretary or any Assistant Secretary, a Vice President or
Assistant Vice President or other officer designated by the Board or the Chief
Executive Officer or his or her designee shall have authority to affix the
corporate seal to any document requiring such seal and to attest the same. Such
seal shall be substantially in the following form: (impression of seal)
9
<PAGE>
ARTICLE VIII
MISCELLANEOUS PROVISIONS
Section 8.1 Fiscal Year.
The fiscal year of the Bank shall be the calendar year.
Section 8.2 Execution of Instruments.
a. All agreements, indentures, mortgages, deeds, conveyances,
transfers, certificates, declarations, receipts, discharges, releases,
satisfactions, settlements, petitions, schedules, accounts, affidavits, bonds,
undertakings, proxies and other instruments or documents may be signed,
executed, acknowledged, verified, delivered or accepted in behalf of the Bank or
in connection with the exercise of the fiduciary powers of the Bank, by the
Chairman of the Board, the President, the Chief Executive Officer, the Secretary
or any other officer, employee (other than the Auditor) or agent designated by
the Board or the Chief Executive Officer or his or her designee. Any such
instruments may also be executed, acknowledged, verified, delivered or accepted
in behalf of the Bank in such other manner and by such other officers as the
Board may from time to time direct. The provisions of this Section 8.2 are
supplementary to any other provision of these By-Laws.
b. When required, the Secretary or any officer or agent
designated by the Board or the Chief Executive Officer or his designee shall
countersign and certify all bonds or certificates issued by the Bank as trustee,
transfer agent, registrar or depository. The Chief Executive Officer or any
officer designated by the Board or the Chief Executive Officer or his or her
designee shall have the power to accept in behalf of the Bank any guardianship,
receivership, executorship, or other special or general trust permitted by law.
Each of the foregoing authorizations shall be at the pleasure of the Board, and
each such authorization by the Chief Executive Officer or his or her designee
also shall be at the pleasure of the Chief Executive Officer.
Section 8.3 Records.
The By-Laws and the proceedings of all meetings of the
stockholders, the Board and standing committees of the Board shall be recorded
in appropriate minute books provided for the purpose. The minutes of each
meeting shall be signed by the Secretary or other officer appointed to act as
secretary of the meeting.
Section 8.4 Emergency Operations.
In the event of war or warlike damage or disaster of
sufficient severity to prevent the conduct and management of the affairs,
business and property of the Bank by its directors and officers as contemplated
by these By-Laws, any two or more available members of the then-incumbent
Executive Committee shall constitute a quorum of that committee for the full
conduct and management of the affairs, business and property of the Bank. In the
event of the unavailability at such time of a minimum of two members of the
then-incumbent Executive
10
<PAGE>
Committee, any three available directors shall constitute the Executive
Committee for the full conduct and management of the affairs, business and
property of the Bank. This by-law shall be subject to implementation by
resolutions of the Board passed from time to time for that purpose, and any
provisions of these By-Laws (other than this section) and any resolutions which
are contrary to the provisions of this section or to the provisions of any such
implementary resolutions shall be suspended until it shall be determined by any
interim Executive Committee acting under this section that it shall be to the
advantage of the Bank to resume the conduct and management of its affairs,
business and property under all of the other provisions of these By-Laws.
Section 8.5 Indemnification.
a. The Bank shall indemnify each person made or threatened to
be made a party to any action or proceeding, whether civil or criminal, by
reason of the fact that such person or such person's testator or intestate is or
was a director or officer of the Bank, or, while a director or officer, serves
or served, at the request of the Bank, any other corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise in any capacity,
against judgments, fines, penalties, amounts paid in settlement and reasonable
expenses, including attorneys' fees, incurred in connection with such action or
proceeding, or any appeal therein, provided that no such indemnification shall
be made if a judgment or other final adjudication adverse to such director or
officer establishes that his or her acts were committed in bad faith or were the
result of active and deliberate dishonesty and were material to the cause of
action so adjudicated, or that he or she personally gained in fact a financial
profit or other advantage to which he or she was not legally entitled, and
provided further that no such indemnification shall be required with respect to
any settlement or other nonjudicated disposition of any threatened or pending
action or proceeding unless the Bank has given its prior consent to such
settlement or other disposition.
b. The Bank shall advance or promptly reimburse upon request any
director or officer seeking indemnification hereunder for all expenses,
including attorneys' fees, reasonably incurred in defending any action or
proceeding in advance or the final disposition thereof upon receipt of an
undertaking by or on behalf of such person to repay such amount if such person
is ultimately found not to be entitled to indemnification or, where
indemnification is granted, to the extent the expenses so advanced or reimbursed
exceed the amount to which such person is entitled.
c. This Section 8.5 shall be given retroactive effect, and the full
benefits hereof shall be available in respect of any alleged or actual
occurrences, acts or failures to act prior to the date of the adoption of this
Section 8.5. The right to indemnification of advancement of expenses under this
Section 8.5 shall be a contract right.
Section 8.6 Amendments.
These By-Laws may be added to, amended, altered or repealed
at any regular meeting of the Board by a vote of a majority of the total number
of the directors, or at any meeting of stockholders, duly called and held, by a
majority of the stock represented at such meeting.
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<PAGE>
I, Helen Kujawa CERTIFY that I am the duly appointed Assistant Corporate
Secretary of HSBC Bank USA, formerly known as Marine Midland Bank, and, as such
officer, have access to its official records and the foregoing By-Laws are the
By-Laws of the Bank, and all of them are now lawfully in force and effect.
IN TESTIMONY WHEREOF, I have hereunto affixed my official signature and the
seal of the Bank, in New York, on June 30, 1999.
[SEAL] /s/ Helen Kujawa
-------------------------------
Assistant Corporate Secretary
12
<PAGE>
Exhibit T1A (vii)
Board of Governors of the Federal Reserve System
OMB Number: 7100-0036
Federal Deposit Insurance Corporation OMB
Number: 3064-0052
Office of the Comptroller of the Currency OMB
Number: 1557-0081
Federal Financial Institutions Examination Council Expires March 31, 2000
- --------------------------------------------------------------------------------
Please refer to page i
Table of Contents, for 1
the required disclosure of
estimated burden.
- --------------------------------------------------------------------------------
Consolidated Reports of Condition and Income for
A Bank With Domestic and Foreign Offices--FFIEC 031
Report at the close of business March 31, 1999 (19980930)
------------
(RCRI 9999)
This report is required by law; 12 U.S.C.
ss.324 (State member banks) 12 U.S.C.ss.161 )
National banks).
This report form is to be filed by
banks with branches and consolidated
subsidiaries in U.S. territories and
NOTE: The Reports of Condition and possessions, Edge or Agreement
income must be signed by an authorized subsidiaries, foreign branches,
officer and the Report of Condition consolidated foreign subsidiaries, or
must be attested to by not less than International Banking Facilities.
two directors (trustees) for State
nonmember banks and three directors The Reports of Condition and Income
for State member and National Banks. are to be prepared in accordance
with Federal regulatory authority
1. Gerald A. Ronning, instructions.
Executive VP & Controller
Name and Title of Officer We, the undersigned directors
Authorized to Sign Report (trustees), attest to the correctness
of this Report of Condition (including
the supporting schedules) and declare
of the named bank do hereby declare that it has been examined by us and to
that these Reports of Condition the best of our knowledge and belief
and income (including the has been prepared in conformance with
supporting schedules) have been the instructions issued by the
prepared in conformance with the appropriate Federal regulatory
instructions issued by the appropriate authority and is true and correct.
Federal regulatory authority and are
true to the best of my knowledge and
believe.
/s/ Gerald A. Ronning /s/ Malcolm Burnett
- ------------------------------------- --------------------------------------
Signature of Officer Authorized to Director (Trustee)
Sign Report
4/22/99 /s/ Bernard J. Kennedy
- ------------------------------------- --------------------------------------
Date of Signature Director (Trustee)
Submission of Reports /s/ Henry J. Nowak
--------------------------------------
Director (Trustee)
(b) in hard-copy (paper) form and
Each Bank must prepare its Reports of arrange for another party to
Condition and Income either: convert the paper report to
automated for. That party (if
other than EDS) must transmit the
bank's computer data file to EDS
(a) in automated format then file the
computer data file directly with To fulfill the signature and
the banking agencies' collection attestation requirement for the
agent, Electronic Data System Reports of Condition and Income for
Corporation (EDS), by modem or this report date, attach this
computer diskette, or signature page to the hard-copy of
the completed report that the bank
places in its files.
- ------------------------------------- --------------------------------------
FDIC Certificate Number 0 0 5 8 9
(RCRI 9030)
- --------------------------------------------------------------------------------
13
<PAGE>
REPORT OF CONDITION
Consolidating domestic and foreign subsidiaries of the
HSBC Bank USA of Buffalo
- ------------------------------------------------------
Name of Bank City
in the state of New York, at the close of business March 31, 1999
ASSETS
Cash and balances due from depository institutions: Thousands of dollars
Non-interest-bearing balances currency and coin $ 916,342.00
- --------------------------------------------------------------------------------
Interest-bearing balances 2,575,819
- --------------------------------------------------------------------------------
Held-to-maturity securities -
- --------------------------------------------------------------------------------
Available-for-sale securities 3,882,418
- --------------------------------------------------------------------------------
Federal funds sold and securities purchased
under agreements to resell 736,181
- --------------------------------------------------------------------------------
Loans and lease financing receivables:
Loans and leases net of unearned income $23,594,804.00
- --------------------------------------------------------------------------------
LESS: Allowance for loan and lease losses 384,303
- --------------------------------------------------------------------------------
LESS: Allocated transfer risk reserve
- --------------------------------------------------------------------------------
Loans and lease, net of unearned income,
allowance, and reserve $23,210,501.00
- --------------------------------------------------------------------------------
Trading assets 802,364
- --------------------------------------------------------------------------------
Premises and fixed assets (including
capitalized leases) 206,673.00
- --------------------------------------------------------------------------------
Other real estate owned 4,519.00
- --------------------------------------------------------------------------------
Investments in unconsolidated subsidiaries
and associated companies -
- --------------------------------------------------------------------------------
Customers' liability to this bank on acceptances
outstanding 204,508.00
- --------------------------------------------------------------------------------
Intangible assets 486,156.00
- --------------------------------------------------------------------------------
Other assets 557,399
- --------------------------------------------------------------------------------
Total assets $33,581,880.00
- --------------------------------------------------------------------------------
14
<PAGE>
LIABILITIES
Deposits:
In domestic offices $ 21,967,867.00
- --------------------------------------------------------------------------------
Non-interest-bearing $ 2,869,593.00
- --------------------------------------------------------------------------------
Interest-bearing 19,098,274.00
- --------------------------------------------------------------------------------
In foreign offices, Edge and Agreement
subsidiaries, and IBFs $ 5,258,860.00
- --------------------------------------------------------------------------------
Non-interest-bearing -
- --------------------------------------------------------------------------------
Interest-bearing $ 5,258,860
- --------------------------------------------------------------------------------
Federal funds purchased and securities sold
under agreements to repurchase $ 812,222.00
- --------------------------------------------------------------------------------
Demand notes issued to the U.S. Treasury 57,808
- --------------------------------------------------------------------------------
Trading Liabilities 71,648
- --------------------------------------------------------------------------------
Other borrowed money (including mortgage indebtedness
and obligations under capitalized leases
- --------------------------------------------------------------------------------
With a remaining maturity of one year or less 1,211,163
- --------------------------------------------------------------------------------
With a remaining maturity of more than one
year through three years 76,041
- --------------------------------------------------------------------------------
With a remaining maturity of more than three years 237,506
- --------------------------------------------------------------------------------
Bank's liability on acceptances executed and outstanding 204,508
- --------------------------------------------------------------------------------
Subordinated notes and debentures 698,089
- --------------------------------------------------------------------------------
Other liabilities 615,573
- --------------------------------------------------------------------------------
Total liabilities $ 31,211,285.00
- --------------------------------------------------------------------------------
EQUITY CAPITAL
- --------------------------------------------------------------------------------
Perpetual preferred stock and related surplus $ -
- --------------------------------------------------------------------------------
Common Stock 205,000
- --------------------------------------------------------------------------------
Surplus 1,987,058
- --------------------------------------------------------------------------------
Undivided profits and capital reserves 164,349
- --------------------------------------------------------------------------------
Net unrealized holding gains (losses) on
available-for-sale securities 14,188
- --------------------------------------------------------------------------------
Accumulated net gain (losses) on cash flow hedges -
- --------------------------------------------------------------------------------
Cumulative foreign currency translation adjustments -
- --------------------------------------------------------------------------------
Total equity capital 2,370,595
- --------------------------------------------------------------------------------
Total liabilities and equity capital $ 33,581,880.00
- --------------------------------------------------------------------------------
15
