SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 26, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ...... to ......
Commission file number 0-14399
Golden Books Family Entertainment, Inc.
(Exact name of registrant as specified in its charter)
Delaware 06-1104930
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
888 Seventh Avenue, 40th Floor, New York, New York 10106
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 547-6700
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
par value $ .01 per share
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes X or No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant was $8,206,836, computed by reference to the
bid price as quoted on the OTC Bulletin Board on April 6, 1999 of approximately
$0.29.* As of April 6, 1999, 28,299,434 shares of Common Stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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* For purposes of this calculation, all outstanding shares of Common
Stock have been considered held by non-affiliates other than the
6,546,353 shares held by directors and certain principal shareholders.
In making such calculation, the Registrant does not determine the
affiliate or non-affiliate status of any shares for any other purpose.
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GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
December 26, 1998
INDEX
PART I
ITEM 1. BUSINESS............................................................1
ITEM 2. PROPERTIES..........................................................8
ITEM 3. LEGAL PROCEEDINGS...................................................9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS................................................12
ITEM 6. SELECTED FINANCIAL DATA............................................13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS..............................................14
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................26
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE...........................................27
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT..................28
ITEM 11. EXECUTIVE COMPENSATION..............................................30
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT......34
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.....39
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PART I
In February 1999, the Registrant reached an agreement with its major creditors
pursuant to which its existing long term debt would be significantly reduced. In
accordance with that agreement, the Registrant and two of its subsidiaries,
Golden Books Publishing Company, Inc. ("Golden Books Publishing") and Golden
Books Home Video, Inc. ("GBHV" and collectively with the Registrant and Golden
Books Publishing, the "Debtors") on February 26, 1999 filed petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code. The
Debtors have filed a Joint Plan of Reorganization and a Disclosure Statement
pursuant to Section 1125 of the Bankruptcy Code, both of which are exhibits to
this Form 10-K. The Debtors hope to confirm and consummate the Plan of
Reorganization by June or July of 1999. See "Item 1. Business -- Recent Events,"
below. As used herein, the "Company" refers to Golden Books Family
Entertainment, Inc. (the "Registrant"), its subsidiaries, and the Debtors as
debtors-in-possession.
ITEM 1. BUSINESS
The Company publishes, produces, licenses and markets an extensive range of
children's books and family related entertainment products. The Company has
three business segments, which it operates primarily through its principal
operating subsidiary, Golden Books Publishing Company, Inc. ("Golden Books
Publishing"): (1) Consumer Products, which includes its Children's and Adult
Publishing divisions, (2) Entertainment, which operates as the Golden Books
Entertainment Group division ("GBEG"), and (3) Commercial Products, through its
Commercial Printing division. For certain financial information with respect to
the Company's business segments see note 18 to the Company's Consolidated
Financial Statements herein.
On March 11, 1999, the Company signed an agreement to sell its Adult Publishing
division to St. Martin's Press, Inc., subject to certain conditions. On March
25, 1999, the bankruptcy court gave final approval authorizing the closing of
the sale, which has not yet occurred.
Consumer Products
Children's Publishing. Golden Books 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, puzzles, educational workbooks,
reference books, novelty books, chapter books and electronic storybooks. 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 by the Company from third parties, such as Disney (A Bug's Life,
Mulan), Mattel (Barbie) and Mercer Mayer (Little Critters).
The Children's Publishing division's products have traditionally been designed
primarily for children up to age seven and have been distributed mainly through
mass market channels (which include national discount store chains, such as
Wal-Mart, K mart, Target and Toys "R" Us). The Company has also sold children's
products through bookstores and other retailers (children's educational
specialty retailers, other toy stores, supermarkets, drugstores and warehouse
clubs), special markets (such as school book clubs, school book fairs, paperback
jobbers, catalogue sales and educational institutions) and international
channels.
The Company's Children's Publishing products fall into four broad categories:
(i) "Classic Format," (ii) education and reference,(iii) trade and novelty and
(iv) electronic storybooks.
(i) Classic Format Products
The Company's Classic Format category of products consists of storybooks and
coloring/activity books and products, as described below. This category of
products accounts for the largest share of the Company's Children's Publishing
revenues and unit sales. Most products in the Classic Format category are high
volume products that carry a retail price under $5.00. The volume and price
point of these products makes them particularly attractive to mass market
retailers, although Classic Format products are distributed through other
channels to a lesser extent. In 1998, the Company
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continued to introduce new Classic Format products with higher price points
which were sold through mass market channels, in bookstores and in specialty
retail stores. Effective January 1, 1999, the Company raised prices on selected
products, principally in the Classic Format Category.
Storybooks are published principally under the Golden Books, Little Golden Books
and Golden Look Look trademarks. In addition to storybooks in the foregoing
formats, the Company also publishes paperback books and touch and feel books for
babies, including Pat the Bunny.
Coloring/activity books and products include coloring books, paint books,
sticker books, paper doll books, crayons and boxed activity products. The
Company markets these products under the Golden Books and Merrigold Press
trademarks.
The Company's coloring/activity books and products generally are designed to be
appropriate for children ages three to five and are designed to encourage
age-appropriate activities, particularly the development of artistic and motor
skills. They contain less thematic material than the Company's storybooks and
focus primarily on images and scenes utilizing licensed or owned characters.
(ii) Education and Reference
The Company's education and reference products consist of Road to Reading (a
level reading series), workbooks, flashcards and reference books. The Company's
workbook and flashcard products have price points between $2.00 and $3.50 and
its Road to Reading books have price points between $4.00 and $5.00. All such
products are sold primarily through mass market outlets, although the Company
continues to take advantage of sales opportunities for these products through
bookstores, specialty retail and special markets distribution channels. The
Company first began publishing its Road to Reading level reading series in 1998
using its existing characters and titles, as well as licensed characters such as
Barbie.
(iii) Trade and Novelty Products
The Company's current product offerings in this category consist of flap books,
pop-up books, book plus products, multiple format books and treasuries. Most
products in this category are in the $5.00 to $10.00 retail price range and are
primarily distributed through bookstores and specialty retail stores and special
markets.
The Company continues to expand its product offerings in the trade and novelty
category, with an emphasis on products featuring the Company's proprietary
characters. The Company believes that significant sales opportunities for its
higher priced trade and novelty products exist through bookstores, mass market,
special market and international distribution channels.
(iv) Electronic Storybooks
The Company is marketing a declining number of electronic books. The electronic
books are sold primarily through mass market outlets.
Adult Publishing. Less than 10% of the revenues of the Consumer Products
business segment is accounted for by the Adult Publishing division. The division
publishes trade books focusing on hobbies, parenting and the family.
The Company has distributed its adult trade book line primarily through
bookstores, although the line also includes books published in formats suitable
for mass market distribution. Since February 1998, products published by the
Adult Publishing division have been distributed in the United States and Canada
by St. Martin's Press, Incorporated. On March 11, 1999, the Company signed an
agreement to sell its Adult Publishing division to St. Martin's Press, subject
to certain conditions. If all of the conditions are satisfied, the sale should
be closed shortly. If the closing does not occur as scheduled, either party may
terminate the agreement.
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Licensing and Publishing Agreement Developments. In December 1998, the Company
signed a license agreement with Disney, amending the terms of the license the
Company had entered into with Disney in 1997. The Disney agreement allows the
Company to use, in selected product categories and for a limited time, all of
Disney's animated characters, including Mickey Mouse, Winnie the Pooh and
Pinocchio and characters from The Little Mermaid, The Lion King, Aladdin, The
Hunchback of Notre Dame and Toy Story, as well as characters from more recent
releases such as Hercules, Mulan and A Bug's Life. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" below.
The Company also has a licensing agreement in connection with the educational
television series Between the Lions, anticipated to debut on PBS in Spring 2000.
The Company's character license with Children's Television Workshop terminated
by its terms in December, 1998. In January, 1999, the Company renegotiated its
publishing agreement with Parachute Press, pursuant to which the Company will
continue to publish only R. L. Stine's "Seniors" series, a part of R.L. Stine's
Fear Street series, through June 1999. The Fear Street books, including the
"Seniors" series, are intended for older children and young adult readers, ages
8 and up.
Golden Books Entertainment Group Division
The Company generates revenues from the GBEG division by selling its video
products, licensing properties from its library to third parties, both
domestically and internationally, for use on television, on home video and in
ancillary media, licensing properties from its library for merchandise and
exploiting certain music publishing rights. The Company's GBEG division was
established in August 1996, upon the acquisition from Broadway Video
Entertainment, L.P. of an extensive library of character-based family
entertainment properties. The 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. Among the library titles are
Rudolph the Red-Nosed Reindeer, Frosty the Snowman, Santa Claus Is Coming to
Town, Lassie, Underdog, The Lone Ranger, Tennessee Tuxedo, Shari Lewis' Lambchop
and Hush Puppy, as well as 26 half-hour episodes of Felix the Cat, and 52
half-hour episodes of Abbott and Costello.
The existing licenses granted to third parties in respect of the GBEG division's
properties generally cover a limited time period, usually two to three years.
GBEG's licenses are typically narrow, allowing the same property to be
simultaneously licensed to multiple parties for different purposes and enhancing
the ability of the GBEG division to maximize license revenue from the properties
in its library.
Commercial Products
The Commercial Printing division allows the Company to market its surplus
manufacturing capabilities to third parties. In addition, the division sells
printing services. In 1998, the Company manufactured products for its Commercial
Printing Division at its printing facility in Sturtevant, WI and at third party
printing facilities. Customers of the Commercial Printing Division include
educational publishers, religious publishers, brand marketers, and other
juvenile publishers and entertainment companies. Additionally, the Commercial
Printing division engages in commodity printing (such as tax instruction
booklets and tax forms).
Distribution and Sales
The Company's Children's Publishing products are distributed through (i) mass
market, both directly and through independent distributors, (ii) bookstores and
specialty retail stores, (iii) special markets, such as book clubs and internet
distributors, and (iv) international distribution channels. Historically, mass
market distribution has accounted for, and continues to account for, the largest
portion of children's publishing product sales. Among the Company's largest
customers in 1998 were Wal-Mart, K mart and Target. To a lesser extent, the
Company has distributed its children's publishing products through other
domestic distribution channels.
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In June 1998, the Company closed its distribution center in Coffeyville, Kansas
and consolidated it into its distribution facility in Crawfordsville, Indiana.
The Company believes this consolidation will allow it to further simplify its
supply chain and improve its inventory management function.
Internationally, the Company distributes its Children's Publishing products
mainly through third parties and through a wholly-owned subsidiary in Canada.
The Company's sales in Canada account for the majority of its international
sales revenues. In 1998, the Company wound down its operations in the United
Kingdom, substantially eliminating its sales operation and engaging independent
sales representatives.
The GBEG division exploits its library assets in all media and territories
worldwide directly or through sub-distributors. GBEG's series, specials, and
features are licensed directly to domestic and international broadcasters
(terrestrial, cable and satellite) and home video distributors through an
internal program distribution staff. Sub-agents have been appointed in specific
territories on a case-by-case basis. Similarly, product licensing and
merchandising is conducted by an internal department with occasional use of
outside agents. The GBEG division has a long-term distribution agreement with
Sony Wonder, a division of Sony Music, under which Sony Wonder produces and
distributes the division's children's home video and audio products, with the
Company receiving the gross proceeds, less Sony's manufacturing cost and a
distribution fee.
Competition
The children's publishing market is highly competitive. Competition is based
primarily on price, quality, distribution, marketing and licenses. In mass
market sales, the Company faces competition primarily from smaller competitors,
including, but not limited to, Landoll, Inc., in the coloring/activity category,
School Zone Publishing Co., in the educational workbook category and
Publications International, Ltd., in the electronic storybook category. In the
trade and specialty trade categories, the Company's principal competitors are
Random House, Inc., Simon & Schuster, Inc., Scholastic Corp. and HarperCollins
Publishers, Inc. The Company 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 the Company, such as computer-based products. The
market for licenses is also highly competitive and the Company competes against
many other licensees for significant licenses. Many of the Company's current
competitors have greater financial resources than the Company and, in selected
markets, greater experience than the Company. Many of the markets in which the
Company operates contain a number of competing entities, many of which may have
greater financial resources and experience with respect to these markets than
the Company.
The licensing industry is highly competitive, and the GBEG division faces strong
competition from other independent licensing agencies and from the in-house
licensing divisions of motion picture and television studios. Additionally, the
division faces intense competition for available creative personnel,
distribution channels and financing including from motion picture studios,
television networks and independent production companies, many of which have
greater financial resources than the Company.
Manufacturing
Prior to 1998, a substantial part of the Company's Children Publishing products
were manufactured at a facility in Racine, WI, which was sold in 1997.
During 1998, the Company manufactured the majority of its Children's Publishing
products from its plant in Sturtevant, WI, with additional components and
services obtained from third party vendors in the United States and abroad. The
Company began manufacturing at the Sturtevant, WI facility in February 1998. As
a result of the decline in the revenues of the Children's Publishing division,
the Sturtevant, WI facility exceeds the Company's current needs. Because of the
Company's inability to utilize the full capacity of the facility, among other
reasons, the facility is burdened by high operating costs. The Company is
seeking a buyer for the Sturtevant, WI facility. See "Item 2. Properties."
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Employees
The Company and its subsidiaries have approximately 950 employees, calculated on
a full-time equivalent basis. Approximately 350 employees are represented by
labor unions. The Company negotiated and signed new agreements with its labor
unions in the first quarter of 1998. The Company's contracts with (i) the
Graphic Communications International Union, Local 223B, (ii) the Graphic
Communications International Union, Local 254M, (iii) the International Union of
Operating Engineers, Local 309, (iv) the International Brotherhood of Teamsters,
Local 43, and (v) the United Auto Workers Local 1007, expire on December 31,
2002. The Company's Canadian subsidiary signed a new contract in January 1998
with Local 1024 of the United Rubber, Cork, Linoleum and Plastic Workers of
America AFL-CIO, CLC, which expires on December 31, 2000.
In connection with the production of storybooks and coloring/activity books, the
Company typically hires writers, illustrators and other creative talent on a
freelance, work-for-hire basis to complete its projects.
Recent Events
The Company has experienced liquidity difficulties as a result of operating
losses, working capital deficiencies and negative operating cash flows. These
difficulties have hampered the Company's ability to fund day-to-day operations.
On September 15, 1998, the Company announced that it was deferring a $5.7
million interest payment on its 7.65% senior notes due 2002 (the "Senior Notes")
due on such date for a 30-day grace period in accordance with the Indenture
("Indenture") governing the Senior Notes. Subsequently, on October 15, 1998, the
Company announced that it would not pay the September 15th interest payment.
Accordingly, at October 15th the Company was in default under the Indenture and
the holders of the Senior Notes, at their option, have the right (i) to demand
the redemption of the entire $150 million principal amount of the Senior Notes
due and (ii) foreclose on the collateral securing the Senior Notes.
Due to the default under the Senior Notes, cross-default provisions regarding
the Company's $30 million Revolving Credit Facility with NationsCredit
Commercial Funding, a division of NationsCredit Commercial Corp.
("NationsCredit") entered into June 3, 1998 and its $25 million Loan Facility
with Golden Press Holdings, LLC, entered into September 4, 1998 (see Note 9 to
the Consolidated Financial Statements) resulted in defaults under such
agreements.
The Company also decided on November 5, 1998 that it would defer a $2.5 million
interest payment on the Guaranteed Preferred Beneficial Interests in the
Company's and Golden Books Publishing Company, Inc.'s Convertible Debentures
(the " TOPrS") due on the TOPrS in accordance with the Indenture governing the
TOPrS. Additionally, on February 20, 1999, the Company again deferred the next
scheduled $2.5 million interest payment due on the TOPrS in accordance with the
Indenture governing the TOPrS.
As a result of the Company's failure to make the interest payment on the Senior
Notes, a steering committee representing certain holders of the Senior Notes
(the "Senior Notes Steering Committee") was established. Additionally, as a
result of the Company's failure to make the interest payment due on the TOPrS, a
steering committee representing certain holders of the TOPrS (the "TOPrS
Steering Committee") was established.
The Company, along with the Senior Notes Steering Committee and the TOPrS
Steering Committee engaged in extensive negotiations regarding a restructuring
of the Company's indebtedness and capital equity structure. These negotiations
resulted in an agreement in principle regarding the terms of the Company's
restructuring, which the parties determined would be accomplished through a
pre-negotiated Chapter 11 proceeding. Accordingly, on February 24, 1999, the
Company announced that it had reached an agreement with its major creditors. The
agreement in principle would allow the Company to significantly reduce its
existing debt, pay all trade creditors in full and, under the direction of its
current management team, proceed with its publishing and entertainment
operations. Under the agreement in principle, the restructuring of the Company's
indebtedness and revised capital structure will be provided for as follows:
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o The Senior Notes will be converted into (i) a new secured note in the
principal amount of $87 million due 2004, with interest at the rate of
10%, if paid in cash, or, at the Company's option for the first three
years, 13.5% payable in kind, and (ii) 42.5% of the Company's new
common stock to be issued post recapitalization, prior to dilution. The
note will be secured by the existing collateral already granted to the
holders of the Senior Notes as well as certain additional collateral.
o The TOPrS indebtedness will be converted into 50% of the Company's new
common stock to be issued post recapitalization, prior to dilution.
o The Golden Press Holdings, L.L.C. loan in the amount of $10 million
will be converted into 5% of the Company's new common stock to be
issued post recapitalization, prior to dilution.
Existing preferred and common shareholders will surrender their stock in
exchange for out-of-the money warrants to purchase 5% of the new Company stock,
exercisable until the third anniversary of the Joint Plan of Reorganization (as
defined below), to be allocated two-thirds to the preferred and one-third to the
common shareholders, to be issued post recapitalization, prior to dilution. The
agreement also provides for a management stock incentive program for an amount
of common stock equal to 10% of the common stock issued on the effective date of
the Joint Plan of Reorganization. Of that amount, one-half (5%) will be
allocated to senior management on the effective date with the balance being made
available for other management personnel and for future grants. Also on the
effective date of the Joint Plan of Reorganization, the employment agreement
with Richard E. Snyder, the Company's Chairman of the Board and Chief Executive
Officer, will be amended as further described in the Disclosure Statement and
the exhibits thereto, and Mr. Snyder will receive, in consideration of his
surrendering certain claims and rights under his current employment arrangement,
2-1/2% of the Company's new common stock, among other things.
The foregoing is an incomplete summary of the principal provision of the
agreement. For a full understanding of the restructuring arrangements, reference
should be made to the Joint Plan of Reorganization and the Disclosure Statement
referred to below. Similarly, wherever licensing, distribution or other
agreements of the Company are described or summarized in this Form 10-K, such
descriptions are subject to the provisions of such agreements, to which
references should be made.
The agreement in principle regarding the restructuring provided that the
restructuring be effectuated pursuant to a Chapter 11 Plan. Accordingly, on
February 26, 1999 the Debtors filed petitions for reorganization under Chapter
11 of the United States Bankruptcy Code. The petitions were filed in the United
States Bankruptcy Court for the Southern District of New York. The Debtors are
continuing to operate their business and hold their assets as
debtors-in-possession. No trustee has been appointed.
The Debtors received approval from the Bankruptcy Court to pay on time and in
full undisputed pre-petition obligations including salaries, wages and benefits
to all of its employees. On March 25, 1999, the Bankruptcy Court gave final
approval to a $55 million three-year debtor-in-possession financing facility
consisting of a $45 million credit facility and a $10 million term facility,
which is provided by The CIT Group (the "DIP Loan"). The DIP Loan is subject to
covenants and events of default. The Company utilized the proceeds from the DIP
Loan to repay all outstanding amounts under the Revolving Credit Facility with
NationsCredit with the remainder to be used to fund operations during the
pendency of the Chapter 11 proceedings.
On March 25, 1999, the Debtors filed a Joint Plan of Reorganization (the "Joint
Plan of Reorganization") with the Bankruptcy Court and a Disclosure Statement
(the "Disclosure Statement") pursuant to Section 1125 of the Bankruptcy Code.
The Disclosure Statement and the Joint Plan of Reorganization are subject to
approval of the Bankruptcy Court. Prior to the filing of the Joint Plan of
Reorganization and Disclosure Statement, the Debtors entered into a
Restructuring Agreement with certain holders of senior notes and the TOPrS as
well as Golden Press Holdings, LLC and Richard E. Snyder which obligates such
signatories to support the restructuring provided for under the Joint Plan of
Reorganization providing certain conditions are met including that the Joint
Plan of Reorganization is confirmed within 150 days of the date of the
Restructuring Agreement.
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On March 25, 1999, the Bankruptcy Court gave final approval to the Asset
Purchase Agreement with St. Martin's Press, Incorporated dated March 11, 1999
with respect to the sale of certain assets of the Company's Adult Publishing
business. If all of the conditions of the Agreement are met, the Adult
Publishing sale should be closed shortly. If the closing does not occur as
scheduled, either party may terminate the Agreement.
A Bankruptcy Court hearing on the Disclosure Statement is currently scheduled
for May 10, 1999. The Company hopes to confirm and consummate the Joint Plan of
Reorganization by June or July of 1999, although there can be no assurance that
the Joint Plan of Reorganization will be confirmed or consummated. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources".
Since the latter part of fiscal 1998, a number of executives have left the
Company, including Eric Ellenbogen (President of the GBEG), John C. Ferrara
(Chief Financial Officer) and Robert J. Asahina (President of the Adult
Publishing division). See Executive Officers of the Registrant, below.
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ITEM 2. PROPERTIES
The principal properties currently used by the Company in the conduct of its
business are the following:
The Company's corporate offices, publishing and principal sales offices are
located in leased premises on three floors at 888 Seventh Avenue in New York
City. In January 1999, the Company reduced the space covered by the lease from
112,000 square feet (on six floors) to 55,000 square feet. The amended lease
covering the reduced space is for a term expiring July 31, 2013. The Company
believes that the facilities covered by the amended lease are adequate for the
restructured Company's needs.
The Company's printing facilities and principal administration offices are
located in 498,300 square foot leased facilities in Sturtevant, WI. These
facilities were constructed for the Company and service the Company's publishing
and commercial divisions. The Company began manufacturing at the new Sturtevant,
WI facility in February 1998. The printing facilities have a capacity which
exceeds the Company's current needs. The Company is seeking a buyer for the
Sturtevant, WI facility who would enter into an agreement with the Company to
continue to manufacture certain of the Company's Children's Publishing products
at the facility.
The Company's principal warehousing and distribution facilities are located in a
403,000 square foot building owned by the Company and located in Crawfordsville,
Indiana. In 1998, the Company closed a distribution center in Coffeyville,
Kansas and consolidated the distribution functions in Crawfordsville, Indiana.
The Coffeyville, Kansas property was sold in January 1999.
In addition, the Company owns or rents several other smaller properties that are
used for administration, sales offices and warehousing, or are held for sale,
such as a building in Racine, WI, which was formerly known as the
Creative Center.
As part of the Company's program to dispose of non-core assets, the Company in
December 1998 sold its 702,000 square foot facility in Fayetteville, North
Carolina which had been used primarily in connection with the manufacture and
distribution of games and puzzles. In December 1997, the Company sold the
facility that had been its Canadian warehousing and distribution center in
Cambridge, Ontario.
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ITEM 3. LEGAL PROCEEDINGS
On February 26, 1999, the Debtors filed petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. ss.ss. 101 et seq.
The petitions were filed in the United States Bankruptcy Court for the Southern
District of New York and were assigned Cases Nos. 99-10030, 99-10031 and
99-10032, assigned to Judge Tina L. Brozman. The Debtors are continuing to
operate their business and hold their assets as debtors-in-possession. No
trustee has been appointed.
On August 12, 1998, a class action complaint was filed in the United States
District Court for the Southern District of New York on behalf of all persons
who purchased the Common Stock of the Company between May 13, 1997 and August 4,
1998, inclusive (the "Class Period"). On October 7, 1998, holders of the
Company's TOPrS filed a class-action complaint based on substantially identical
allegations, which complaints were subsequently consolidated. The consolidated
complaint charges that the Company and certain officers and directors of the
Company during the relevant time period were in violation of Section 10(b) and
20(a) of the Securities Exchange Act of 1934. The complaint alleges that the
defendants issued a series of materially false and misleading statements
concerning the impact of the Company's 1996 restructuring plan on the Company's
financial condition, liquidity and future prospects. While the outcome of the
case cannot be predicted with any certainty, the Company believes that it has
meritorious defenses to the claims, and that the claims against the Company will
be resolved or discharged during the pendency of the Chapter 11 proceedings.
Golden Books Publishing and Penn Corporation ("Penn") have been informed by the
Environmental Protection Agency (the "EPA") and/or state regulatory agencies
that they may be potentially responsible parties ("PRPs") and face liabilities
under the Comprehensive Environmental Response, Compensation, and Liability Act
(commonly known as "CERCLA" or "Superfund") or similar state laws. In all cases
except those described below, the Company has resolved its liability or is in
the process of resolving its liability for amounts not material. Although the
Company divested Penn in December 1996, the Company has agreed to indemnify
Contempo Colours, Inc. ("Contempo") against certain of Penn's environmental
liabilities, including the Cork Street Landfill and Fulford Street Property
discussed herein.
The Wisconsin Department of Natural Resources (the "WDNR") alleges that the
Company is a responsible party for drums found at a site located in
unincorporated Racine County. The WDNR and the Company have entered into an
agreement which requires the Company to remove drums and soil from the site. The
disposal of these drums dates back almost 30 years. The Company did not
authorize disposal of its waste drums at the site. The Company has completed the
removal of drums and soil from the site.
At the Hunt's Landfill site in Racine County, Wisconsin, the Company's liability
pursuant to the terms of a consent decree is limited to approximately 4% of the
total remedial costs. Although the last phase of construction activities was
completed in 1996, Golden Books Publishing and the other PRPs are obligated to
fund the operation and maintenance of the site for the next 20-30 years. The
current estimate of the total costs of such operation and maintenance is in the
range of $14 million. In accordance with the consent decree, the Company has
established a reserve for its share of the probable clean-up costs.
In 1991 the United States Environmental Protection Agency ("EPA") issued a
unilateral administrative order (the "1991 Order") to the Company and four other
PRPs, requiring the respondents to perform a remedial design and remedial action
at the Hertel Landfill Superfund Site in Plattekill, New York (the "Site"). The
Company did not agree to comply with the Order. EPA subsequently sued the
Company and other PRPs seeking recovery of its costs at the Site. Various PRPs
in the litigation brought claims for contribution against each other and the
Company. The Company settled its liability to the United States for
noncompliance with the 1991 Order and agreed to comply with the Order by
implementing the remedy at the Site, which is now estimated to cost up to $4.9
million, excluding potential groundwater remediation costs.
On July 9, 1998, the Company and other PRPs entered into a Consent Decree with
the United States and the State of New York to resolve their alleged Liability
for past response costs and formalize their agreement to perform the remedy at
the site. Under the Decree, the Company and the other settling parties are
jointly and severally obligated to perform
9
<PAGE>
the remedy and reimburse certain governmental past and future costs. Golden
Books has paid approximately $1.7 million toward remedial costs since 1996 and
has completed construction of the landfill cap. The Company's share of future
costs for operation and maintenance of the cap and landfill monitoring are
expected to be less that $500,000.
The Company also has been identified as a PRP at another site located in
Poughkeepsie, New York. The Company and eight other PRPs received a notice
letter in 1995 from the State of New York regarding this site. New York State
will be seeking recovery of its past oversight costs of more than $600,000 plus
future oversight and maintenance costs associated with this site, currently
estimated by the State at $830,000. There has been no attempt made to develop an
allocation or to identify all PRPs to date, but the construction phase of the
remedy has been completed by other parties without Company involvement.
On October 2, 1996, the Company received notice from the City Attorney of
Kalamazoo, Michigan that Beach Products, a division of Penn, will be asked to
participate in the remediation of the Cork Street Landfill site located in the
city which was allegedly used by Beach Products in the past. Current cost
estimates for the remediation required at the site are as high as $24,000,000.
More than 70 entities will be requested to provided financial contribution to
the remediation.
On November 14, 1996, the Michigan Department of Environmental Quality requested
that corrective actions be taken as a result of the discovery of a leaking
underground storage tank system at the Fulford Street Property of the Company on
November 8, 1996. An initial site assessment is being completed by the Company's
outside consultant. Current estimates indicate that the costs associated with
this release should not exceed $200,000. However, in the event that the
contamination has migrated off the Company's property, these costs could
increase.
It is uncertain whether the claims against the Company in the foregoing
environmental matters will be resolved during the pendency of the Chapter 11
proceedings.
In addition to these environmental matters, the Company filed an action in 1994
in the United States District Court, Eastern District of Wisconsin captioned as
Western Publishing Company, Inc. v. MindGames, Inc. seeking a declaration of
rights in regard to the Company's alleged breach of various of its obligations
under its licensing agreement with the defendant for distribution through 1994
of the adult board game known as "Clever Endeavor." This case involves the
Company's now-discontinued adult and children's game division. The defendant,
believing its board game had the potential to become one of the most popular of
all time, has maintained that certain of the alleged breaches entitle it to
damages of as much as $40 million resulting from lost profits and unpaid
royalties. The Court recently granted the Company's partial motion for summary
judgment and held that the defendant is precluded from recovering lost profits.
Accordingly, the defendant's damage claim is now limited to its unpaid royalties
of $1.2 million. The Company denies that it has any liability to defendant.
The Company and its subsidiaries are parties to certain other legal proceedings
which are incidental to their ordinary business, none of which the Company
believes are material to the Company and its subsidiaries taken as a whole.
10
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Since the latter part of fiscal 1998, a number of executives have left the
Company, including Eric Ellenbogen (President of the GBEG), John C. Ferrara
(Chief Financial Officer) and Robert J. Asahina (President of the Adult
Publishing division). Set forth below is information regarding the current
executive officers of the Company.
Richard E. Snyder
Age: 65
Mr. Snyder has served as Chief Executive Officer of the Company since May 8,
1996. Mr. Snyder was President of the Company from January 31, 1996 to May 8,
1996. Prior to that time, Mr. Snyder had, since 1994, been an independent
business consultant and investor. He was the Chairman and Chief Executive
Officer of Simon & Schuster from 1975 to 1994. Mr. Snyder is a director of
Reliance Group Holdings, Inc.
Richard Collins
Age: 47
Mr. Collins has served as Golden Books Publishing Company, Inc.'s Chief
Operating Officer since June 1998. From July 1997 until June 1998, he served as
the Company's Executive Vice President, Director of Sales and Retail Marketing.
From October 1991 to July 1997, Mr. Collins was employed at Unilever/Lipton,
most recently as Vice President, Strategic Customer Management.
Philip Galanes
Age: 35
Mr. Galanes has served as Chief Administrative Officer of the Company since
November 1998. From December 1996 until November 1998 he served as the Company's
General Counsel and Vice President, Legal Affairs. From January 1995 to November
1996, Mr. Galanes was an associate at the law firm of Paul, Weiss, Rifkind,
Wharton & Garrison. Previously, Mr. Galanes was an associate at the law firm of
Debevoise & Plimpton.
Colin Finkelstein
Age: 39
Mr. Finkelstein has served as Executive Vice President and Chief Financial
Officer of the Company since January, 1999. He served as Senior Vice President,
Finance and Planning of the Company and Executive Vice President, General
Manager of the Company's Children's Publishing Division from October 1996 until
January 1999. From November 1988 until September 1996, Mr. Finkelstein was
employed by EMI Music, Inc., most recently as Vice President, Controller.
11
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
STOCKHOLDERS' INFORMATION
COMMON STOCK PRICES
The Company's Common Stock, par value $.01 per share ("Common Stock") has
historically been traded over-the-counter and quoted on the NASDAQ National
Market System (symbol GBFE). On February 17, 1999, the Company's Common Stock
was delisted from the NASDAQ National Market System for failure to meet
continued listing standards. Since that date the Company's Common Stock has been
quoted on the OTC Bulletin Board. Common stockholders of record at December 26,
1998 numbered approximately 550. The following table sets forth the range of
prices (which represent actual transactions), by quarter, as provided by the
National Association of Securities Dealers, Inc.
<TABLE>
<CAPTION>
Fiscal Year Ended December 26, 1998
- --------------------------------------------------------------------------------
High Low
<S> <C> <C>
First Quarter 11 13/16 10 5/16
Second Quarter 11 3/4 3 3/4
Third Quarter 6 1/8 5/16
Fourth Quarter 7/8 1/8
Fiscal Year Ended December 27, 1997
- --------------------------------------------------------------------------------
High Low
First Quarter 12 1/4 8 11/16
Second Quarter 12 7/8 7 7/8
Third Quarter 12 5/8 9 1/2
Fourth Quarter 11 3/4 9 1/8
</TABLE>
DIVIDEND POLICY
Holders of Common Stock are entitled to receive such dividends as may be
lawfully declared by the Board of Directors. Since its organization in 1984, the
Company has not paid a cash dividend on its Common Stock and management does not
currently anticipate the payment of cash dividends on the Common Stock in the
foreseeable future.
12
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data below is derived from the consolidated
financial statements of the Company and should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto included
elsewhere herein. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Consolidated Financial Statements." In
1996 the Company changed its fiscal year end so as to end on the last Saturday
of December in each year. As a result, the fiscal 1996 results from operations
are not necessarily comparable to other periods as presented.
<TABLE>
<CAPTION>
11 Months
Year Ended Ended Year Ended
December 26, December 27, December 28, February 3, January 28,
1998 1997 1996 1996 1995
(In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Income Statement Data:
Revenues
Net sales $193,573 $242,481 $254,046 $369,572 $398,354
Royalties and other income 653 1,080 959 1,722 2,207
--- ----- --- ----- -----
Total Revenues 194,226 243,561 255,005 371,294 400,561
------- ------- ------- ------- -------
Costs and expenses:
Cost of sales 181,141 176,238 231,792 281,392 297,421
Selling, general and administrative 98,293 111,307 142,721 129,020 124,128
Restructuring, net of (gains) losses on
sales of assets 6,462 (10,786) 65,741 6,701 (21,452)
Write-off of assets 10,609 -- -- -- --
------
Total costs and expenses 296,505 276,759 440,254 417,113 400,097
------- ------- ------- ------- -------
(Loss) income before distributions on
Guaranteed Preferred Beneficial Interests
in the Company's and Golden Books
Publishing Company, Inc.'s Convertible
Debentures, interest expense and
(benefit) provision for income taxes (102,279) (33,198) (185,249) (45,819) 464
Distributions on Guaranteed Preferred
Beneficial Interests in the Company's and
Golden Books Publishing Company,
Inc.'s Convertible Debentures 10,282 10,282 3,597 -- --
Interest expense, net of interest income 16,704 6,163 6,764 9,896 15,573
------ ----- ----- ----- ------
Loss before (benefit) provision for income
taxes (129,265) (49,643) (195,610) (55,715) (15,109)
(Benefit) provision for income taxes (666) 37 1,893 11,332 2,470
Net loss $ (128,599) $ (49,680) $ (197,503) $ (67,047) $ (17,579)
=========== =========== =========== ============= ============
Net loss per common share - basic ($4.89) ($2.18) ($8.73) ($3.23) ($0.88)
Balance sheet data (at period end):
Working (deficiency) capital $ (264,297) $ 95,780 $ 168,210 $ 165,309 $ 228,240
Total assets 254,951 323,164 367,235 321,965 428,806
Long-term debt (including amount show
as current) 150,000 149,897 149,862 149,845 149,828
Guaranteed preferred beneficial interests
in the Company's and Golden
Books Publishing Company, Inc.'s
Convertible Debentures 115,000 110,707 110,488 -- --
Convertible Preferred Stock - Series A -- -- -- 9,985 9,985
Common stockholders' (deficit) equity (189,081) (61,309) (19,637) 74,368 140,794
</TABLE>
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
This Annual Report on Form 10-K and in particular Management's Discussion and
Analysis of Financial Condition and Results of Operations, as well as Item
1-Business and Item 3-Legal Proceedings, contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. The Company's actual results of operations and future financial
condition may differ materially from those expressed or implied in any such
forward-looking statements as a result of many factors, including factors that
may be beyond the Company's control. The Company is currently operating its
business as debtor-in-possession under Chapter 11 and continuation of the
Company as a going concern is contingent upon, among other things, the ability
to gain approval of the requisite parties under the United States Bankruptcy
Code and confirmation by the Bankruptcy Court of the Company's Joint Plan of
Reorganization. In addition, the Company's continuation as a going concern is
contingent upon its ability to comply with its debtor-in-possession financing
facility, resolution of various litigations against the Company, the Company's
ability to generate sufficient cash from operations and to obtain financing
sources to meet its future obligations. If the Company's Joint Plan of
Reorganization is confirmed and consummated, continuation of the Company's
business thereafter is dependent, among other things, on the Company's near-term
ability to obtain adequate financing to meet cash flow obligations and
medium-term ability to generate sufficient cash flow to meet its operational and
financing requirements. Other factors that may cause actual results of
operations and future financial condition to differ from those expressed or
implied in any forward-looking statements contained herein include loss of key
licenses, adverse changes in relationships with key customers, the degree of
acceptance of new product introductions, the level of product returns, changes
in consumer preferences, such as the growth of computer-based products, and
consumer spending habits, competition from existing and potential competitors,
pricing pressures, costs of labor and other costs and expenses, demographics and
general economic conditions.
The Company cautions that the foregoing list of important factors is not
exclusive. The Company does not undertake to update any forward-looking
statements contained herein or that may be made from time to time by or on
behalf of the Company.
Financial Condition, Liquidity and Capital Resources
As a result of incurring operating losses, working capital deficiencies and
negative operating cash flows, the Company, in 1998, defaulted on its Senior
Notes, its NationsCredit Revolving Credit Facility, and other obligations.
After extensive negotiations with the Senior Notes Steering Committee and the
TOPrS Steering Committee, the Company reached an agreement in principle with its
major creditors, pursuant to which its existing long-term debt would be
significantly reduced. In accordance with that agreement, the Company and two of
its subsidiaries on February 26, 1999 filed petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code. The Debtors have filed a Joint
Plan of Reorganization and a Disclosure Statement pursuant to Section 1125 of
the Bankruptcy Code.
As a result of the defaults and the filing of the petitions in the
pre-negotiated Chapter 11 proceeding, the Company's long-term debt has been
classified as current liabilities. The Company's independent auditors have
issued their opinion on the consolidated financial statements as at December 26,
1998 with a going concern paragraph. The consolidated financial statements have
been prepared assuming that the Company will continue as a going concern and
they do not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and classifications of
liabilities that might result from the outcome of these uncertainties.
The Joint Plan of Reorganization allows the Company to significantly reduce its
existing debt, pay all trade creditors in full and, under the direction of its
current management team, proceed with its publishing and entertainment
operations. The restructuring of the Company's indebtedness and revised capital
structure will be provided for as follows:
14
<PAGE>
o The Senior Notes will be converted into (i) a new secured note in the
principal amount of $87.0 million due 2004, with interest at the rate
of 10%, if paid in cash, or, at the Company's option for the first
three years, 13.5% payable in kind, and (ii) 42.5% of the Company's new
common stock to be issued post recapitalization, prior to dilution. The
new note will be secured by the existing collateral already granted to
the holders of the Senior Notes as well as certain additional
collateral.
o The TOPrS Indebtedness will be converted into 50% of the Company's new
common stock to be issued post recapitalization, prior to dilution.
o The Golden Press Holdings, L.L.C. loan in the amount of $10 million will
be converted into 5% of the Company's new common stock to be issued post
recapitalization, prior to dilution.
Existing preferred and common shareholders will surrender their stock in
exchange for out-of-the money warrants to purchase 5% of the new Company's stock
to be allocated two-thirds to the preferred and one-third to the common
shareholders, to be issued post recapitalization, prior to dilution. The
restructuring also provides for a management stock incentive program for an
amount of common stock equal to 10% of the common stock issued on the effective
date of the Joint Plan of Reorganization. Of that amount, one-half (5%) will be
allocated to senior management upon the effective date with the balance being
made available for other management personnel and for future grants.
Additionally, on the effective date of the Joint Plan of Reorganization, Richard
E. Snyder's (the Company's current Chairman of the Board and Chief Executive
Officer) employment agreement will be amended, as more fully described in the
Disclosure Statement and the exhibits thereto, and Mr. Snyder will receive, in
consideration of his surrendering certain claims and rights under his current
employment arrangements, 2-1/2% of the Company's new common stock, among other
things. The foregoing summary of the Joint Plan of Reorganization does not
purport to be complete and is subject to the terms of the Joint Plan of
Reorganization.
There can be no assurance that the Joint Plan of Reorganization will be
confirmed by the Bankruptcy Court. If the Company is unable to obtain approval
of its Joint Plan of Reorganization, the Company, its creditors and/or equity
security holders may seek other alternatives for the Company, including the sale
of the Company or parts thereof through an auction process.
The Bankruptcy Court has approved a $55 million debtor-in-possession financing
facility consisting of a $45 million credit facility and a $10 million term
facility from The CIT Group (the "DIP Loan"). The DIP Loan is for an initial
period of two years with annual renewals thereafter with interest rates ranging
from the Prime Rate plus 1/8th of 1% to 5/8th of 1%. Additionally, the DIP Loan
contains various financial covenants which the Company is required to maintain
on a quarterly basis. The DIP Loan is secured by certain receivables and
inventory of the Company. The Company utilized the proceeds from the DIP Loan to
repay all outstanding amounts under the NationsCredit Revolving Credit Facility
(approximately $9.6 million) with the remainder anticipated to be utilized to
fund operations during the pendency of the Chapter 11 proceedings.
Continuation of the Company as a going concern is contingent upon, among other
things, the ability to gain approval of the requisite parties under the
Bankruptcy Code and confirmation by the Bankruptcy Court of the final Joint Plan
of Reorganization, the ability to comply with the DIP Loan, resolution of
various litigation against the Company and the Company's ability to return to
profitability, generate sufficient cash from operations and obtain financing
sources to meet its future obligations. Assuming the Joint Plan of
Reorganization is confirmed and consummated, continuation of the business
thereafter is dependent on the Company's near-term ability to obtain adequate
exit financing to meet cash flow obligations and medium-term ability to generate
sufficient cash flow to meet its operational and financing requirements. Under
the Joint Plan of Reorganization, the Company's ability to obtain exit financing
is limited to $60 million as long as the new $87 million secured note is
outstanding, and initially to $45 million.
Assuming the Joint Plan of Reorganization is confirmed and consummated, the
Company is expected to adopt "Fresh Start Accounting" in accordance with SOP
90-7 "Financial Reporting by Entities in Reorganization under the Bankruptcy
Code."
15
<PAGE>
Cash Flow for Fiscal 1998 (including one-time transition costs of $12.2 million
associated with the strategic redirection of the Company) utilized cash of
approximately $42.1 million compared to cash utilized of approximately $82.3
million for Fiscal 1997 (including one-time transition costs of $11.5 million
associated with the strategic redirection of the Company and payments of
restructuring costs accrued during Fiscal 1996 of $4.2 million).
Acquisitions of property, plant and equipment were approximately $13.4 million
during Fiscal 1998 as compared to approximately $20.4 million during Fiscal
1997. Additions to the Company's film library were approximately $4.7 million
during Fiscal 1998 as compared to approximately $6.3 million during Fiscal 1997.
Working capital deficiency at December 26, 1998 was approximately $(264.3
million) as compared to working capital of approximately $95.8 million at
December 27, 1997. The decrease resulted primarily from cash reductions, funding
the loss from operations and the classification of all debt facilities as
current.
During 1998, the Company continued its disposition of non-core assets with the
sale of its distribution center in Fayetteville, North Carolina. The facility
was sold for approximately $7.2 million in cash which resulted in a loss of
approximately $1.8 million, which was recorded in the consolidated statement of
operations and comprehensive loss for the year ended December 26, 1998. In
addition, the Company has recorded losses of (i) $4.7 million principally
composed of a write-off of leasehold improvements associated with the Company's
reduction of office space in connection with their New York lease agreement,
(ii) $9.2 million related to the write down of the manufacturing facility in
Sturtevant, WI, and (iii) $1.4 million related to the acceleration of the
amortization period of one of the Company's entertainment productions. In 1998,
the Company also incurred approximately $12.2 million in one-time transition
costs consisting of: (i) $4.4 million in outsourcing premium, and (ii) $7.8
million in costs associated with the move to the new facility in Sturtevant, WI.
On December 12, 1998, the Company signed an amended license agreement with
Disney (the "Amended Disney License Agreement"). The Amended Disney License
Agreement supersedes a prior agreement signed on September 26, 1997 that ran
through December 31, 2001. The Amended Disney License Agreement commenced on
December 12, 1998 and ends September 30, 2000 with a possible extension through
September 30, 2001 under certain conditions. Royalty rates under the Amended
Disney License Agreement vary by product. The Amended Disney License Agreement
contains minimum royalty guarantees.
The Company is required to meet contractual payments in effect at December 26,
1998 of $13.4 million in Fiscal 1999 and $14.9 million in Fiscal 2000, of which
the minimum royalty guarantees under the Amended Disney License Agreement
account for a significant portion. The Company expects to meet these obligations
through cash generated from operations or from its DIP Loan or exit financing.
The Company has announced its intention to sell the Sturtevant, WI facility. On
March 25, 1999, the Bankruptcy Court gave formal approval to the Company to sell
its Adult Publishing business for approximately $11.0 million, subject to
working capital and certain other closing conditions.
The Company reports results under three segments: (i) the Consumer Products
Segment, (ii) the Commercial Products Segment and (iii) the Entertainment
Segment. The Consumer Products Segment ("Publishing") includes the Children's
and Adult Publishing Divisions and, during the eleven months ended December 28,
1996, Penn Corporation, which was sold on December 23, 1996. The Commercial
Products Segment includes the Commercial Printing division. The Golden Books
Entertainment Group, which was formed following the Broadway Video Acquisition
on August 20, 1996, is reported as the Entertainment Segment and includes home
video, television program licensing, merchandising and other character licensing
results since its date of acquisition. During 1998, the Company adopted
Statement of Financial Accounting Standards No. 131, "Disclosure about Segments
of an Enterprise and Related Information" ("SFAS 131").
On November 30, 1996, the Company changed its fiscal year so as to end on the
last Saturday of December in each year. As a result, the Company's current
fiscal period of the twelve months ended December 26, 1998 (Fiscal 1998) is
16
<PAGE>
compared to the twelve months ended December 27, 1997 (Fiscal 1997), and Fiscal
1997 is compared to the eleven months ended December 28, 1996 (Fiscal 1996).
Fiscal Year Ended December 26, 1998 Compared to Fiscal Year Ended December 27,
1997
Revenues
Total revenues for Fiscal 1998 decreased $49.3 million (20.3%) to $194.2 million
compared to $243.5 million for Fiscal 1997. Excluding the 20.9 million in
revenues from the Cambridge printing facility which was sold during Fiscal 1997,
revenues decreased $28.4 million (12.8%) to $194.2 million for the Fiscal 1998
compared to $222.7 million for Fiscal 1997 due to the factors described below.
Consumer revenues decreased $21.0 million (12.2%) to $150.7 million for Fiscal
1998 compared to $171.7 million for Fiscal 1997. The decline for Fiscal 1998 is
primarily due to lower electronic and education categories sales, higher returns
in Fiscal 1998, and a temporary reduction in buying by certain major retailers,
including K-Mart and Zellers during the first half of Fiscal 1998. This decline
was partially offset by revenue increases in the Company's strategically priced
Merrigold line, improvements in the trade and novelty category, and increased
sales with certain major retailers including Target and other key distributors.
Entertainment revenues decreased $0.3 million (1%) to $29.0 million for Fiscal
1998 compared to $29.3 million for Fiscal 1997. The decrease for Fiscal 1998 was
primarily due to a decline in video sales of approximately $3.6 million offset
by increases in television distribution and merchandising revenues of $2.5
million and $0.7 million, respectively.
Commercial revenues for Fiscal 1998 (excluding the 20.9 million in revenues from
the Cambridge printing facility which was sold during Fiscal 1997) decreased
$7.1 million (32.9%) to $14.5 million compared to $21.6 million for Fiscal 1997.
The overall decline for Fiscal 1998 was primarily due to the new manufacturing
facility in Sturtevant, WI, which did not become fully operational until the
second quarter of 1998.
Gross Profit
Total gross profit (excluding gross profit of $3.5 million in Fiscal 1997 from
the sale of the Cambridge Printing Facility that was sold as described above and
one-time transition costs of $4.4 million in Fiscal 1998 related to outsourcing
premiums) decreased $46.3 million to $17.5 million (72.6)% for Fiscal 1998, from
$63.8 million for Fiscal 1997 due to the factors described below. As a
percentage of revenues, total gross profit margin (excluding the items noted
above) decreased to 9.0% for Fiscal 1998 from 28.9% in Fiscal 1997.
Consumer gross profit decreased $42.3 million (87.8)% to $5.9 million for Fiscal
1998, compared to $48.2 million for Fiscal 1997. As a percentage of revenues,
the Consumer gross profit margin decreased to 3.9% for Fiscal 1998 from 28.1%
for Fiscal 1997. The decrease in gross profit for Fiscal 1998 was primarily due
to higher manufacturing costs, higher royalty rates associated with the Disney
and Mattel license arrangements, an increased provision for royalty guarantees,
higher inventory obsolescence reserves for inventory relating to expired license
agreements, unprofitable product, and increased warehousing and shipping costs.
Entertainment gross profit decreased $4.3 million (25.6)% to $11.6 million for
Fiscal 1998 compared to $15.6 million for Fiscal 1997. As a percentage of
revenues, the gross profit margin decreased to 40.0% for Fiscal 1998 compared to
53.1% for Fiscal 1997. The decrease is mainly attributable to lower margins
related to Home Video sales due to lower overall sales and an increased
provision for returns. This decrease was partially offset by favorable gross
profit related to television distribution and merchandising sales.
The Commercial Products segment utilizes the Company's manufacturing facility
and third-party manufacturers to provide printing, graphic and distribution
services to both the Company and third parties. During Fiscal 1997, the Company
sold its primary third party printing operation (Cambridge) which had
contributed a gross profit of
17
<PAGE>
$3.5 million for Fiscal 1997. During Fiscal 1998, the Company's manufacturing
facility was utilized primarily for internal production. Such internal
production costs were allocated to the Consumer Products segment.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (before consideration of one-time
transition costs described below) decreased $9.4 million to $90.5 million for
Fiscal 1998 compared to $99.9 million for Fiscal 1997. The decrease was
primarily attributable to lower advertising, editorial and design costs, and a
general reduction of overhead costs which were partially offset by an increase
in the Company's general bad debt reserve.
One-time transition costs of $7.8 million in Fiscal 1998 was comprised primarily
of costs related to the move to the new manufacturing facility in Sturtevant,
WI. One-time transition costs of $11.5 million in Fiscal 1997 was comprised of
$3.1 million of moving costs associated with the new facilities, $3.5 million
for outsourcing the information technology department, $4.5 million in
consulting services associated with implementing the Company's Strategic Plan
and $0.4 million in other costs.
Restructuring, Net of (Gains) Losses on Sales of Assets
Restructuring, net of (gains) losses on sales of assets of $6.5 million in
Fiscal 1998 was comprised of: (i) $4.7 million principally consisting of a
write-off of leasehold improvements associated with the Company's reduction of
office space in connection with their New York lease agreement and (ii) $1.8
million associated with the sale of the Fayetteville facility. Restructuring,
net of (gains) losses on sales of assets of $(10.8 million) in Fiscal 1997 was
comprised primarily of a gain on the sale of the Company's Cambridge commercial
printing operations.
Write-Off of Assets
Write-off of assets of $10.6 million in Fiscal 1998 was comprised on: (i) $9.2
million associated with the write-down of the Company's manufacturing facility
in Sturtevant, WI due to recurring losses by the Company's Children's Publishing
business primarily due to reduced level of sales, high operating costs
(including an unfavorable lease agreement and disadvantageous union contracts)
and the underutilization of the facility's capacity and (ii) $1.4 million
related to the acceleration of the amortization period of one of the Company's
entertainment productions.
Interest Income
Interest income for Fiscal 1998 decreased $3.9 million to $1.7 million from $5.6
million for Fiscal 1997. The decrease in interest income was attributable to
decreased investment income as a result of lower cash and cash equivalent
balances throughout the year.
Interest Expense
Interest expense (including the distributions on the TOPrS) for Fiscal 1998
increased by $6.7 million to $28.7 million, as compared to $22.0 million for
Fiscal 1997 due to increased debt levels primarily associated with the
NationsCredit Revolving Credit Facility which was entered into in June 1998.
Total average outstanding debt (including the TOPrS) was $281.3 million for
Fiscal 1998 and $265.0 million for Fiscal 1997.
18
<PAGE>
Income Taxes
The income tax benefit recorded in Fiscal 1998 primarily relates to current year
losses of the Company's Canadian Subsidiary, which files separately in that
jurisdiction. These losses are expected to offset income already recognized by
that Subsidiary. In Fiscal 1997, the tax provision primarily related to various
state and local income taxes imposed on the Company.
At December 26, 1998, the Company has net operating loss carryforwards of
approximately $305 million with expiration dates between 2011 and 2018.
Utilization of such losses in the future could be significantly limited should
there have been an ownership change (as defined in Internal Revenue code Section
382). Further, there are specific modifications which may be required to be made
to the net operating loss carryforwards of the Company as a result of the
Chapter 11 bankruptcy proceedings. At such time as the Company emerges from
bankruptcy, it is likely there will be an ownership change for tax purposes
which would result in a Section 382 limitation on future utilization of net
operating losses. Since there are a number of variables which could affect the
Company's Bankruptcy proceedings (including the fact that the Joint Plan of
Reorganization has not yet been approved by the Bankruptcy Court), it is not
currently possible to determine whether the Company's net operating loss
carryforwards will produce tax benefits in the future. Benefit was not provided
for these loss carryforwards at December 26, 1998.
Net Loss
The net loss for Fiscal 1998 was $(128.6) million, or $(4.89) per basic common
share, compared to a net loss of $(49.7) million , or $(2.18) per basic common
share, for the year ended December 27, 1997. The changes were due to the factors
described above.
Fiscal Year Ended December 27, 1997 (Fiscal 1997)
Compared to Eleven Months Ended December 28, 1996 (Fiscal 1996)
Revenues
Revenues for Fiscal 1997 decreased $14.9 million (5.8)% to $243.5 million, as
compared to $258.4 million (before consideration of $3.4 million of one time
charges to establish reserves to resolve differences with customers), for Fiscal
1996.
Consumer Products Segment revenues decreased $40.2 million (19.0)% to $171.7
million for Fiscal 1997, compared to $211.9 million (before consideration of
$3.4 million of one time charges to establish reserves to resolve differences
with customers) for Fiscal 1996. The decrease in revenue for the Consumer
Products Segment for Fiscal 1997 resulted principally from the sale of Penn,
which was sold in December of 1996 (revenues of $40.7 million) along with a
sales decline in electronic storybooks, offset by a sales increase in classics.
Commercial Products Segment revenues were $42.4 million for both Fiscal 1997 and
Fiscal 1996. During 1997 the Company has focused on internal production
requirements as inventory levels have been built in preparation for the move to
the Company's manufacturing facility early in 1998.
Entertainment Segment revenues increased $25.2 million to $29.3 million for
Fiscal 1997 compared to $4.1 million for Fiscal 1996. The increase in revenues
for 1997 was due to the fact that the Entertainment Segment was active for only
four months in 1996 compared to the full year during 1997.
Gross Profit
Gross profit increased $15.7 million (30.4)% for Fiscal 1997 to $67.3 million,
compared to $51.6 million (before consideration of $28.4 million in one-time
revenue and cost of sales charges associated with the strategic redirection
19
<PAGE>
of the Company, comprised of $3.4 million in revenue reserves established to
resolve differences with customers, $17.6 million relating to the discontinuance
or replacement of certain product lines and $7.4 million of other inventory
related costs) for Fiscal 1996. As a percentage of revenues, the gross profit
margin increased to 28.9% for Fiscal 1997 from 20.0% for Fiscal 1996 (before
consideration of one time charges associated with the strategic redirection of
the Company).
In the Consumer Products Segment, gross profit increased $1.1 million (2.3)% to
$48.2 million for Fiscal 1997, compared to $47.1 million for Fiscal 1996 (before
consideration of one time charges of $28.4 million described above). As a
percentage of revenues, the gross profit margin for the Consumer Products
Segment increased to 28.1% for Fiscal 1997 from 22.2% for Fiscal 1996. The
increase in Consumer Products Segment gross profit for Fiscal 1997, compared to
Fiscal 1996, resulted from lower manufacturing costs.
Commercial Products Segment gross profit decreased $0.4 million (10.3%) to $3.5
million for Fiscal 1997, compared to $3.9 million for Fiscal 1996. As a
percentage of revenues, the gross profit margin for the Commercial Products
Segment decreased to 8.2% for Fiscal 1997, compared to 9.1% for Fiscal 1996.
The Entertainment Segment gross profit increased $15.0 million to $15.6 million
for Fiscal 1997 compared to $0.6 million for Fiscal 1996. As a percentage of
revenues, the gross profit margin was 53.1% for Fiscal 1997 compared to 15.8%
for Fiscal 1996. The increase in the Entertainment gross profit margin was
primarily due to higher levels of home video sales activity with higher gross
margins in Fiscal 1997 compared to Fiscal 1996.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (before consideration of $11.5
million of one time transition costs associated with the redirection of the
Company, which are comprised of (i) $3.5 million for outsourcing of the
information technology department, (ii) $3.1 million of moving costs associated
with new facilities, (iii) $4.5 million in consulting services associated with
implementing the Strategic Plan, and (iv) $0.4 million in other costs were $99.9
million for Fiscal 1997, a decrease of $4.6 million from $104.5 million (before
giving consideration to one time charges of $38.2 million, comprised of $11.0
million relating to costs associated with new management's plans to resolve
certain legal and contractual matters, $9.5 million in consulting fees and other
costs, and $17.7 million of expenses related to the acquisition of an equity
interest by GP Holding). These reductions were primarily attributable to
reductions in selling expenses due to lower sales levels.
Interest Expense, net
Interest income for Fiscal 1997 increased $1.4 million to $5.6 million from $4.2
million for Fiscal 1996. The increase results from higher average cash balances
during 1997 due to cash generated towards the end of 1996 which has subsequently
been reduced during 1997 to fund operations, previous period restructure
expenses and one time transition costs necessary to implement management's plans
to change the strategic direction of the Company. The cash increases during 1996
were generated as follows (1) the sale of the Company's Series B Convertible
Preferred Stock to GP Holding for an aggregate purchase price of $65.0 million
in May 1996, (2) the issuance of Preferred Securities for $115.0 million in
August 1996, (3) the sale of the Company's Common Stock for $25.0 million to HC
Crown Corporation, an affiliate of Hallmark Cards, Incorporated, in September
1996 and (4) the sale of Penn Corporation for consideration including
approximately $14.0 million in cash, partially offset by the Broadway Video
Acquisition for $81.0 million in cash in August 1996 and the redemption of the
Company's Series A Preferred Stock for $10.0 million in May 1996.
Interest expense (including the distributions on the Preferred Securities), for
Fiscal 1997 increased by $7.4 million to $22.0 million, as compared to $14.6
million for Fiscal 1996. The increase in interest expense was primarily due to
higher average debt outstanding resulting from the issuance of the Preferred
Securities in August 1996. Total average outstanding debt (including the
Preferred Securities) increased to $265.0 million for Fiscal 1997, compared to
$194.4 million for Fiscal 1996.
20
<PAGE>
Income Taxes
The Company did not incur a significant provision or benefit for income taxes in
Fiscal 1997. As such, operations for Fiscal 1997 did not include an income tax
benefit from domestic operations as no tax benefit was provided on operating
losses. The provision for Fiscal 1996 pertained principally to anticipated
resolution of outstanding issues from prior years.
The net loss for Fiscal 1997 was $(49.7) million, or $(2.18) per basic common
share, compared to a net loss of $(197.5) million, or $(8.73) per basic common
share for Fiscal 1996. Results for Fiscal 1997 include one time transition costs
of $11.5 million, and a gain on the disposal of assets of $10.8 million as
follows: (i) $10.2 million on the sale of the Cambridge facility, (ii) $0.3
million on the sale of the old Racine plant, and (iii) $0.3 million on the sale
of other assets. Results for Fiscal 1996 included one time writedowns and other
charges in the consolidated financial statements totaling approximately $132.3
million as follows:
(i) a restructuring charge totaling $65.7 million including:
o $21.5 million loss on sale of disposal of a business resulting
from the Company's decision to exit non-core business activities;
o $24.3 million non-cash charge consisting of: (i) $10.2 million for
the write-down of the commercial printing operation to net
realizable value to be disposed of in connection with the
Company's plan to exit non-core business activities, (ii) $9.6
million for the loss on sale of assets associated with the
Company's strategic decision to outsource its information
technology department and (iii) $4.5 million for the write-down of
assets to net realizable value which have been identified as
non-productive assets as a result of the Company's strategic plan
to operate in a new efficient manufacturing facility;
o $8.0 million charge for severance related to the above;
o $3.0 million net realizable value adjustment related to idle
facility associated with the Company's game business, which was
previously sold;
o $7.6 million write-off of non-productive assets associated with
the termination of customer program initiatives in connection with
the strategic redirection of the Company; and
o $1.3 million for facility exit costs related to a lease
termination which were paid in December 1996.
(ii) a cost of sales adjustment of $25.0 million comprised of:
o $17.6 million of costs pertaining to the Company's decision to
discontinue or replace certain product lines and expeditiously
liquidate related inventory and slow moving product; and
o $7.4 million of other inventory related costs, consisting
primarily of licensing and prepublication costs.
(iii) a selling, general and administrative charge of $11.0 million relating
to costs associated with management's revised plans to resolve certain
legal and contractual matters.
(iv) adjustments totaling $5.7 million consisting of:
o $3.4 million in revenue adjustments; and
o $2.3 million in operating expenses to establish reserves to
resolve differences with customers with a view toward mending and
improving the Company's relationships with its customers.
(v) approximately $17.7 million of charges in connection with the sale of a
significant equity interest to GP Holding.
21
<PAGE>
(vi) $7.2 million of other one time charges consisting primarily of:
o $3.8 million in consulting fees incurred in relation to new
management's review of the operations of the
Company;
o $1.7 million of facility costs; and o other one time miscellaneous
charges of $1.7 million.
Legal Proceedings
The Company is currently involved in various litigation as described under "Item
3. Legal Proceedings." While it is not feasible to predict or determine the
outcome of the proceedings, it is the opinion of Management that their outcomes
have been adequately reserved for.
Year 2000 Compliance
Management has initiated an enterprise-wide program to prepare the Company's
computer systems and applications for the Year 2000 (Y2K), as well as to
identify and address any other Y2K operational issues which may affect the
Company. Updates on the Company's Year 2000 program are presented regularly to
senior management.
The Company's Year 2000 program began in 1997 and is currently being
administered by internal staff augmented by outside consultants. The program
consists of the following three components relating to the Company's operations:
(i) Information Technology ("IT") computer systems and applications that may be
impacted by the Year 2000 problem, (ii) non-IT systems and equipment which
include embedded technology that may be impacted by the Year 2000 problem and
(iii) third-party suppliers and customers with which the Company has material
relationships.
The general phases common to all three components of the Company's Year 2000
program are: (1) ASSESSMENT (the identification, assessment and prioritization
of the Y2K issues facing the Company in each of the above areas and the actions
to be taken in respect of such issues or items); (2) REMEDIATION (implementation
of the specific actions determined upon assessment, including repair,
modification or replacement of items that are determined not to be Year 2000
compliant); (3) TESTING (testing of the new or modified information systems,
other systems, and equipment to verify the Year 2000 readiness); (4) CONTINGENCY
PLANNING (designing contingency and business continuation plans for the Company;
and (5) IMPLEMENTATION (actual operation of systems and equipment and, if
necessary, the actual implementation of any contingency plans in the event Year
2000 problems occur, notwithstanding the Company's remediation program).
The progress to date of the three components in the Company's Year 2000 program
is as follows:
IT SYSTEMS AND APPLICATIONS. The principal IT systems and applications of the
Company affected by Year 2000 issues are Order Processing, Purchasing,
Manufacturing, Distribution Systems and Financial Systems. The Company has
completed the Assessment phase with respect to all IT systems and applications
and has begun remediation efforts. The Company anticipates that the replacement
phase related to these principal systems and applications should be completed by
the end of July 1999 and that the Testing, Contingency Planning and
Implementation phases should be substantially completed by the end of August
1999. In addition, the Company expects to implement the remainder of Year 2000
remediated IT systems and applications based on current assessments prior to
September 30, 1999.
Excluding normal system upgrades, the Company estimates that total costs for
conversion and testing of new or modified IT systems and applications will
aggregate approximately $2.0 million to $2.2 million of which an aggregate of
$.25 million had been incurred to date. Total conversion and testing costs
through fiscal 1999 are estimated at $1.9 million.
22
<PAGE>
NON-IT SYSTEMS AND EQUIPMENT. The principal non-IT systems and equipment of the
Company which utilizes embedded technology affected by Y2K issues include:
security systems, elevator systems, HVAC, phone systems, business machines,
printing press equipment and distribution systems. The Company has completed the
Assessment of its principal non-IT equipment and has begun remediation. The
Company anticipates the Remediation phase related to these principal systems
should be substantially completed by the end of April 1999 and that the Testing,
Contingency Planning and Implementation phases should be substantially completed
by the end of May, 1999. The Company estimates that total costs for modifying or
replacing new systems and equipment in this area will be approximately $.50
million, of which an aggregate of $.05 million has been incurred to date. Total
modification and replacement costs through fiscal 1999 are estimated at $.45
million.
MATERIAL THIRD PARTY RELATIONSHIPS. Material third party suppliers/vendors
affected by Year 2000 issues relates primarily to paper and printing supplies,
distribution/delivery services, fulfillment, licensing and financial services.
The Assessment phase for determining the Year 2000 readiness of the Company's
principal suppliers is ongoing; however the Company has received dates of
compliance from a majority of those suppliers. Concentration has been centered
on mission critical vendors without whom the Company would be at risk for doing
business.
Substantially all of the Company's principal suppliers have reported that they
have initiated Year 2000 programs. The Company will seek updates from these
parties to attempt to ascertain the adequacy of their programs as it relates to
the Company including personal contact interviews for those mission critical
suppliers. The Company expects to have completed these updates by May 1999. The
Company anticipates that it will develop contingency plans with respect to its
principal third party suppliers by the end of May 1999. Costs to the Company in
this area, excluding costs due to unanticipated third party Year 2000 problems,
will principally consist of internal staff costs, which are not expected to be
material.
Including the costs set forth above, the Company estimates that total program
costs for implementing its Year 2000 program will be $2.5 million to $2.7
million, of which total program costs to date have been $.3 million. Total
program costs through fiscal 1999 are estimated at $2.2 million to $2.4 million.
These costs include costs related to the matters above, as well as consulting
and other expenses related to infrastructure and facilities enhancements
necessary to prepare the Company for the Year 2000. The costs do not include
internal staff costs incurred or to be incurred in connection with the
implementation of the program. Costs are expected to be expensed as incurred,
and cash generated from the Company's operations or borrowings under its credit
agreements will fund such costs. The above-stated amounts have been budgeted for
the appropriate fiscal years. Projected Year 2000 costs for fiscal 1999 comprise
approximately 15% to 20% of the Company's IT budget for that period. Based on
the current progress of the Company's Year 2000 program, the Company anticipates
its Year 2000 program to be substantially completed by September 30, 1999. As a
result of the Company's Year 2000 program, it is anticipated that there may be
delays in other new and continuing IT projects, although diligence is being put
forth to allow for concurrent development where possible. However, no material
adverse affect is expected from any delays, as the Company has procedures in
place to ensure that critical projects will be handled in a timely manner. The
cost of the Company's Year 2000 program and the dates provided herein are based
on management's best estimates, which were derived utilizing numerous
assumptions of future events, many of which are beyond the Company's control.
The failure to correct a material Year 2000 problem could result in an
interruption in certain normal business activities or operations of the Company.
Such interruptions could materially and adversely affect the Company's financial
condition, results of operations and cash flows. Based on current plans and
assumptions, the Company does not expect that the Year 2000 issue will have an
adverse impact on the Company as a whole. Due to the general uncertainty
inherent in the Year 2000 problem, however, there can be no assurance that all
Year 2000 problems will be foreseen and corrected, or if foreseen, corrected on
a timely basis, or that no material disruption to the Company's business or
operations will occur. Further, the Company's expectations are based on the
assumption that there will be no general failure of external local, national or
international systems (including power, communication, postal or other
transportation systems) necessary for the ordinary conduct of business. The
Company is currently assessing those scenarios in which unexpected failures
would have a material adverse effect on the Company and will attempt to develop
23
<PAGE>
contingency plans designed to deal with such scenarios. There can be no
assurance, however, that successful contingency plans can, in fact, be developed
or implemented.
Seasonality
The Company has historically experienced significant fluctuations in quarterly
operating results. The children's publishing business in general is seasonal and
depends to a significant extent on the Christmas selling season, generally
resulting in a disproportionately higher percentage of revenues in the Company's
third fiscal quarter. The Company's quarterly operating results also will
fluctuate based on the timing of the introduction of products that utilize
licensed characters, which, in the case of characters appearing in movies, will
be dependent upon the period in which costs and expenses attributable to the
development and introduction of such products are incurred.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standard's Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities ("SFAS No. 133"), which is effective for all quarters of
fiscal years beginning after June 15, 1999. SFAS No. 133 requires that an entity
recognize all derivatives as either assets or liabilities and measure those
instruments at fair value. Unless the entity can treat the derivative as a hedge
according to certain criteria, the entity may be required to deduct any changes
in the derivative's fair value from its operating income. The adoption of SFAS
133 is not expected to have a material effect on the Company's Consolidated
Financial Statements.
24
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 of Part II is incorporated herein by
reference to the Consolidated Financial Statements filed with this report; see
Item 14 of Part IV.
<TABLE>
CONSOLIDATED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(In Thousands, Except For Per Share Data)
- --------------------------------------------------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
First Second Third Fourth
Quarter Quarter Quarter Quarter
1998
Total revenues $ 46,534 $ 43,145 $ 52,020 $ 52,527
Gross profit 9,559 1,313 6,589 (4,376)
Net loss (1) (20,872) (30,642) (18,850) (58,235)
Net loss per common share - basic (0.85) (1.21) (0.71) (2.10)
Weighted average number of common
shares - basic 27,077 27,165 27,525 27,965
1997
Total revenues $ 65,624 $ 50,445 $ 52,805 $ 74,687
Gross profit (loss) 20,815 15,135 15,599 15,774
Net loss (2) (8,872) (11,292) (17,899) (11,617)
Net loss per common share - basic (0.41) (0.52) (0.76) (0.51)
Weighted average number of common
shares - basic 25,983 26,139 26,489 26,814
</TABLE>
(1) Includes a charge of $9.2 million relating to a writedown of long-lived
assets at the Sturtevant, WI facility during the fourth quarter.
(2) Includes gain on disposal of a number of items, mainly the Cambridge
facility, of $10,209 during the fourth quarter.
26
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
27
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to Executive Officers required by this item is
included in Part I of the Company's Annual Report on Form 10-K.
Directors of Registrant
Shahara Ahmad-Llewellyn
Director since: May 8, 1996
Age: 55
Ms. Ahmad-Llewellyn is Vice Chairman of Philadelphia Coca-Cola Bottling Company
Inc. From its founding in 1971 until 1991, she served as President of H.A.V.A.
Inc., a home health care company. Ms. Ahmad-Llewellyn is President of the Board
of Directors of the Northside Center for Child Development and a member of the
Board of Directors of The New 42nd Street Corporation (The New Victory Theatre),
Jazz at Lincoln Center, WNET Channel Thirteen and the National Board of
America's Promise -- The Alliance for Youth. Ms. Ahmad-Llewellyn previously
served as Chairperson of the Small Business Administration District Advisory
Council for Region II, as Vice President of the Home Care Council of New York
City Inc. and as a Presidential appointee to the White House Conference on Small
Business.
Lorne Michaels
Director since: September 17, 1996
Age: 54
Mr. Michaels is the Chairman and founder of Broadway Video, Inc., an
entertainment company based in New York City. Mr. Michaels has worked for the
National Broadcasting Company since 1975, producing such comedy shows as
Saturday Night Live and Late Night With Conan O'Brien. Since 1991, Mr. Michaels
has produced motion pictures for Paramount Pictures.
Marshall Rose
Director since: May 8, 1996
Age: 62
Mr. Rose is Chairman of The Georgetown Group, Inc., a privately held real estate
development and financial services group. Mr. Rose serves as a director of One
Liberty Properties, Estee Lauder Companies, Inc. and BRT Realty Trust. In
addition, Mr. Rose serves as Chairman of the Board of Trustees of The New York
Public Library; as a Trustee of the New York University Medical Center; as
Director of Lincoln Center for the Performing Arts; as a member of the Executive
Committee of the Board of Visitors of the Graduate School and University Center
of The City University of New York; as Director and Executive Committee member
of the Bryant Park Restoration Committee; and as a Trustee of the Robert Steel
Foundation for Pediatric Cancer Research.
Richard E. Snyder
Director since: May 8, 1996
Age: 65
Mr. Snyder has been Chairman of the Board of Directors and Chief Executive
Officer of the Company since May 8, 1996. Mr. Snyder was President of the
Company from January 31, 1996 to May 8, 1996. Prior to that time, Mr. Snyder
had, since 1994, been an independent business consultant and investor. He was
the Chairman and Chief Executive Officer of Simon & Schuster from 1975 to 1994.
Mr. Snyder is a director of Reliance Group Holdings, Inc. and HSN, Inc.
28
<PAGE>
H. Brian Thompson
Director since: 1996
Age: 60
Mr. Thompson has been Chairman of the Board of Directors and Chief Executive
Officer of LCI International and its subsidiaries since July 1991. Mr. Thompson
previously served as Executive Vice President of MCI Communications Corporation
from 1981 to 1990, with responsibility for its operating divisions, including
MCI International. Prior to that time, Mr. Thompson was a management consultant
with McKinsey & Company for nine years in its Washington, D.C. office. Mr.
Thompson serves as a member of the board of directors of Microdyne Corporation
and Comcast UK Cable Partners Limited and is a member of the Listed Company
Advisory Committee to The New York Stock Exchange Board of Directors.
John L. Vogelstein
Director since: May 8, 1996
Age: 64
Mr. Vogelstein has served since 1982 as Vice Chairman of the Board of Directors,
and since 1994 as President, of E.M. Warburg, Pincus & Co., LLC. Prior thereto,
he was an officer and a director of E.M. Warburg, Pincus & Co., LLC and certain
of its affiliates. Mr. Vogelstein currently is a director of ADVO Inc., Journal
Registry Company, Mattel, Inc., and several privately held companies.
Douglas M. Karp
Director since: July 8, 1998
Age: 43
Mr. Karp is Managing Director and a member of the Operating Committee of E. M.
Warburg Pincus & Company, L.L.C. Prior to joining Warburg Pincus he was a
Managing Director of Mergers and Acquisitions at Salomon Brothers, Inc. and a
Manager with the Boston Consulting Group and founder of its New York office. Mr.
Karp is a member of the Board of Directors of Qwest Communications, Journal
Register Company, TV Filme, Inc., Primus Telecommunications Group, StarMedia
Network, Inc. and PageNet do Brasil. He is a member of the Connecticut and
Florida Bars, a member of the Board of Trustees of the New Canaan Country
School, a director of the Horizons education program and the City Parks
Foundation.
29
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid or accrued by the
Company to (i) its Chief Executive Officer, (ii) its executive officers, other
than the Chief Executive Officer, who were serving as executive officers at
December 26, 1998, and (iii) two former executive officers who would have been
among the four most highly compensated executive officers other than the Chief
Executive Officer during Fiscal 1998.
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term Compensation
-------------------------
Annual Compensation Awards
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Other
Name and Annual Restricted Securities All Other
Principal Compensation Stock Underlying Compensation
Position Year (1) Salary ($) Bonus ($) ($) Awards ($) Options (#) ($
-------- -------- ---------- --------- --- ---------- ----------- --
Richard E. Snyder FY98 $949,985 --- $403,099 (2) $ --- --- $1,722 (3)
Chairman and Chief FY97 $937,885 $500,000 $442,147 --- 293,210 (4) $1,722 (3)
Executive Officer FY96 465,891 491,667 276,143 --- 1,271,089 431
Philip Galanes FY98 319,107 --- --- --- 240,000 ---
Chief Administrative FY97 236,925 (5) --- --- --- 62,243 (5) ---
Officer FY96 16,053 --- --- --- 35,000 ---
Richard Collins FY98 317,852 --- --- --- 65,000 ---
Chief Operating FY97 94,490 --- --- --- 57,350 ---
Officer FY96 --- --- --- --- --- ---
Robert J. Asahina (6) FY98 200,000 --- --- --- --- ---
President of the FY97 200,000 ---(7) --- --- 26,682 (7) ---
Golden Books Adult FY96 153,846 75,000 --- --- 100,000 ---
Publishing division
Eric Ellenbogen (8) FY98 1,062,486 --- --- --- 65,000 $1,722 (3)
President of the FY97 769,808 ---(9) --- --- 277,194 (9) ---
Golden Books FY96 256,731 105,000 --- --- 500,000 ---
Entertainment Group,
Executive Vice
President and
Director
John C. Ferrara (10) FY98 334,316 --- --- --- 445,000 ---
Chief Financial FY97 --- --- --- --- --- ---
Officer FY96 --- --- --- --- --- ---
</TABLE>
- ---------------------------
(1) The three years reported upon in the table are the fiscal years ended
December 28, 1996 ("FY96"), December 27, 1997 ("FY97") and December 26,
1999 ("FY98").
30
<PAGE>
(2) Includes $340,000 of imputed income with respect to the non-recourse
note issued by Mr. Snyder to the Company in connection with his
purchase of incentive stock in January 1996. See "Executive
Compensation -- Employment Agreements -- Richard E. Snyder."
(3) Represents payments made by the Company with respect to life insurance
premiums.
(4) Pursuant to the Company's Executive Officer Bonus Plan, in May 1997,
Mr. Snyder elected to exchange 100% of his 1997 target bonus
opportunity for options issued under the Company's 1995 Stock Option
Plan, as amended, with a value (determined pursuant to the
Black-Scholes method) equal to twice the amount of such target
opportunity. In 1997, the Company's operating divisions (with the
exception of the Golden Books Entertainment Group ("GBEG")) did not
achieve the financial targets necessary for the payment of bonuses to
eligible employees pursuant to the Company's Executive Officer Bonus
Plan. However, on December 15, 1997, the Compensation Committee decided
to reward eligible employees for their contributions. With respect to
employees who had previously elected to exchange all or a percentage of
their target bonuses for options pursuant to the Company's Executive
Officer Bonus Plan, the Compensation Committee reduced the amount of
such options initially granted in May 1997 by 25% (12.5% with respect
to GBEG employees).
(5) Pursuant to the Company's Executive Officer Bonus Plan, in May 1997,
Mr. Galanes elected to exchange 100% of his 1997 target bonus
opportunity for options issued under the Company's 1995 Stock Option
Plan, as amended, with a value (determined pursuant to the
Black-Scholes method) equal to twice the amount of such target
opportunity. In 1997, the Company's operating divisions (with the
exception of GBEG) did not achieve the financial targets necessary for
the payment of bonuses to eligible employees pursuant to the Company's
Executive Officer Bonus Plan. However, on December 15, 1997, the
Compensation Committee decided to reward eligible employees for their
contributions. With respect to employees who had previously elected to
exchange all or a percentage of their target bonuses for options
pursuant to the Company's Executive Officer Bonus Plan, the
Compensation Committee reduced the amount of such options initially
granted in May 1997 by 25% (12.5% with respect to GBEG employees).
(6) Mr. Asahina's employment with the Company terminated in January 1999.
(7) Pursuant to the Company's Executive Officer Bonus Plan, in May 1997,
Mr. Asahina elected to exchange 25% of his 1997 target bonus
opportunity for options issued under the Company's 1995 Stock Option
Plan, as amended, with a value (determined pursuant to the
Black-Scholes method) equal to twice the amount of such target
opportunity. In 1997, the Company's operating divisions (with the
exception of GBEG) did not achieve the financial targets necessary for
the payment of bonuses to eligible employees pursuant to the Company's
Executive Officer Bonus Plan. However, on December 15, 1997, the
Compensation Committee decided to reward eligible employees for their
contributions by granting stock options to such employees in an amount
equal to .75 options for every $10 of target bonus at an exercise price
of $10, the closing price of the Common Stock on December 15, 1997.
With respect to employees who had previously elected to exchange all or
a percentage of their target bonuses for options pursuant to the
Company's Executive Officer Bonus Plan, the Compensation Committee
reduced the amount of such options initially granted in May 1997 by 25%
(12.5% with respect to GBEG employees).
(8) Mr. Ellenbogen's employment with the Company terminated in November
1998. Mr. Ellenbogen resigned as a director in November 1998.
(9) Pursuant to the Company's Executive Officer Bonus Plan, in May 1997,
Mr. Ellenbogen elected to exchange 100% of his 1997 target bonus
opportunity for options issued under the Company's 1995 Stock Option
Plan, as amended, with a value (determined pursuant to the
Black-Scholes method) equal to twice the amount of such target
opportunity. In 1997, the Company's operating divisions (with the
exception of GBEG) did not achieve the financial targets necessary for
the payment of bonuses to eligible employees pursuant to the Company's
Executive Officer Bonus Plan. However, on December 15, 1997, the
Compensation Committee decided to
31
<PAGE>
reward eligible employees for their contributions. With respect to
employees who had previously elected to exchange all or a percentage of
their target bonuses for options pursuant to the Company's Executive
Officer Bonus Plan, the Compensation Committee reduced the amount of
such options initially granted in May 1997 by 25% (12.5% with respect
to GBEG employees).
(10) John Ferrara ceased to act as Chief Financial Officer of the Company in
December 1998.
Mr. Snyder is currently employed pursuant to an employment agreement
dated May 8, 1996, as amended. See Note 14 to the Consolidated Financial
Statements. It is contemplated that on the confirmation of the Joint Plan of
Reorganization, such employment agreement shall be deemed canceled and
terminated and the Company and Mr.
Snyder will enter into a revised employment agreement.
On July 28, 1997, the Company entered into an employment agreement with
Mr. Collins, commencing on such date and continuing through December 31, 2000,
which agreement was subsequently amended by Amendment No. 1 dated September 1,
1998. Under his employment agreement as amended, Mr. Collins is entitled to
receive an annual base salary of $300,000 for each year of the term. In
addition, Mr. Collins is eligible to receive an annual bonus pursuant to the
Bonus Plan of up to 200% of his annual base salary, subject to the attainment of
certain goals, with a target bonus of 100% of his annual base salary. In the
event the Company terminates Mr. Collins' employment for any reason other than
cause or Mr. Collins terminates his employment for good reason, the Company will
be required to pay him, in addition to accrued obligations, his annual base
salary for the longer of (a) two years or (b) the duration of the term of the
agreement, to be offset by any new compensation earned over the balance of such
period by Mr. Collins. Pursuant to his employment agreement, Mr. Collins was
granted, under the Company's 1995 Stock Option Plan, options to acquire 25,000
shares of Common Stock of the Company at an exercise price of $12.375. Such
options have a term of seven years from the date of grant and become exercisable
in equal parts on each of the first three consecutive anniversaries of the date
of grant.
On May 7, 1998, the Company entered into an amended and restated
employment agreement with Philip Galanes, commencing on such date and continuing
through May 6, 2002. Under the agreement, Mr. Galanes is entitled to receive an
annual base salary of $350,000 for the first year of the term, $357,000 for the
second year of the term, and $400,000 for the third and fourth years of the
term. In addition, Mr. Galanes is eligible to receive an annual bonus pursuant
to the Bonus Plan of up to 200% of his annual base salary, subject to the
attainment of certain goals, with a target bonus of 100% of his annual base
salary. In the event the Company terminates Mr. Galanes' employment for any
reason other than cause or Mr. Galanes' terminates is employment for good reason
(including upon a change of control), the Company will be required to pay him,
in addition to accrued obligations, his annual base salary and target bonus for
two years. Pursuant to his employment agreement, Mr. Galanes was granted, under
the Company's 1995 Stock Option Plan, options to acquire 200,000 shares of
Common Stock of the Company at an exercise price of $10.438. Such options have a
term of seven years from the date of grant and become exercisable in equal parts
on each of the first four consecutive anniversaries of the date of grant.
Compensation decisions relating to executive officers, including
decisions with respect to the granting of options, were made through the first
part of fiscal 1998 by a Board Compensation Committee. Certain decisions
regarding severance arrangements made later in fiscal 1998 were made by the
Board of Directors. During the latter part of 1998, the Company negotiated with
the committees representing creditors with respect to issues of executive
compensation in the reorganized Company, as proposed in the Joint Plan of
Reorganization.
32
<PAGE>
FIVE-YEAR PERFORMANCE GRAPH
Set forth below is a line graph comparing the cumulative total
stockholder return on the Company's Common Stock against the cumulative total
return for (i) the Standard & Poor's 500 Composite Index ("S&P 500 Index") and
(ii) an index of Peer Group companies selected by the Company for the five-year
period ended December 26, 1998 (the "Peer Group"). The graph below assumes that
$100 was invested at the close of business at December 26, 1993 in the Company's
Common Stock, the S&P 500 Index and the Peer Group. The total return calculated
assumes the reinvestment of dividends. The Company does not pay a dividend on
its Common Stock.
[GRAPHIC OMITTED]
The Peer Group is comprised of other publishing and related companies of
comparable size, complexity and quality as selected by the Company with the
assistance of an outside consultant. The Peer Group consists of the following
companies: American Greetings Corporation, Banta Corp., Courier Corporation,
Daily Journal Corp. S.C., Gibson Greetings Inc., Intervisual Books Inc., John
Wiley and Sons Inc., Pharmaceuticals Marketing Services, Pulitzer Publishing
Co., Scholastic Corporation, Thomas Nelson Inc., and Topps Company Inc. The
following companies, which have previously been included in the Company's Peer
Group, are not included because the common stock trading prices for such
companies are unavailable: American City Business Journals Inc.,Commerce
Clearing House, Inc., Multimedia Incorporated, Price Stern Sloan Inc. and United
Newspapers Public Ltd. Co. ADR.
33
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS AND
SHARE OWNERSHIP BY MANAGEMENT
Pursuant to the Joint Plan of Reorganization existing holders of the Company's
Preferred and Common Stock will surrender their stock for out-of-the money
warrants to purchase 5% of the new company stock to be allocated two-thirds to
the preferred shareholders and one-third to the common shareholders, to be
issued post recapitalization, prior to dilution. See Item 1. Business -- Recent
Events.
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock and the Preferred Stock as of April 6, 1999
(except as set forth in notes, 5, 6 and 7 below), based upon 28,299,434 shares
of Common Stock and 13,000 shares of Preferred Stock outstanding on such date,
by (a) each person or group known by the Company to be the beneficial owner of
more than 5% of each such class of capital stock, (b) each of the Company's
Directors, (c) the Company's Chief Executive Officer and the other current
executive officers of the Company named in the Summary Compensation Table and
(d) the Directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
Beneficial Ownership (1)
--------------------------------------------------------------------------
<S> <C> <C> <C>
Number of Shares of Number of Shares of Percentage of
Name and Address of Beneficial Owner Preferred Stock Common Stock Common Stock (1)
5% Holders
Warburg, Pincus Ventures, L.P.
Warburg, Pincus & Co.
E.M. Warburg, Pincus & Co., LLC
Golden Press Holding, L.L.C.
466 Lexington Avenue
New York, New York 10017.......... 13,000 (2) 15,018,271 (3) 43.2% (4)
Richard A. Bernstein
444 Madison Avenue
New York, New York 10022.......... --- 3,513,271 (5) 12.4%
Hallmark Cards, Inc.
H C Crown Corp.
2501 McGee Street
Kansas City, Missouri 64141....... --- 2,356,198 (6) 8.3%
Directors and Executive Officers
Shahara Ahmad-Llewellyn (7) --- 19,100 *
Lorne Michaels (7) --- 455,550 1.6%
Marshall Rose (7) --- 15,000 *
H. Brian Thompson (7) --- 15,000 *
John L. Vogelstein (8) --- --- ---
Douglas M. Karp (8) --- --- ---
Philip Galanes --- 85,576 *
Richard Collins --- 16,667 *
Richard E. Snyder (9) --- 684,432 2.4%
Directors and executive officers of the
Company as a group --- 1,291,325 4.6%
</TABLE>
- ---------------------
* Less than one percent.
34
<PAGE>
(1) Except where otherwise indicated, the Company believes that all parties
named in the table, based on information provided by such persons, have
sole voting and dispositive power over the securities beneficially
owned by them, subject to community property laws, where applicable.
For purposes of this table, a person or group of persons is deemed to
be the "beneficial owner" of any shares that such person has the right
to acquire within 60 days. For purposes of computing the percentage of
outstanding shares held by each person or group of persons named in the
table on a given date, any security that such person or persons has the
right to acquire within 60 days of April 6,1999 is deemed to be
outstanding (including by way of conversion of the Preferred Stock),
but is not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person.
(2) Each share of Preferred Stock is convertible into 500 shares of Common
Stock, or a total of 6,500,000 shares of Common Stock. GPH owns 100% of
the issued and outstanding shares of Preferred Stock.
(3) Includes 1,755,000 shares of Common Stock owned by GPH, a warrant held
by GPH (the "Warrant") to purchase 3,250,000 shares of Common Stock
that became exercisable on May 8, 1998 and 6,500,000 shares of Common
Stock issuable upon conversion of the 13,000 shares of Preferred Stock
owned by GPH. Each of the other reporting entities may be deemed to
share the power to vote and dispose of the shares of Common Stock held
by GPH, the shares of Common Stock issuable upon conversion of the
Preferred Stock and the shares of Common Stock issuable upon exercise
of the Warrant. Also includes 3,513,271 shares of Common Stock
beneficially owned by Richard A. Bernstein (the "Bernstein Shares") as
to which Mr. Bernstein and certain of his affiliates have granted
irrevocable proxies to GPH to vote such shares on any matter presented
for the vote or consent of the Company's stockholders. Each of the
reporting entities may be deemed to beneficially own the Bernstein
Shares and to share the power to vote or direct the voting of the
Bernstein Shares.
(4) Assumes the conversion of the Preferred Stock into Common Stock.
(5) Beneficial ownership of these shares was reported in Amendment No. 3 to
its Schedule 13G, that was filed on February 10, 1999.
(6) Beneficial ownership of these shares was reported in a Schedule 13D
that was filed on September 10, 1996. H C Crown Corp. ("H C Crown") is
a wholly owned subsidiary of Hallmark Cards, Incorporated ("Hallmark")
and Hallmark may be deemed to beneficially own all of the shares owned
by H C Crown.
(7) Includes non-qualified stock options to purchase 15,000 shares of
Common Stock granted pursuant to the 1995 Stock Option Plan, as
amended, of the Company. Such options are presently exercisable.
(8) Such person is a general partner of WP, the general partner of Warburg,
Pincus Ventures, an equity investor in GPH. Beneficial ownership of the
securities owned by GPH is disclaimed by such person.
(9) Consists of 599,465 shares of Common Stock issued to Mr. Snyder on
January 31, 1996 pursuant to his employment agreement with the Company
and 84,967 shares of Common Stock issued to Mr. Snyder pursuant to
certain anti-dilution provisions contained therein. Mr. Snyder controls
the Snyder 1996 Family Limited Partnership, an equity investor in GPH.
Mr. Snyder disclaims beneficial ownership of the securities owned by
GPH. Mr. Snyder also owns non-qualified stock options to purchase
1,271,089 shares of Common Stock granted pursuant to Mr. Snyder's
employment agreement with the Company, including pursuant to certain
anti-dilution provisions contained therein, as well as additional stock
options to purchase 293,210 shares of
35
<PAGE>
Common Stock which Mr. Snyder received as consideration for his
election to forego his 1997 bonus pursuant to the Company's 1997
Executive Officer Bonus Plan. None of the options owned by Mr. Snyder
are exercisable within 60 days of April 6, 1999.
36
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Georgetown Transaction
Pursuant to a letter agreement (the "Georgetown Agreement") dated as of August
1,1996, The Georgetown Company ("Georgetown"), a corporation of which Marshall
Rose (a current director of the Company) is the Managing Partner, has acted as a
real estate advisor to the Company. In March 1999, the Company and Georgetown
agreed to terminate all remaining obligations under the Georgetown agreement.
Pursuant to the Georgetown Agreement, the Company was obligated to make the
following payments to Georgetown: (i) $25,000 per month for the period beginning
August 1, 1996 and ending July 1, 1999; and (ii) an incentive fee, payable in
cash or Common Stock, for each completed real estate transaction during the
period beginning August 1, 1996 and ending July 3, 2000, in an amount equal to
one-half of each commission that would be paid to an outside broker representing
the Company. To date, the Company has paid to Georgetown (i) $75,000 in respect
of a property located at 630 Fifth Avenue, New York, New York, (ii)
approximately $580,000 in respect of a property located at 888 Seventh Avenue,
New York, New York, (iii) approximately $131,000 in respect of a property
located at 850 Third Avenue, New York, New York, (iv) approximately $217,000 in
respect of a property located in Fayetteville, North Carolina, and (v)
approximately $78,000 in respect of a property located in Coffeyville, KS.
Tribeca Transaction
Pursuant to a letter agreement (the "Tribeca Agreement") dated as of July 1,
1996, the Company was obligated to pay to Tribeca Technologies LLC (" Tribeca"),
a limited liability company in which Philip E. Rowley (an officer of the Company
through May 1998) was a member, as compensation for the loss by Tribeca of the
exclusive services of Mr. Rowley following his employment by the Company, the
sum of $200,000 on each of the following dates (provided that Mr. Rowley is in
the employment of the Company at such time); (i) July 1, 1996; (ii) July 1,
1997; and (iii) July 1, 1998. In consideration for such payments, Tribeca is
obligated to pay the Company one-third of the aggregate amount of any and all
distributions otherwise to be made by Tribeca to Mr. Rowley and the President of
Tribeca on or before June 30,1999 (or such earlier time as Mr. Rowley's
employment with the Company ceases), provided, that the maximum amount payable
to the Company is the lesser of (i) $600,000 and (ii) the amount paid by the
Company to Tribeca pursuant to the previous sentence. As of December 26, 1998,
the Company has fulfilled its obligation and made payments totaling $570,000 as
follows: $200,000 in Fiscal 1996, $200,000 during June 1997, and $170,000 (paid
in advance at a discounted rate) during November 1997.
Powerhouse Transaction
On May 8, 1996, the Company and Powerhouse Entertainment Company, Inc.
("Powerhouse"), a corporation affiliated with Richard A. Bernstein, the former
Chairman and Chief Executive Officer of the Company, entered into a software
development agreement (the "Development and Licensing Agreement") relating to
the development by Powerhouse of six interactive PC CD-ROM storybooks under the
Little Golden Books Interactive name and logo (the "Powerhouse Products") and
certain other computer software products.
Under the terms of the Development and Licensing Agreement, Powerhouse received
a fee in the amount of $1.0 million for the development of the Powerhouse
Products. All development costs were incurred by Powerhouse with the Powerhouse
Products' content, packaging and design subject to the Company's approval.
Separately, Powerhouse is paid a royalty based upon the net proceeds of sales of
the Powerhouse Products and such royalty obligation continues for the term of
copyright. The Company has paid approximately $75,000 to Powerhouse in royalties
through December 26, 1998.
There is also an agreement (the "Support Agreement") of even date between the
parties wherein, Powerhouse, on behalf of Company and at the Company's sole cost
and expense, performed all services relating to the manufacturing,
37
<PAGE>
marketing, distribution, sales and licensing of the Powerhouse Products. To
date, the Company has paid approximately $615,000 to Powerhouse in connection
with such services.
38
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a)(1 and 2) Financial Statements. See Index to Consolidated Financial
Statements and Schedules which appears on Page F-1 herein.
(a)(3) Exhibits
Restated Certificate of Incorporation of the Registrant dated March 25, 1998
(incorporated by reference to the Registrant's Annual Report on Form 10-K for
fiscal year 1997 (the "1997 Form 10-K")).
By-laws of the Registrant (incorporated by reference to Exhibit 3.4 to the 1988
Form 10-K).
Form of certificate for shares of the Registrant's Common Stock (incorporated by
reference to Exhibit 4.4 to Registration Statement No. 33-4127).
Certificate of Designation of the Series B Convertible Preferred Stock dated May
8, 1996 (included in Exhibit 3.1 filed herewith).
Indenture governing the Golden Books Publishing Company's 7.65% Senior Notes due
2002 (incorporated by reference to Registration Statement 33-51568).
Certificate of Trust of Golden Book Financing Trust (incorporated by reference
to Exhibit 10.1 to the Registrant's Registration Statement No. 333-14335).
Amended and Restated Declaration of Trust of Golden Books Financing Trust, dated
as of August 20, 1996, among Golden Books Family Entertainment, Inc., as
Sponsor, The Bank of New York, as Property Trustee, The Bank of New York
(Delaware), as Delaware Trustee and Willa M. Perlman and Philip E. Rowley, as
Trustees (Incorporated by reference to Exhibit 10.1 of the Registrant's Form
10-Q for the quarterly period ended August 3, 1996 (the "August 3, 1996 10-Q")).
Indenture for the 8 3/4% Convertible Debentures, dated as of August 20, 1996,
among Golden Books Family Entertainment, Inc., Golden Books Publishing Company,
Inc. and The Bank of New York, as Indenture Trustee (incorporated by reference
to Exhibit 10.2 of the August 3, 1996 Form 10-Q).
Form of 8 3/4% Preferred Securities (included in Exhibit A-1 to Exhibit 4.4
above).
Form of 8 3/4% Convertible Debentures (included in Exhibit A to Exhibit 4.5
above).
Preferred Securities Guarantee Agreement, dated as of August 20, 1996, between
Golden Books Family Entertainment, Inc., as Guarantor, and The Bank of New York,
as Guarantee Trustee (incorporated by reference to Exhibit 10.3 of the August 3,
1996 Form 10-Q).
2.1* Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code, dated
March 25, 1999.
2.2* Disclosure Statement pursuant to Section 1125 of the Bankruptcy Code for
the Joint Plan of Reorganization of the Debtors, dated March 25, 1999.
39
<PAGE>
10.01 Golden Comprehensive Security Program, as amended and restated, effective
January 1, 1993 (incorporated by reference to Exhibit 10.40 to the Registrant's
Annual Report on Form 10-K for Fiscal year 1993 (the "1993 Form 10-K")).
10.02 Golden Retirement Savings Program, as amended and restated, effective as
of January 1, 1993 (incorporated by reference to Exhibit 10.53 to the 1993 Form
10-K).
10.03 Amended and Restated 1986 Employee Stock Option Plan (incorporated by
reference to Exhibit 10.40 to the 1988 Form 10-K).
10.04 Amendment dated April 11, 1989 to the Amended and Restated 1986 Employee
Stock Option Plan (incorporated by reference to Exhibit 10.56 to the 1990 Form
10-K).
10.05 Golden Books Family Entertainment, Inc. Amended and Restated 1995 Stock
Option Plan (incorporated by reference to Exhibit 10.05 to the 1997 Form 10-K).
10.06 Western Publishing Company, Inc.'s Executive Medical Reimbursement Plan
dated January 1, 1991 (incorporated by reference to Exhibit 10.73 to the 1991
Form 10-K).
10.07 Registration Rights Agreement, dated August 20, 1996, among Golden Books
Financing Trust, Golden Books Family Entertainment, Inc., Golden Books
Publishing Company, Inc., Merrill Lynch & Co., Donaldson, Lufkin & Jenrette
Securities Corporation and SBC Warburg Inc. (incorporated by reference to
Exhibit 10.4 to the August 3, 1996 Form 10-Q).
10.08 Registration Rights Agreement, dated as of September 6, 1996, between
Golden Books Family Entertainment, Inc. and H C Crown Corp. (incorporated by
reference to Exhibit 10.6 to the August 3, 1996 Form 10-Q).
10.09 Asset Purchase Agreement dated as of July 30, 1996 among Broadway Video
Entertainment, L.P., Broadway Video Enterprises, Inc., Lone Ranger Music, Inc.,
Palladium Limited Partnership, Golden Books Family Entertainment, Inc., Golden
Books Publishing Company, Inc., and LRM Acquisition Corp. (incorporated by
reference to the Registrant's current report on Form 8-K dated August 29, 1996).
10.10 Amendment No. 1 to Asset Purchase Agreement, dated as of August 20, 1996
among Broadway Video Entertainment, L.P., Broadway Video Enterprises, Inc., Lone
Ranger Music, Inc., Palladium Limited Partnership, Golden Books Family
Entertainment, Inc., Golden Books Publishing Company, Inc. and LRM Acquisition
Corp. (incorporated by reference to Exhibit 10.7 to the August 3, 1996 Form
10-Q).
10.11 Registration Rights Agreement, dated August 20, 1996, between Golden Books
Family Entertainment, Inc. and Broadway Video Entertainment, L.P. (incorporated
by reference to Exhibit 10.8 the August 3, 1996 Form 10-Q).
10.12 Amended and Restated Non-Recourse Promissory Note, dated as of August 20,
1996, executed by Richard E. Snyder in favor of Golden Books Family
Entertainment, Inc. (incorporated by reference to Exhibit 10.16 to the August 3,
1996 Form 10-Q).
10.13 Amended and Restated Pledge Agreement, dated as of August 20, 1996,
executed by Richard E. Snyder (incorporated by reference to Exhibit 10.18 to the
August 3, 1996 Form 10-Q).
10.14 Golden Books Family Entertainment, Inc. Executive Officer Bonus Plan
(incorporated by reference to Appendix VII to the 1996 Proxy).
40
<PAGE>
10.15 Amended and Restated Employment Agreement, dated as of August 20, 1996,
between Golden Books Family Entertainment, Inc. and Richard E. Snyder
(incorporated by reference to Exhibit 10.16 to the August 3, 1996 Form 10-Q).
10.16 Amendment No. 1 to Richard E. Snyder's Amended and Restated Employment
Agreement, dated as of September 9, 1997 (incorporated by reference to Exhibit
10.16 to the 1997 Form 10-K).
10.17 Employment Agreement, dated July 30, 1996, between Golden Books Family
Entertainment, Inc. and Eric Ellenbogen (incorporated by reference to Exhibit
10.19 to the August 3, 1996 Form 10-Q).
10.18 Employment Agreement, dated as of July 1, 1996, between Golden Books
Family Entertainment, Inc. and Philip E. Rowley (incorporated by reference to
Exhibit 10.20 to the August 3, 1996 Form 10-Q).
10.19 Employment Agreement, dated as of May 28, 1996, between Golden Books
Family Entertainment, Inc. and Willa M. Perlman (incorporated by reference to
Exhibit 10.21 to the August 3, 1996 Form 10-Q).
10.20 Employment Agreement, dated as of July 28, 1997 between Golden Books
Publishing Company, Inc. and Richard Collins (incorporated by reference to
Exhibit 10.20 to the 1997 Form 10-K).
10.21* Employment Agreement dated May 7, 1998 between Golden Books Family
Entertainment, Inc. and Philip Galanes.
10.22 Industrial Building Lease Agreement dated as of June 23, 1997 between
Golden Books Family Entertainment, Inc. and First Industrial Development
Services Group, L.P. (incorporated by reference to Exhibit 10.21 to the 1997
Form 10-K).
10.23* Real Estate Purchase Agreement dated October 13, 1998 between Golden
Books Family Entertainment, Inc. and Ablah Enterprises, Inc.
10.24 Licensed Book Publishing Agreement between Disney Licensed Publishing and
Golden Books Publishing Company, Inc., dated September 26, 1997 (incorporated by
reference to exhibit 10.01 to the 10-Q/A filed on November 17, 1997).
10.25 Warrant Agreement between Golden Books Family Entertainment, Inc. and
Disney Enterprises, Inc., dated September 26, 1997 (incorporated by reference to
exhibit 10.02 to the 10-Q/A filed on November 17, 1997).
10.26* Licensed Book Publishing Agreement between Disney Licensed Publishing and
Golden Books Publishing Company, Inc., dated December 12, 1998.
21.1 * List of Subsidiaries.
23.1 * Consent of Ernst & Young LLP, Independent Auditors
27.1 * Financial Data Schedule.
99.1 Undertaking incorporated by reference into certain registration statements
on Form S-8 of the Registrant (incorporated by reference to Exhibit 99.4 to the
10-K for the year February 3, 1996).
* Filed electronically herewith.
Reports on Form 8-K filed during the three months ended December 26, 1998: Form
8-K filed September 16, 1998
41
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
April 9, 1999 GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
/s/ Richard. E. Snyder
Richard E. Snyder
Chairman of the Board of Directors and
Chief Executive Officer
/s/ Colin Finkelstein
Colin Finkelstein
Chief Financial Officer
(principal financial and accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed by the following persons in the capacities and on the dates
indicated.
Name Title Date
/s/ Richard E. Snyder Chairman of the Board and Chief April 9, 1999
- ----------------------------
Richard E. Snyder Executive Officer
/s/ Shahara Ahmad-Llewellyn Director April 9, 1999
- ----------------------------
Shahara Ahmad-Llewellyn
/s/ Marshall Rose Director April 9, 1999
- ----------------------------
Marshall Rose
- ---------------------------- Director April 9, 1999
John L. Vogelstein
/s/ H. Brian Thompson
- ---------------------------- Director April 9, 1999
H. Brian Thompson
- ---------------------------- Director April 9, 1999
Lorne Michaels
/s/ Douglas Karp
- ---------------------------- Director April 9, 1999
Douglas Karp
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
<TABLE>
<CAPTION>
Page
<S> <C>
Report of Independent Auditors..............................................F-2
Consolidated Financial Statements:
Consolidated Balance Sheets at December 26, 1998 and December 27, 1997......F-3
Consolidated Statements of Operations and Comprehensive Loss
for the years ended December 26, 1998 and December 27, 1997 and
the eleven months ended December 28, 1996...................................F-5
Consolidated Statements of Changes in Stockholders' Deficit for the years
ended December 26, 1998 and December 27, 1997 and the eleven months ended
December 28, 1996...........................................................F-6
Consolidated Statements of Cash Flows for the years ended December 26, 1998
and December 27, 1997 and the eleven months ended December 28, 1996.........F-7
Notes to Consolidated Financial Statements..................................F-9
Schedule I - Condensed Financial Information of Registrant..................S-1
Schedule II - Valuation and Qualifying Accounts.............................S-4
</TABLE>
All other schedules have been omitted because the information is not applicable
or is not material or because the information required is included in the
consolidated financial statements or the notes thereto.
F-1
<PAGE>
Report of Independent Auditors
To the Board of Directors and Stockholders
Golden Books Family Entertainment, Inc.
We have audited the accompanying consolidated balance sheets of Golden Books
Family Entertainment, Inc. and Subsidiaries (the "Company") as of December 26,
1998 and December 27, 1997, and the related consolidated statements of
operations and comprehensive loss, stockholders' deficit and cash flows for the
years then ended and the period from February 4, 1996 to December 28, 1996. Our
audits also included the financial statement schedules listed in the Index at
Item 14(a). These financial statements and schedules are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Golden
Books Family Entertainment, Inc. and Subsidiaries at December 26, 1998 and
December 27, 1997, and the consolidated results of their operations and their
cash flows for the years then ended and the period from February 4, 1996 to
December 28, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedules, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, on February 26, 1999, the Company filed a
voluntary petition for relief under Chapter 11 of the United States Bankruptcy
Code ("Chapter 11"). The Company is currently operating its business under the
jurisdiction of Chapter 11 and the United States Bankruptcy Court for the
Southern District of New York (the "Bankruptcy Court"), and continuation of the
Company as a going concern is contingent upon, among other things, the ability
to gain approval of the requisite parties under the United States Bankruptcy
Code and confirmation by the Bankruptcy Court of the joint plan of
reorganization, the ability to comply with its debtor-in-possession financing
facility, resolution of various litigation against the Company, and the
Company's ability to return to profitability, generate sufficient cash from
operations and obtain financing sources to meet its future obligations. In
addition, the Company has experienced operating losses, working capital
deficiencies, negative operating cash flows and is currently in default under
substantially all of its debt agreements. These matters raise substantial doubt
about the Company's ability to continue as a going concern. In the event a joint
plan of reorganization is confirmed and consummated, continuation of the
business thereafter is dependent on the Company's ability to obtain adequate
exit financing to meet cash flow obligations and ability to generate sufficient
cash flow to meet its operational and financing requirements. The accompanying
financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classifications of liabilities that might result from the outcome of these
uncertainties.
ERNST & YOUNG LLP
New York, New York
April 7, 1999
F-2
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS
December 26, December 27,
CURRENT ASSETS 1998 1997
------------------ -------------------
<S> <C> <C>
Cash and cash equivalents $ 15,330 $ 57,411
Accounts receivable 41,411 51,153
Inventories 33,068 34,659
Royalty advances 17,198 10,416
Refundable income taxes 1,781 1,781
Net assets held for sale 1,292 9,873
Deposits 7,708 -
Other current assets 7,165 5,053
------------------- -------------------
Total current assets 124,953 170,346
------------------- -------------------
OTHER ASSETS
Deposits - 3,497
Accounts receivable - long term 4,127 3,207
Other noncurrent assets 10,667 13,629
------------------- -------------------
Total other assets 14,794 20,333
------------------- -------------------
PROPERTY PLANT AND EQUIPMENT,
net of accumulated depreciation
and amortization of $37,946 as
of December 26, 1998 and $39,620
as of December 27, 1997 29,955 38,256
FILM LIBRARY, net of accumulated
amortization of $7,849 as of
December 26, 1998 and $4,364
as of December 27, 1997 55,858 63,638
GOODWILL, net of accumulated
amortization of $2,805 as of
December 26, 1998 and $1,605
as of December 27, 1997 29,391 30,591
------------------- -------------------
TOTAL ASSETS $ 254,951 $ 323,164
=================== ===================
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except for Per Share Data)
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
December 26, December 27,
1998 1997
-------------- ------------
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 26,002 $ 21,454
Accrued compensation and fringe benefits 4,977 5,887
Revolving credit facility 21,637 -
Loan facility 10,000 -
Long term debt in default 150,000 -
Guaranteed preferred beneficial interests
in the Company's and Golden Book
Publishing Company, Inc.'s convertible
debentures 115,000
Other current liabilities 61,634 47,225
-------------- ------------
Total current liabilities 389,250 74,566
-------------- ------------
NONCURRENT LIABILITIES
Long term debt - 149,897
Accumulated post-retirement benefit
obligation 29,609 29,365
Deferred compensation and other
deferred liabilities 25,173 19,938
-------------- ------------
Total noncurrent liabilities 54,782 199,200
-------------- ------------
Guaranteed preferred beneficial interests
in the Company's and Golden Books Publishing
Company, Inc.'s convertible debentures - 110,707
STOCKHOLDERS' DEFICIT:
Convertible Preferred Stock - Series B,
13,000 shares authorized, no par value,
13,000 shares issued and outstanding; 65,000 65,000
Common Stock, $.01 par value, 60,000,000
shares authorized, 27,899,047 and 26,887,313
shares issued as of December 26, 1998 and
December 27, 1997, respectively 279 269
Additional paid in capital 128,956 128,533
Accumulated deficit (379,390) (250,791)
Accumulated other comprehensive loss (1,104) (1,498)
-------------- ------------
(186,259) (58,487)
Less cost of Common Stock in treasury -
208,800 shares 2,822 2,822
-------------- ------------
Total common stockholders' deficit (189,081) (61,309)
-------------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT $ 254,951 $ 323,164
============== ============
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In Thousands, Except for Per Share Data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Eleven Months
Year Ended Year Ended Ended
December 26, December 27, December 28,
1998 1997 1996
------------- ------------ -------------
Revenues:
<S> <C> <C> <C>
Net sales $ 193,573 $ 242,481 $ 254,046
Royalties and other income 653 1,080 959
------------- ------------ -------------
Total revenues 194,226 243,561 255,005
------------- ------------ -------------
Costs and Expenses:
Cost of sales 181,141 176,238 231,792
Selling, general and administrative 98,293 111,307 142,721
Restructuring, net of (gains) losses
on sales of assets 6,462 (10,786) 65,741
Write-off of assets 10,609 - -
------------- ------------ -------------
Total costs and expenses 296,505 276,759 440,254
------------- ------------ -------------
Loss Before Interest Income, Distributions
on Guaranteed Preferred Beneficial
Interests in the Company's and Golden
Books Publishing Company, Inc.'s
Convertible Debentures, Interest
Expense and (Benefit) Provisions for
Income Taxes (102,279) (33,198) (185,249)
Interest Income 1,700 5,579 4,235
Distributions on Guaranteed Preferred
Beneficial Interest in The Company's
And Golden Books Publishing Company,
Inc.'s Convertible Debentures (10,282) (10,282) (3,597)
Interest Expense (18,404) (11,742) (10,999)
------------- ------------ -------------
Loss Before (Benefit) Provision
For Income Taxes (129,265) (49,643) (195,610)
(Benefit) Provision For Income Taxes (666) 37 1,893
------------- ------------ -------------
Net Loss (128,599) (49,680) (197,503)
Other Comprehensive Income (Loss):
Foreign Currency Translation 394 (159) 330
------------- ------------ -------------
Comprehensive Loss $ (128,205) $ (49,839) $ (197,173)
============= ============= ==============
Net Loss per Basic Common Share $ (4.89) $ (2.18) $ (8.73)
============= ============== ==============
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
YEARS ENDED DECEMBER 26, 1998 AND DECEMBER 27, 1997 AND THE ELEVEN MONTHS ENDED
DECEMBER 28, 1996 (In Thousands Except for Shares and Per Share Data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Convertible
Common Stock Preferred Stock - Series B Additional Note Receivable
-------------------- ---------------------------- Paid-In from sale of
Shares Amount Shares Amount Capital Common Stock
----------- -------- ----------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, February 3,1996 21,875,539 $ 219 - $ - $ 87,044 $ (4,796)
Net loss - - - - - -
Issuance of Preferred Stock - Series B - - 13,000 65,000 (6,248) -
Dividends on Preferred Stock - Series A
- $42.50 - - - - (221) -
Common Stock issued as dividend on
Preferred Stock - Series B 390,000 4 - - (4) -
Exercise of stock options 356,599 3 - - 3,883 -
Issuance of Common Stock 3,342,573 33 - - 35,922 4,796
Currency translation adjustment - - - - - -
----------- --------- ----------- --------------- ----------- -------------
Balances, December 28, 1996 25,964,711 259 13,000 65,000 120,376 -
Net loss - - - - - -
Common Stock issued as dividend on
Preferred Stock - Series B 780,000 8 - - (8) -
Exercise of stock options 142,602 2 - - 1,554 -
Issuance of Warrants - - - - 6,611 -
Currency translation adjustment - - - - - -
----------- --------- ----------- --------------- ----------- -------------
Balances, December 27, 1997 26,887,313 269 13,000 65,000 128,533 -
Net loss - - - - - -
Common Stock issued as dividend on
Preferred Stock - Series B 585,000 6 - - (6) -
Exercise of stock options 17,501 - - - 183 -
Common Stock issued as contribution to
Company 401k Plan 409,233 4 - - 539 -
Dividends on Preferred Stock - Series B - - - - (293) -
Currency translation adjustment - - - - - -
----------- --------- ----------- --------------- ----------- -------------
Balances, December 26, 1998 27,889,047 $ 279 13,000 $ 65,000 $ 128,956 $ -
=========== ========= =========== =============== =========== =============
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Other Treasury Stock
Accumulated Comprehensive ---------------------
Deficit Loss Shares Amount
------------ ------------- ---------- ----------
<S> <C> <C> <C> <C>
Balances, February 3,1996 $ (3,608) $ (1,669) 208,800 $ 2,822
Net loss (197,503)
Issuance of Preferred Stock - Series B - - - -
Dividends on Preferred Stock - Series A
- $42.50 - - - -
Common Stock issued as dividend on
Preferred Stock - Series B - - - -
Exercise of stock options - - - -
Issuance of Common Stock - - - -
Currency translation adjustment - 330 - -
------------ ------------- ---------- -----------
Balances, December 28, 1996 (201,111) (1,339) 208,800 2,822
Net loss (49,680) - - -
Common Stock issued as dividend on
Preferred Stock - Series B - - - -
Exercise of stock options - - - -
Issuance of Warrants - - - -
Currency translation adjustment - (159) - -
------------ ------------- ---------- -----------
Balances, December 27, 1997 (250,791) (1,498) 208,800 2,822
Net loss (128,599) - - -
Common Stock issued as dividend on
Preferred Stock - Series B - - - -
Exercise of stock options - - - -
Common Stock issued as contribution to
Company 401k Plan - - - -
Dividends on Preferred Stock - Series B - - - -
Currency translation adjustment - 394 - -
------------ ------------- ---------- -----------
Balances, December 26, 1998 $ (379,390) $ (1,104) 208,800 $ 2,822
============ ============= ========== ===========
</TABLE>
F-6
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Eleven Months
Year Ended Year Ended Ended
December 26, December 27, December 28,
1998 1997 1996
------------- ------------ -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (128,599) $ (49,680) $ 197,503)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 7,895 6,732 12,534
Amortization of intangibles 4,685 4,482 1,487
Provision for losses on accounts receivable 3,734 3,608 5,719
Restructuring, net of (gains) losses on sales of assets 4,396 (10,786) 103,367
Write-off of assets 10,609 - -
Non-cash compensation expenses - - 14,335
Loss (gain) on sale of equipment 4,692 - (98)
Other 1,320 - 1,439
Changes in assets and liabilities, net of effect of
acquisition and dispositions:
Decrease (increase) in accounts receivable 11,556 (15,392) 1,001
Decrease (increase) in inventories 1,591 (7,051) 27,432
(Increase) decrease in net assets held for sale (213) 1,755 1,628
Decrease in refundable income taxes - - 1,463
Increase in other current assets and royalty advances (12,894) (3,215) (3,600)
Increase (decrease) in accounts payable 4,548 3,199 (5,916)
Increase (decrease) in accrued compensation and fringe
benefits (910) 100 143
Other 23,373 (12,970) 17,149
------------- ------------ -------------
Net cash used in operating activities (64,217) (79,218) (19,420)
CASH FLOWS FROM INVESTING ACTIVITIES:
Broadway Video acquisition - - (81,000)
Investment in joint venture - - (2,250)
Deposits and other (211) (3,497) 229
Acquisitions of property, plant and equipment (13,400) (20,386) (5,739)
Additions to film library (4,668) (6,348) -
Proceeds from streamlining plan - - 661
Proceeds from sales of assets 7,667 22,712 14,535
------------- ------------ -------------
Net cash used in investing activities (10,612) (7,519) (73,564)
</TABLE>
F-7
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Eleven Months
Year Ended Year Ended Ended
December 26, December 27, December 28,
1998 1997 1996
------------ ------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Proceeds from issuance of Guaranteed Preferred Beneficial
Interests in the Company's and Golden Books Publishing
Company, Inc.'s Convertible Debentures - - 115,000
Issuance costs of Guaranteed Preferred Beneficial Interests
in the Company's and Golden Books Publishing Company,
Inc.'s Convertible Debentures in the - - (4,579)
Proceeds from Municipal Government Grants - 3,000 -
Net proceeds from Loan Facility 10,000 - -
Net proceeds from Revolving Credit Facility 21,637 - -
Proceeds from issuance of Preferred Stock - Series B - - 65,000
Issuance costs of Preferred Stock - Series B - - (6,248)
Redemption of Preferred Stock - Series A - - (9,985)
Proceeds from sale of Common Stock - 1,556 28,886
Dividends paid on Preferred Stock - Series A - - (646)
Common Stock Transactions - Other 728 - (74)
------------- ------------- --------------
Net cash provided by financing activities 32,365 4,556 187,354
------------- ------------- --------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH 383 (94) 93
------------- ------------- --------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (42,081) (82,275) 94,463
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 57,411 139,686 45,223
------------- ------------- --------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 15,330 $ 57,411 $ 139,686
============= ============= ==============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest and distributing on Guaranteed Preferred
Beneficial Interests in the Company's and Golden Books
Publishing Company, Inc.'s Convertible Debentures $ 15,235 $ 21,553 $ 13,992
============= ============= =============
Income taxes, net of refunds received $ (108) $ (416) $ (319)
============= ============= =============
Non-cash activity:
Issuance of warrants in connection with Disney License
Agreement $ - $ 6,611 $ -
============= =========== =============
</TABLE>
See notes to consolidated financial statements
F-8
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998
- --------------------------------------------------------------------------------
1. Nature of Business and Organization
Golden Books Family Entertainment, Inc. and Subsidiaries (the "Company") is a
publisher of children's books and family related entertainment products
primarily in the North American retail market. The Company, through its Consumer
Products division creates, publishes and markets an extensive range of
children's entertainment products, including "Little Golden Books" and other
storybooks, coloring / activity books, electronic storybooks, puzzles,
educational workbooks, reference books and novelty book formats. The Company has
published its flagship product line, "Little Golden Books", for over 50 years.
The Company, through the Commercial Printing Division of its wholly owned
subsidiary, Golden Books Publishing Company, Inc. ("Golden Books Publishing"),
provides creative, printing and publishing services to third parties. The
Company groups these activities into three business categories: graphic art
services and commercial printing; educational kit manufacturing; and custom
publishing services.
The Company's Golden Books Entertainment Group ("Golden Books Entertainment")
division was established in August 1996, upon the acquisition from Broadway
Video Entertainment, L.P. ("BVELP") of an extensive library of character-based
family entertainment properties. The Golden Books 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.
On May 8, 1996, the Company effected a reorganization of certain of its
subsidiaries (the "1996 Reorganization"). First, the Company conveyed to Golden
Books, Inc. ("GB"), a Delaware corporation and wholly owned subsidiary of the
Company, (i) all of the issued and outstanding shares of capital stock of Penn
Corporation ("Penn") and (ii) all of the issued and outstanding shares of
capital stock of Western Publishing. Immediately thereafter, the Company caused
GB to merge with and into Western Publishing Company Inc. In connection with the
1996 Reorganization, the Company, Western Publishing and GB entered into a First
Supplemental Indenture, dated as of May 8, 1996, with Marine Midland Bank, a New
York banking and trust company, as Successor Trustee, pursuant to which Western
Publishing (the name of which was subsequently changed to Golden Books
Publishing) was substituted for the Company as obligor with respect to the 7.65%
Senior Notes due 2002 (the "Senior Notes") originally issued by the Company.
F-9
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
2. Liquidity and Business Outlook
The Company has experienced liquidity difficulties as a result of operating
losses, working capital deficiencies and negative operating cash flows. These
difficulties have hampered the Company's ability to fund day-to-day operations.
As a result of the aforementioned facts and as more fully described below, on
February 26, 1999 the Company, as well as Golden Books Publishing and Golden
Books Home Video, Inc. (collectively, the "Debtors") filed petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code
("Bankruptcy Code"). The petitions were filed in the United States Bankruptcy
Court for the Southern District of New York (the "Bankruptcy Court"). The
Debtors are continuing to operate their business and hold their assets as
debtors-in-possession. No trustee has been appointed.
On September 15, 1998, the Company announced that it was deferring a $5.7
million interest payment on the Senior Notes due on such date for a 30-day grace
period in accordance with the Indenture ("Indenture") governing the Senior
Notes. Subsequently, on October 15, 1998, the Company announced that it would
not pay the September 15th interest payment. Accordingly, at October 15th the
Company was in default under the Indenture and the holders of the Senior Notes,
at their option, have the right (i) to demand the redemption of the entire
$150.0 million principal amount of the Senior Notes due and (ii) foreclose on
the collateral securing the Senior Notes. The Company does not have sufficient
resources to repay this obligation. Additionally, on March 15, 1999, the Company
defaulted on a $5.7 million interest payment on the Senior Notes due on such
date. As a result of the defaults, the Senior Notes are classified as a current
liability on the accompanying consolidated balance sheet. The Company has not
been informed of any such acceleration of payment.
Due to the October 15, 1998 default under the Senior Notes, cross-default
provisions regarding the Company's $30.0 million Revolving Credit Facility (as
defined) with NationsCredit and its $25.0 million Loan Facility (as defined)
with Golden Press Holdings, LLC, (see Note 9) have resulted in defaults under
such agreements. Accordingly, the lenders under the Revolving Credit Facility
and the Loan Facility have the right, at their option, to demand the
acceleration of all amounts due thereunder. The Company does not have sufficient
resources to repay these obligations. The Revolving Credit Facility and Loan
Facility have been classified as current liabilities on the accompanying
consolidated balance sheet. The Company has not been informed of any such
acceleration of payment.
The Company also decided on November 1, 1998 that the dividend consisting of
195,000 shares of Class A common stock and $292,500 in cash due on the Series B
Preferred Stock would not be declared or paid in accordance with the consent of
the holders of its Series B Preferred Stock. Additionally, on February 1, 1999
the Company again decided that it would not declare the dividend consisting of
195,000 shares of Class A common stock or pay a cash dividend on the Series B
Preferred Stock in accordance with the consent of the holders of the Series B
Preferred Stock.
The Company also decided on November 5, 1998 that it would defer a $2.5 million
interest payment on the Guaranteed Preferred Beneficial Interests in the
Company's and Golden Books Publishing Company, Inc.'s Convertible Debentures
(the "TOPrS" or the "Preferred Securities") due in accordance with the Indenture
underlying the TOPrS. Additionally, on February 20, 1999, the Company deferred
the next scheduled $2.5 million interest payment due on the TOPrS in accordance
with the Indenture governing the TOPrS.
As a result of the Bankruptcy filing, default provisions in the Indenture
underlying the TOPrS have been violated which have resulted in the holders of
the TOPrS having the right, at their option, to demand acceleration of the
$115.0 million due under the TOPrS agreement. The Company does not have
sufficient resources to repay this obligation. As a result of the default, the
TOPrS are classified as a current liability on the accompanying consolidated
balance sheet. The Company has not been informed of any such acceleration of
payment.
F-10
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
2. Liquidity and Business Outlook (continued)
As a result of the Company's failure to make the interest payments on the Senior
Notes, a steering committee representing certain holders of the Senior Notes
(the "Senior Notes Steering Committee") was established. Additionally, as a
result of the Company's failure to make interest payments due on the TOPrS, a
steering committee representing certain holders of the TOPrS (the "TOPrS
Steering Committee") was established.
The Company, along with the Senior Notes Steering Committee and the TOPrS
Steering Committee engaged in extensive negotiations regarding a restructuring
of the Company's indebtedness and capital equity structure. These negotiations
ultimately resulted in the filing of a joint plan of reorganization regarding
the terms of the Company's restructuring (the "Joint Plan of Reorganization").
Accordingly, on March 25, 1999, the Company filed the Joint Plan of
Reorganization with the Bankruptcy Court. The Joint Plan of Reorganization
allows the Company to significantly reduce its existing debt, pay all trade
creditors in full and, under the direction of its current management team,
proceed with its publishing and entertainment operations. The restructuring of
the Company's indebtedness and revised capital structure will be provided for as
follows:
o The Senior Notes will be converted into (i) a new secured note in the
principal amount of $87.0 million due 2004, with interest at the rate of
10%, if paid in cash, or, at the Company's option for the first three
years, 13.5% payable in kind, and (ii) 42.5% of the Company's new common
stock to be issued post recapitalization, prior to dilution. The new note
will be secured by the existing collateral already granted to the holders
of the Senior Notes as well as certain additional collateral.
o The TOPrS indebtedness will be converted into 50% of the Company's new
common stock to be issued post recapitalization, prior to dilution.
o The Golden Press Holdings, L.L.C. loan in the amount of $10 million will be
converted into 5% of the Company's new common stock to be issued post
recapitalization, prior to dilution.
Existing preferred and common shareholders will surrender their stock in
exchange for out-of-the money warrants to purchase 5% of the new Company's stock
to be allocated two-thirds to the preferred and one-third to the common
shareholders, to be issued post recapitalization, prior to dilution. The
restructuring also provides for a management stock incentive program for an
amount of common stock equal to 10% of the common stock issued on the effective
date of the Joint Plan of Reorganization. Of that amount, one-half (5%) will be
allocated to senior management upon the effective date with the balance being
made available for other management personnel and for future grants.
Additionally, on the effective date of the Joint Plan of Reorganization, Richard
E. Snyder's (the Company's current Chairman of the Board and Chief Executive
Officer) employment agreement will be amended, as more fully disclosed in the
Disclosure Statement and the exhibits thereto, and Mr. Snyder will receive, in
consideration of his surrendering certain claims and rights under his current
employment agreement, 2-1/2% of the Company's new common stock, among other
things. The foregoing summary of the Joint Plan of Reorganization does not
purport to be complete and is subject to the terms of the Joint Plan of
Reorganization.
There can be no assurance that the Joint Plan of Reorganization will be
confirmed by the Bankruptcy Court. If the Company is unable to obtain approval
of its Joint Plan of Reorganization, the Company, its creditors and/or security
holders may seek other alternatives for the Company, including the sale of the
Company or parts thereof through an auction process.
The Debtors received approval from the Bankruptcy Court to pay in full
satisfaction and on a timely basis, all undisputed pre-petition obligations
including salaries, wages and benefits to all of its current employees.
Additionally,
F-11
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
2. Liquidity and Business Outlook (continued)
On March 25, 1999, the Bankruptcy Court gave final approval to a $55.0 million
debtor-in-possession financing facility consisting of a $45.0 million credit
facility and a $10.0 million term facility from The CIT Group (the "DIP Loan").
The DIP Loan is for an initial period of two years with annual renewals
thereafter with interest rates ranging from the Prime Rate plus 1/8th of 1% to
5/8th of 1%. Additionally, the DIP Loan contains various financial covenants
which the Company is required to maintain on a quarterly basis. The DIP Loan is
secured by certain receivables and inventory of the Company. The Company
utilized the proceeds from the DIP Loan to repay all outstanding amounts under
their Revolving Credit Facility (approximately $9.6 million) with the remainder
anticipated to be utilized to fund operations during the pendency of the Chapter
11 proceedings.
As previously noted, the Company is currently operating its business under the
Bankruptcy Court and continuation of the Company as a going concern is
contingent upon, among other things, the ability to gain approval of the
requisite parties under the Bankruptcy Code and confirmation by the Bankruptcy
Court of the final Joint Plan of Reorganization, the ability to comply with its
debtor in possession financing facility (the DIP Loan), resolution of various
litigation against the Company and the Company's ability to return to
profitability, generate sufficient cash from operations and obtain financing
sources to meet its future obligations. In addition, the Company has experienced
recurring operating losses, working capital deficiencies, negative operating
cash flow and is currently in default under substantially all of its debt
agreements. Those matters raise substantial doubt about the Company's ability to
continue as a going concern. In the event the Joint Plan of Reorganization is
confirmed and consummated, continuation of the business thereafter is dependent
on the Company's near-term ability to obtain adequate exit financing to meet
cash flow obligations and medium-term ability to generate sufficient cash flow
to meet its operational and financing requirements. Under the Joint Plan of
Reorganization, the Company's ability to obtain exit financing is limited to
$60.0 million as long as the new $87.0 million secured note is outstanding, and
initially to $45.0 million.
The Company has announced its intention to sell the Sturevant, WI facility. On
March 25, 1999, the Bankruptcy Court gave formal approval to the Company to sell
its Adult Publishing business for approximately $11.0 million subject to working
capital and certain other closing conditions. The Company is expecting to record
again upon the consummation of the sale.
3. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Company and
all its wholly owned subsidiaries. The consolidated financial statements of the
Company include the operations of Golden Books Entertainment from the date of
its acquisition on August 20, 1996. The results of Golden Books Financing Trust
(the "Trust") are included in the Company's consolidated financial statements
since its inception on August 20, 1996. The Trust, which is the issuer of the
Preferred Securities, is wholly owned by the Company, has no independent
operations and its assets consist solely of the 8 3/4% Convertible Debentures
due 2016 of the Company and Golden Books Publishing (see Note 10). All material
intercompany items and transactions have been eliminated.
The Company has experienced recurring operating losses, working capital
deficiencies, negative operating cash flows and they are currently in default
under substantially all of their debt agreements. As discussed in Note 2, on
February 26, 1999 the Company filed petitions for reorganization under Chapter
11 of the Bankruptcy Code. These matters raise substantial doubt about the
Company's ability to continue as a going concern. These consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
F-12
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
3. Summary of Significant Accounting Policies (continued)
Basis of Presentation (continued)
Certain prior years' amounts have been reclassified to conform with the current
year's presentation.
Change in Year End
On November 30, 1996, the Company changed its fiscal year so as to end on the
last Saturday of December in each year. Accordingly, the accompanying
consolidated financial statements present the financial position of the Company
as of December 26, 1998 and December 27, 1997, and the results of its
operations, stockholders' deficit and cash flows for the years ended December
26, 1998 and December 27, 1997, and the eleven months ended December 28. 1996.
Cash and Cash Equivalents
The Company considers all highly liquid debt investments purchased with
maturities of three months or less to be cash equivalents. Cash equivalents
consist of investments in high grade commercial paper. Accordingly, these
investments are subject to minimal credit and market risk. At December 26, 1998
and December 27, 1997, all of the Company's cash equivalents are classified as
held to maturity and their carrying amounts approximate fair value.
The Company has placed approximately $3.7 million in certificates of deposit to
collateralize lease obligations associated with the Company's corporate
headquarters located in New York City. Such amounts are included in deposits on
the accompanying consolidated balance sheets.
Income Taxes
The Company accounts for income taxes in accordance with the liability method.
Under this method, deferred income taxes are provided for differences between
the book and tax bases of the Company's assets and liabilities.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The principal areas of
judgment relate to provision for returns and other sales allowances, doubtful
accounts, slow moving and obsolete inventories, reserve for royalty guarantees
and advances, film forecast ultimates, long-term asset impairments, net assets
held for sale and taxes.
Property, Plant and Equipment
Property, plant and equipment are stated at cost and depreciated / amortized on
the straight-line method over the following estimated useful lives:
Classifcation Estimated Life (Years)
--------------------------------- --------------------------
Buildings and improvements 10 - 20
Machinery and equipment 3 - 10
F-13
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
3. Summary of Significant Accounting Policies (continued)
Property, Plant and Equipment (continued)
Expenditures which significantly increase the value or extend the useful lives
of assets are capitalized, while maintenance and repairs are expensed as
incurred. The cost and related accumulated depreciation / amortization of
assets, replaced, retired or disposed of are eliminated from their respective
property, plant and equipment accounts, and any gain or loss is reflected in
consolidated statements of operations.
Costs related to the development of information systems that are expected to
benefit future periods are capitalized and amortized over the estimated useful
lives of the systems.
Revenue Recognition
Sales are recorded upon shipment of products. Sales made on a returnable basis
are recorded net of provisions for estimated returns and allowances. These
estimates are revised, as necessary, to reflect actual experience and market
conditions. Revenue from the sale of film rights, principally for the home video
and domestic and foreign syndicated television markets, is recognized when the
film is available for showing or exploitation. Income from licensing is recorded
at the time characters are available to the licensee and collections are
reasonably assured. Receivables due more than one year beyond the balance sheet
date are discounted to their present value.
Loss Per Common Share
Net loss per basic common share for the years ended December 26, 1998 and
December 27, 1997, and the eleven months ended December 28, 1996 are based on
the net loss for the period plus preferred dividend requirements divided by the
weighted average number of basic common shares outstanding. Shares issuable upon
the exercise of all common stock equivalents consisting primarily of stock
options and warrants are not included in the computations since their effect is
antidilutive (see Note 19).
Inventories
Inventories are valued at the lower of cost or market value. Cost is determined
by the last-in, first-out ("LIFO") method for substantially all domestic
inventories. Inventories of international operations are valued using the
first-in, first-out method. At December 26, 1998 and December 27, 1997,
approximately 75 % and 89%, respectively, of total inventories were valued under
the LIFO method.
Foreign Currency Translation
Foreign currency assets and liabilities are translated into United States
dollars at end of period rates of exchange, and income and expense accounts are
translated at the weighted average rates of exchange for the period. The gains
and losses resulting from the translation adjustments have been accumulated as a
separate component of common stockholders' deficit. During the year ended
December 26, 1998, the Company recorded a translation charge of approximately
$777,000 relating to the wind-down of the United Kingdom operations. Such amount
has been included in selling, general and administrative expenses in the
consolidated statement of stockholders' deficit.
Advertising Costs
The Company expenses advertising costs related to its publishing operations as
they are incurred. Advertising expenses for the years ended December 26, 1998
and December 27, 1997, and for the eleven month period ended December 28, 1996,
amounted to approximately $2.4 million, $3.6 million and $1.0 million,
respectively.
F-14
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
3. Summary of Significant Accounting Policies (continued)
Film Library
Film library consists of the costs of acquiring the film library, costs of
additional licenses and television production costs, which are stated at the
lower of unamortized costs or net realizable value. The costs are being
amortized using the film-forecast method which amortizes such costs in the same
ratio that current revenues bear to anticipated total revenues. Under this
method, the useful lives do not exceed 20 years in duration. The liabilities for
various profit participations and residuals are accrued in the proportion which
revenue for a period bears to ultimate revenue.
During the fourth quarter of 1998, the Company recorded a non-cash charge of
approximately $1.4 million as a component of write-off of assets in the
consolidated statement of operations and comprehensive loss due to the
acceleration of the amortization period of one of the Company's entertainment
productions.
Goodwill and Long Lived Assets
Goodwill at December 26, 1998 and December 27, 1997, consists of the cost in
excess of net assets acquired in connection with the acquisition of
substantially all the assets of BVELP, which is being amortized on a
straight-line basis over a 25-year period (see Note 12).
It is the Company's policy to account for goodwill at the lower of amortized
cost or estimated realizable value. As part of an ongoing review of the
valuation and amortization of goodwill and long lived assets of the Company and
its subsidiaries, management assesses the carrying value of goodwill and long
lived assets if facts and circumstances suggest that there may be impairment. If
this review indicates that goodwill and long lived assets will not be
recoverable as determined by a non-discounted cash flow analysis of the
operating results over the remaining amortization period, the carrying value of
the goodwill and long lived assets would be reduced to estimated realizable
value.
F-15
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
3. Summary of Significant Accounting Policies (continued)
Goodwill and Long Lived Assets (continued)
As a result of the recurring losses by the Children's Publishing business
primarily due to a reduced level of sales, high operating costs (including an
unfavorable lease agreement and disadvantageous union contracts) and the under
utilization of manufacturing capacity at their manufacturing facility in
Sturtevant, WI, during the fourth quarter of 1998, management evaluated the
ongoing value of the property, plant and equipment associated with its
manufacturing facility in Sturtevant, WI. Based on this evaluation, the Company
determined that assets with a carrying value of $19.2 million were impaired and
wrote them down by approximately $9.2 million to their estimated fair value.
Fair value was based upon estimates by management using current market values
from vendors and appraisals. Such amount has been included in write-off of
assets in the accompanying consolidated statement of operations and
comprehensive loss. The Company has announced its intention to sell the
Sturtevant, WI facility.
Reporting Comprehensive Income
In the first quarter of 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS 130"). SFAS 130 established new rules for the reporting and
display of comprehensive income and its components. SFAS 130 requires the
Company's foreign currency translation adjustments, which are currently reported
in stockholders' deficit, to be included in other comprehensive income (loss)
and the disclosure of total comprehensive income (loss). The Company adopted the
requirements in the first quarter of 1998.
Disclosures About Segments of an Enterprise and Related Information
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures About Segments of An
Enterprise and Related Information" ("SFAS 131"), which is effective for fiscal
years beginning after December 15, 1997. SFAS established standards for the way
that public business enterprises report information and operating segments in
annual financial statements and requires that these enterprises report selected
information about operating segments in interim financial reports. It also
established standards for related disclosures about products and services,
geographic areas and major customers. The Company adopted the requirements of
SFAS 131 in the fourth quarter of 1998. The adoption of SFAS 131 did not have an
effect on the Company's consolidated statement of operations and comprehensive
loss (see Note 18).
Employer's Disclosure about Pensions and Other Post-Retirement Benefits
In February 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 132, "Employer's Disclosures about Pensions
and Other Post-Retirement Benefits" ("SFAS 132"), which is effective for fiscal
years beginning after December 15, 1997. SFAS 132 standardizes the disclosure
requirements for pension and other post-retirement benefits to the extent
practicable, requires additional information on charges in the benefit
obligations and fair value of plan assets that will facilitate financial
analysis, and eliminates certain disclosure. The Company adopted the
requirements of SFAS 132 in the fourth quarter of 1998. The adoption of SFAS 132
did not have a material effect on the Company's consolidated state of position
or revenue, only on its disclosure (see Note 17).
Reporting the Costs of Start-up Activities
In April 1998 the American Institute of Certified Public Accountants (AICPA)
issued Statement of Position No. 98-5, "Reporting on the Costs of Start-Up
Activities" ("SOP 98-5"). SOP 98-5 requires that companies expense start-up
costs and organization costs as they are incurred. SOP 98-5 is effective for
financial statements for fiscal years beginning after December 15, 1998. Earlier
application is encouraged. The initial application of SOP 98-5 is to be reported
as
F-16
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
3. Summary of Significant Accounting Policies (continued)
Reporting the Costs of Start-up Activities (continued)
a cumulative effect or a change in accounting principle. The Company has not yet
completed it's review of SOP 98-5, but does not anticipate that its adoption
will have a material effect in the consolidated financial statements.
4. Restructuring, Net Assets Held for Sale and Other Charges
During 1996, the Company made decisions with respect to certain of the its
assets resulting in writedowns and other charges in the consolidated financial
statements for the eleven months ending December 28, 1996 totaling approximately
$132.3 million as follows:
(i) a restructuring charge totaling $65.7 million including a:
o $21.5 million loss on sale of disposal of a business resulting from the
Company's decision to exit non-core business activities;
o $24.3 million non-cash charge consisting of: i) $10.2 million for the
write-down of the commercial printing operation to net realizable value
to be disposed of in connection with the Company's plan to exit non-core
business activities, ii) $9.6 million for the loss on sale of assets
associated with the Company's strategic decision to outsource its
information technology department, and iii) $4.5 million for the
write-down of assets to net realizable value which have been identified
as non-productive assets as a result of the Company's strategic plan to
operate in a new efficient manufacturing facility;
o $8.0 million charge for severance related to the above; o $3.0 million
net realizable value adjustment related to an idle facility associated
with the Company's game business, which was previously sold; o $7.6
million write-off of non-productive assets associated with the
termination of customer program initiatives in connection with the
strategic redirection of the Company; and
o $1.3 million for facility exit costs related to lease terminations which
were paid in December 1996.
(ii) a cost of sales adjustment of $25.0 million comprised of:
o $17.6 million of costs pertaining to the Company's decision to
discontinue or replace certain product lines and expeditiously liquidate
related inventory and slow moving product; and
o $7.4 million of other inventory related costs, consisting primarily of
licensing and prepublication costs.
(iii) a selling, general and administrative charge of $11.0 million relating to
costs associated with management's revised plans to resolve certain legal
and contractual matters
(iv) adjustments totaling $5.7 million consisting of: o $3.4 million in revenue
adjustments; and o $2.3 million in operating expenses to establish
reserves to resolve differences with customers with a view toward mending
and improving the Company's relationships with its customers.
(v) approximately $17.7 million of charges in connection with the sale of a
significant equity interest to GP Holding.
(vi) $7.2 million of other one time charges consisting primarily of:
o $3.8 million in consulting fees incurred in relation to new management's
review of the operations of the Company;
o $1.7 million of facility costs; and o other one time miscellaneous
charges of $1.7 million
F-17
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
4. Restructuring Net Assets Held for Sale and Other Charges (continued)
During the year ended December 28, 1996, management also determined that Penn,
formerly a wholly owned subsidiary of Golden Books Publishing that designed,
produced and distributed decorated paper tableware, party accessories and
giftware, did not fit into the Company's future strategic direction and,
accordingly, decided to divest Penn (see Note 16). As a result, on December 23,
1996 Golden Books Publishing sold the stock of Penn for approximately $14.5
million in cash plus notes, subject to a working capital adjustment. The results
of operations of Penn are included in the Company's consolidated results of
operations until its date of disposition. Penn's results of operations for the
eleven months ended December 28, 1996 were as follows:
<TABLE>
<CAPTION>
Period from February 4, 1996 to
December 23, 1996
(date of disposition)
(In thousands)
------------------------------
<S> <C>
Revenues $ 40,660
Gross profit 4,930
Loss before interest expense and
provision for income taxes (7,152)
</TABLE>
During 1997, the Company sold its printing operations in Cambridge, Maryland,
the sale of the building which had housed its main plant in Racine, and
disposals of other assets. On December 1, 1997, the Cambridge commercial
printing operation was sold for approximately $20.2 million in cash, subject to
a working capital adjustment which resulted in a gain of approximately $10.2
million recorded in the consolidated statement of operations for the year ended
December 27, 1997. The results of operations of the Cambridge facility are
included in the Company's consolidated results of operations until its date of
disposition. The facilities results of operations for the year ended December
27, 1997, and the eleven months ended December 28, 1996 were as follows:
<TABLE>
<CAPTION>
Period from December 29, 1996 Eleven months
to December 1, 1997 Ended
(date of disposition) December 28, 1996
(In thousands) ------------------
-----------------------------
<S> <C> <C>
Revenues $ 25,552 $ 26,962
Gross profit 3,656 1,694
Income (loss) before interest
expense and provision for
income taxes 1,952 (223)
</TABLE>
Additionally, the sales of the Racine plant and other assets each resulted in
gains of $0.3 million for the year ended December 27, 1997. In connection with
the Company's strategic plan, the Company incurred approximately $11.5 million
in one time transition costs during 1997 consisting of: (i) $3.1 million of
moving costs associated with new facilities, (ii) $3.5 million for outsourcing
of the information technology department, (iii) $4.5 million in consulting
services associated with implementing the strategic plan, and (iv) $0.4 million
in other costs. These one time transition costs are included in selling, general
and administrative expenses in the accompanying consolidated statement of
operations and comprehensive loss.
F-18
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
4. Restructuring, Net Assets Held for Sale and Other Charges (continued)
During 1998, the Company continued its restructuring with the sale of its
facility in Fayetteville, North Carolina and a reduction of its office space in
New York (see Note 15). The Fayetteville facility was sold for approximately
$7.2 million in cash which resulted in a loss of approximately $1.8 million,
which was recorded in the consolidated statement of operations and comprehensive
loss for the year ended December 26, 1998. Accordingly, restructuring, net of
(gains) losses on the sales of the assets for the year ended December 26, 1998
is composed of the following: (i) $1.8 million loss on the sale of the
Fayetteville facility, and (ii) $4.7 million principally composed of a write-off
of leasehold improvements associated with the Company's reduction of office
space in connection with their New York lease agreement. Additionally, in 1998,
the Company incurred approximately $12.2 million in one-time transition costs,
consisting of: (i) $4.4 million in outsourcing premium and (ii) $7.8 million in
costs associated with the move to the new Sturtevant, WI facility. These one
time transition costs are included in: (i) cost of sales and (ii) selling,
general and administrative expenses, respectively, in the accompanying
consolidated statement of operations and comprehensive loss.
As of December 26, 1998, substantially all of the facility closing and severance
costs, except for approximately $0.3 million (which is contractually obligated),
have been paid.
As of December 27, 1997, net assets held for sale, totaling approximately $9.9
million, included the Company's, (i) Fayetteville facility, which was closed in
conjunction with the sale of the Company's game and puzzle business (and sold in
1998), (ii) Coffeyville Distribution Center, a facility of Golden Books
Publishing , and (iii) the Creative Center, a facility of Golden Books
Publishing in Racine, WI.
As of December 26, 1998, net assets held for sale totaling approximately $1.3
million included the Company's, (i) Creative Center and (ii) Coffeyville
Distribution Center, both facilities of Golden Books Publishing.
In January 1999 the Company sold their Coffeyville Distribution Center for
approximately $2.2 million, which resulted in a gain of approximately $1.4
million. Such gain will be recorded in the Company's three months ended March
27, 1999 results of operations. The Company has announced its intention to sell
the Sturtevant, WI facility. On March 25, 1999, the Bankruptcy Court gave formal
approval to the Company to sell its Adult Publishing business for approximately
$11.0 million subject to working capital and certain other closing conditions.
If the sale is consummated, the Company is expecting to record a gain.
F-19
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
5. Accounts Receivable
Accounts receivable consisted of the following:
<TABLE>
<CAPTION>
December 26, December 27,
1998 1997
------------ -------------
(In thousands)
<S> <C> <C>
Accounts receivable $ 79,165 $ 78,609
Allowance for doubtful accounts (6,800) (7,208)
Allowance for sales discount
and returns (26,827) (17,041)
------------ --------------
45,538 54,360
Less: long term portion (4,127) (3,207)
------------ --------------
$ 41,411 $ 51,153
============ ==============
</TABLE>
6. Inventories
Inventories consisted of the following:
<TABLE>
<CAPTION>
December 26, December 27,
1998 1997
------------ ------------
(In thousands)
<S> <C> <C>
Raw materials $ 1,911 $ 2,373
Work-in-process 2,914 3,819
Finished goods 24,993 25,121
Film library 3,250 3,346
------------ --------------
$ 33,068 $ 34,659
============ ==============
</TABLE>
At December 26, 1998 and December 27, 1997, the replacement cost of inventories
valued using LIFO exceeded the net carrying amount of such inventories by
approximately $3.2 million and $2.5 million, respectively. For the eleven months
ended December 28, 1996, the liquidation of LIFO inventories decreased cost of
sales by $5.2 million. For the year ended December 26, 1998 the liquidation of
LIFO inventories decreased cost of sales by approximately $1.4 million. For the
year ended December 27, 1997 there was no LIFO liquidation and therefore, no
impact on the consolidated financial statements.
F-20
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
7. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
<TABLE>
<CAPTION>
December 26, December 27,
1998 1997
------------ ------------
(In thousands)
<S> <C> <C>
Land $ 393 $ 393
Building and improvements 9,265 13,393
Machinery and equipment 56,162 55,381
Machinery and equipment in the process
of installation 2,081 8,709
---------- -------------
67,901 77,876
Less accumulated depreciation and
amortization (37,946) (39,620)
---------- -------------
$ 29,955 $ 38,256
========== =============
</TABLE>
8. Other Current Liabilities
Other current liabilities consisted of the following:
<TABLE>
<CAPTION>
December 26, December 27,
1998 1997
------------ ------------
(In thousands)
<S> <C> <C>
Royalties payable $ 17,426 $ 12,841
Accrued interest 12,958 4,388
Accrued worker's compensation 3,524 3,221
Restructuring costs 620 4,559
Other 27,106 22,216
---------- -------------
$ 61,634 $ 47,225
========== =============
</TABLE>
F-21
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
9. Short-Term Borrowings and Long-Term Debt
Short-term borrowings and long-term debt consisted of the following:
<TABLE>
<CAPTION>
December 26, December 27,
1998 1997
------------ ------------
(In thousands)
<S> <C> <C>
7.65% Senior Notes ($150,000,000 face
amount) due 2002 $ 150,000 $ 149,897
Revolving credit facility 21,637 --
Loan facility 10,000 --
---------- --------------
181,637 149,897
Less long-term portion -- (149,897)
---------- --------------
$ 181,637 $ --
========== ==============
</TABLE>
Senior Notes: The Company currently has outstanding $150.0 million principal
amount of Senior Notes. Interest is payable semiannually on September 15th and
March 15th. The Indenture contains certain provisions limiting subsidiary
indebtedness, guarantees, liens and the payment of cash dividends on Preferred
and Common Stock. On September 15, 1998, the Company announced that it was
deferring, at its option, a $5.7 million interest payment on the Senior Notes
due on such date for a 30-day grace period in accordance with the Indenture.
Subsequently, on October 15, 1998, the Company announced that it would not pay
the September 15th interest payment. As a result, the Company is in default
under the Indenture and the holders of the Senior Notes have the right (i) to
demand the entire $150.0 million principal amount of the Senior Notes and (ii)
to foreclose on the collateral securing the Senior Notes. The Company does not
have sufficient resources to repay this obligation. As a result of the default,
the Senior Notes have been classified as a current liability on the consolidated
balance sheet. As described in Note 2, under the terms of the Joint Plan of
Reorganization, the Senior Notes will be converted into (i) a new secured note
in the principal amount of $87.0 million, due 2004, with interest at the rate of
10%, if paid in cash, or, at the Company's option for the first three years,
13.5% payable in kind, and (ii) 42.5% of the Company's new common stock to be
issued post recapitalization, prior to dilution. The note will be secured by the
existing collateral already granted to the holders of the Senior Notes as well
as certain additional collateral.
Revolving Credit Facility: On June 3, 1998, the Company entered into a $30.0
million three-year revolving credit facility, with NationsCredit ("Line of
Credit"). Borrowings under the facility bear interest at the prime rate. The
Line of Credit is secured by certain receivables and inventory of Golden Books
Publishing. As a result of entering into the Line of Credit, Golden Books
Publishing amended the Indenture governing the Senior Notes due 2002 to, among
other things, (i) permit Golden Books Publishing to secure up to $30.0 million
of borrowings and related obligations under the Line of Credit, (ii) grant to
the holders of the Senior Notes a security interest in certain assets of Golden
Books Publishing, (iii) add a guarantee from the Company and (iv) add additional
covenants and amend certain existing covenants. At December 26, 1998, the
Company had outstanding borrowings under the Line of Credit totaling
approximately $21.6 million. As a result of the Company's failure to make the
required interest payment under the Indenture (see above), the Company is not in
compliance with certain covenants under the Line of Credit. Accordingly, the
lender at its option may give notice that the amounts outstanding are immediate
due and payable. As a result, the Line of Credit has been classified as a
current liability on the consolidated balance sheet. The Company does not have
sufficient resources to repay this obligation. As described in Note 2, on March
25, 1999, the Company entered into a
F-22
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
9. Short-Term Borrowings and Long-Term Debt (continued)
$55.0 million, three-year revolving credit ($45.0 million) and term facility
($10.0 million), with The CIT Group. The revolving credit and term facility is
for an initial period of two years with annual renewals thereafter with interest
rates ranging from the Prime Rate plus 1/8% of 1% to 5/8% of 1%. Additionally,
they maintain various financial covenants which the Company is required to
maintain on a quarterly basis. The revolving credit and term facilities are
secured by certain receivables and inventory of the Company. The Company
utilized a portion of the proceeds from the financing arrangements to repay all
outstanding amounts under the Company's Line of Credit of approximately $9.6
million.
Loan Facility: On September 4, 1998, the Company entered into a $25.0 million
loan facility with GP Holdings (the "Loan Facility"). The Loan Facility permits
Golden Books Publishing to borrow at its option, but subject to certain
conditions, up to $25.0 million. Borrowings under the Loan Facility are
guaranteed by the Company and secured by certain assets. All outstanding amounts
under the Loan Facility are due, together with accrued and unpaid interest, on
September 9, 1999 or earlier under certain conditions, including if certain
assets of the Company are sold. Interest is due monthly and is set at an initial
rate of 5% per annum increasing to 7% in February 1999, but the payment of
interest may be deferred at the Company's option until maturity. At December 26,
1998, the Company had outstanding borrowings under the Loan Facility totaling
$10.0 million. Due to the Company's failure to make the September 15, 1998
interest payment on the Senior Notes, the Company is in default under the terms
of the Loan Facility. Accordingly, the Loan Facility has been classified as a
current liability on the consolidated balance sheet. As a result of the
Company's filing for Bankruptcy and in accordance with the Joint Plan of
Reorganization, the Loan Facility in the amount of $10.0 million will be
converted into 5% of the Company's new common stock to be issued post
recapitalization, prior to dilution. Additionally, GPH will also waive and
release the collateral extended to it with respect to the borrowings and will be
relieved of its obligation to loan up to an additional $15.0 million to the
Company.
The Indenture covering the Senior Notes contains certain provisions limiting
subsidiary indebtedness, guarantees, liens and the payment of cash dividends on
Preferred and Common Stock. At December 26, 1998, there were no retained
earnings available to pay dividends on the Company's Common Stock.
10. Preferred Securities ("TOPrS")
During the eleven months ended December 28, 1996, the Company raised a total of
$115.0 million through a private placement of Preferred Securities under Rule
144A under the Securities Act of 1933, as amended (the "Preferred Securities").
The Preferred Securities were issued by the Trust, a Delaware business trust
financing vehicle. The Company owns all of the common securities of the Trust.
The net proceeds of such offering, after commissions and expenses, were
approximately $110.8 million. The Preferred Securities pay quarterly
distributions at an annual distribution rate of 8 3/4% (subject to any deferral
of interest payments on the Preferred Securities by the Company and Golden Books
Publishing), have an aggregate liquidation preference of $115.0 million and are
convertible at the option of their holders into Convertible Debentures, which
are immediately convertible into Common Stock at an initial conversion price of
$13.00 per share. The Convertible Debentures will mature on August 20, 2016, and
may be redeemed, in whole or in part, at any time after the occurrence of a Tax
Event or on Investment Company Event (both as defined). Effective January 10,
1997, the Company registered the Preferred Securities with the Securities and
Exchange Commission.
The Company and its subsidiary, Golden Books Publishing, are joint and several
obligor's of the Preferred Securities and they have fully and unconditionally
guaranteed the Trust's obligations under the Preferred Securities. Separate
financial statements of Golden Books Publishing are not presented in their
entirety as the separate financial statements would not be materially different
from the consolidated financial statements of the Company. Summarized financial
F-23
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
10. Preferred Securities ("TOPrS") (continued)
statements of Golden Books Publishing for the years ended December 26, 1998 and
December 27, 1997 and the eleven months ended December 28, 1996 are as follows
(in thousands):
<TABLE>
<CAPTION>
December 26, December 27, December 28,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Current assets $ 116,931 $ 150,837
Non current assets 126,804 134,560
------------ ---------------
Total Assets $ 243,735 $ 285,397
============= ===============
Current liabilities $ 498,683 $ 149,452
Noncurrent liabilities 46,854 188,290
------------- ---------------
Total Liabilities 545,537 337,742
Preferred Securities -- 110,707
Stockholders' Deficit (301,802) (163,052)
------------- ---------------
Total Liabilities and Stockholders'
Deficit $ 243,735 $ 285,397
============= ================
Revenues $ 194,226 $ 243,561 $ 255,005
============= ================ =============
Gross profit $ 13,085 $ 67,323 $ 23,213
============= ================ =============
Loss before interest expense and
provision for income taxes $ (102,625) $ (32,136) $ (169,594)
============= ================ =============
Net loss $ (138,750) $ (57,347) $ (186,417)
============= ================ =============
</TABLE>
The Indenture covering the Senior Notes (see Note 9) restricts the ability of
Golden Books Publishing to pay cash dividends or make other cash distributions
to the Company.
Due to its liquidity difficulties, the Company decided on November 5, 1998 that
it was deferring a $2.5 million interest payment on the Preferred Securities on
such date until February 20, 1999, in accordance with the indenture governing
the Preferred Securities. On February 20, 1999, the Company again decided that
it was deferring the $2.5 million interest payment on the Preferred Securities
in accordance with the indenture governing the Preferred Securities.
On February 26, 1999, the Company filed petitions for reorganization under
Chapter 11 of the United States Bankruptcy Code. As a result, the holders of the
TOPrS, at their option, can demand acceleration of the $115.0 million due under
the TOPrS agreement. The Company does not have sufficient resources to repay
this obligation. As a result of the default, the TOPrS are classified as a
current liability, on the accompanying consolidated balance sheet. The Company
has not been informed of any such acceleration. As described in Note 2, under
the terms of the Joint Plan of Reorganization the Preferred Securities will be
converted into 50% of the Company's new common stock to be issued post
recapitalization, prior to dilution.
F-24
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
11. Preferred Stock
Prior to May 8, 1996, the Company had 100,000 authorized preferred shares, no
par value, including 20,000 shares of Convertible Preferred Stock, Series A. The
Series A Convertible Preferred Stock had a dividend rate of 8.5% per annum. The
conversion price was $24 per share. The stock was redeemable at the option of
the Company at any time for $500 a share plus all dividends (whether or not
earned or declared) accrued and unpaid to the date fixed for redemption.
On May 8, 1996, the Company completed the sale, for net proceeds of $58.8
million after giving effect to $6.2 million of transaction costs, of a
significant equity interest to Golden Press Holdings, LLC ("GPH Holding" or
"GPH") whereby the Series A Convertible Preferred Stock was retired at its face
value plus accrued dividends and the Company issued to GPH Holding, for an
aggregate purchase price of $65.0 million, (i) 13,000 shares of the Company's
Series B Convertible Preferred Stock, no par value, each of which shares is
convertible into shares of the Company's Common Stock at an initial conversion
price of $10 per share, and (ii) a warrant to purchase 3,250,000 shares of
Common Stock at an initial exercise price of $10 per share (the "Warrant"). The
Series B Preferred Stock votes on an as-converted basis with the Common Stock on
all matters submitted to a vote of the stockholders of the Company, including
the election of directors. The Warrant became exercisable beginning on May 8,
1998, subject to acceleration upon certain circumstances. The Warrant will be
exercisable until May 8, 2003. Upon confirmation of the Joint Plan of
Reorganization, the Warrants will in effect be cancelled.
The Series B Preferred Stock entitles GPH to receive a 12% annual dividend
payable (i) during each of the first four years following issuance in an amount
equal to approximately 195,000 shares of the Company's Common Stock per fiscal
quarter of the Company, subject to certain adjustments, and (ii) thereafter,
when and as declared out of legally available funds, in cash at the rate of $150
per share, compounded quarterly, all of which dividends shall be cumulative from
the initial issuance. In addition, the Certificate of Designation governing the
Series B Preferred Stock prevents the Company from paying dividends or making
other distributions on the Common Stock until all dividends owed on the Series B
Preferred Stock have been paid in full. On November 5, 1998, the Company with
the consent of the holders of its Series B Preferred Stock stated that the
dividend due on November 1, 1998 would not be declared or paid. At December 26,
1998, the Company had cumulative preferred dividends payable of 195,000 shares
of Common Stock and $292,500 in cash which has been accrued for in the
accompanying consolidated balance sheet. Additionally, on February 1, 1999 the
Company again decided that it would not declare the dividend consisting of
195,000 shares of Class A Common Stock or pay a cash dividend on the Series B
Preferred Stock in accordance with the consent of the holders of the Series B
Preferred Stock.
The Series B Preferred Stock is subject to optional redemption by the Company at
a redemption price of $5,000 per share, plus an amount equal to any accrued and
unpaid dividends, at any time on or after May 8, 2000. The Company is not
required to mandatorily redeem the Series B Preferred Stock and the Series B
Preferred Stock is not the subject of any sinking fund requirement.
The Series B Preferred Stock is convertible, at the option of the holders of the
Series B Preferred Stock, into shares of Company Common Stock, at the exchange
rate of 500 shares of Company Common Stock for each share of Series B Preferred
Stock, representing a conversion price of $10.00 per share of Series B Preferred
Stock. The number of shares of Company Common Stock for which the Series B
Preferred Stock may be converted is subject to antidilution adjustments pursuant
to the Certificate of Designations to prevent dilution on the occurrence of
certain events as described in the Certificate of Designations.
F-25
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
11. Preferred Stock (continued)
As described in Note 2, in accordance with the Joint Plan of Reorganization, the
existing preferred shareholders will surrender their stock in exchange for
out-of-the money warrants to purchase to 3.3% of the Company's new common stock,
to be issued post recapitalization, prior to dilution.
12. Acquisition
On August 20, 1996, pursuant to an Asset Purchase Agreement dated as of July 30,
1996, among BVELP, the Company and certain of the Company's subsidiaries, the
Company acquired, among other things, substantially all of BVELP's television
and film library properties, and assumed payables and all liabilities incurred
in connection with the exploitation of such assets after the closing for an
aggregate purchase price of approximately $81.0 million in cash and $10.0
million in Common Stock (901,408 shares), as provided for in the Asset Purchase
Agreement (the "Broadway Video Acquisition"). On November 22, 1996, the Company
paid an additional amount of approximately $900,000 to BVELP in satisfaction of
the Company's obligations under the working capital adjustment provided for in
the Asset Purchase Agreement. The Broadway Video Acquisition has been accounted
for under the purchase method of accounting. Based on the Company's final
allocation of purchase price, goodwill, consisting of the excess of the net
assets and film library acquired, amounted to approximately $32.2 million and is
being amortized on a straight-line basis over a 25-year period. The results of
operations of the Broadway Video Acquisition are included in the Company's
consolidated results of operations from the date of its acquisition.
13. Employee Stock Options
In December 1995, the Company adopted a stock option plan, which as amended and
restated as of March 11, 1997 (the "1995 Plan"), provides for the granting of
options to purchase up to 5,750,000 shares of Common Stock to employees of the
Company and its subsidiaries. As of December 26, 1998 options to purchase
4,292,310 shares of Common Stock have been granted under the 1995 Plan. In March
1986, the Company adopted a stock option plan which, as amended, provides for
the granting of options to purchase up to 2,100,000 shares of Common Stock
through 1996 to employees of the Company and its subsidiaries.
Prior to February 3, 1990, one half of these options granted generally become
exercisable two years after the date of grant and the remaining one-half of such
options three years after the date of grant. Options granted between February 4,
1990 and January 29, 1994 generally become exercisable in their entirety five
years after the date of grant. Options granted between January 30, 1994 and
February 28, 1995 generally become exercisable as follows: (i) one-third of the
options granted on the date of grant, (ii) one-third of such options one year
after the date of grant and (iii) the remaining one-third of such options two
years after the date of grant. Options granted subsequent to February 28, 1995
generally become exercisable over various periods in accordance with the terms
of the individual awards.
F-26
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
13. Employee Stock Options (continued)
The following table of data is presented in connection with the stock option
plans:
<TABLE>
<CAPTION>
Shares Option Price Per Weighted Average
Share Exercise Price
------------- ----------------- ----------------
<S> <C> <C> <C>
Outstanding at February 3, 1996 1,564,100
Exercised (356,579) $9.25 - $12.00 $ 10.90
Canceled (547,221) 9.25 - $20.00 $ 15.84
Granted 2,851,089 $10.44 - $14.25 $ 12.34
-------------
Outstanding at December 28, 1996 3,511,389
Exercised (47,500) $8.25 - $11.75 $ 10.61
Canceled (441,300) $9.88 - $16.75 $ 12.79
Granted 1,559,721 $8.50 - $12.75 $ 9.64
-------------
Outstanding at December 27, 1997 4,582,310
Exercised (8,339) $11.06 $ 11.06
Canceled (1,010,453) $4.63 - $14.25 $ 10.72
Granted at December 26, 1998 1,243,000 $3.94 - $11.63 $ 8.04
-------------
Exercisable at December 26, 1998 4,806,518
=============
</TABLE>
The weighted average fair value of options was $5.53, $5.90 and $7.90 for the
years ended December 26, 1998 and December 27, 1997 and the eleven months ended
December 28, 1996, respectively. Options to purchase 1,414,892 shares and
1,174,869 shares were exercisable at December 26, 1998 and December 27, 1997,
respectively.
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- ------------------- --------------------------------------------------------- --------------------------------------
Weighted
Number Average Weighted Number
Outstanding at Remaining Average Exercisable at
Range of Exercise December 26, Contractual Exercise December 26, Weighted Average
Prices 1998 Life Price 1998 Exercise Price
----------------- -------------- ----------- --------- -------------- ----------------
<S> <C> <C> <C> <C> <C>
$3.94 - $5.91 515,000 9.53 $ 4.61 - -
$5.92 - $8.86 20,000 9.17 $ 7.88 1,667 $ 8.63
$8.87 - 13.38 4,271,518 7.43 $10.40 1,413,225 $ 12.21
--------- ===== ------ --------- --------
4,806,518 7.66 $ 9.77 1,414,892 $ 12.20
========= ===== ====== ========= ========
</TABLE>
The Company has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, and related interpretations in
accounting for its employee stock options. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123 ("SFAS 123"). Pro forma information regarding net income and earnings per
share is required by SFAS 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method described in
SFAS 123. For purposes of SFAS 123 pro forma
F-27
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
13. Employee Stock Options (continued)
disclosures, the estimated fair value of the options is amortized to expense
over the option's vesting period. Had compensation cost for the stock option
plans been determined based on the fair value at the grant date for awards under
the stock option plans consistent with the methodology prescribed under SFAS
123, the Company's pro forma net loss and net loss per basic common share would
have been approximately $136.0 million or $4.96 per basic common share, and
$67.6 million or $2.56 per basic common share for the years ended December 26,
1998 and December 27, 1997, respectively.
The fair value for each option grant was estimated at the date of grant using
the Black-Scholes option-pricing model with the following assumptions for the
various grants made during 1998 and 1997: risk-free interest rate of 5.6% and
6.5%; expected volatility of 66.1% and 50.1%; no dividend yield; no forfeiture
rate and expected lives of seven years. The Black-Scholes option valuation model
was developed for use in estimating the fair value of traded options which have
no vesting restrictions and are fully transferable. In addition, the option
valuation models require input of highly subjective assumptions including the
expected stock price volatility. Because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion the existing models do not necessarily provide a reliable single measure
of the fair value of employee stock options.
Upon confirmation of the Joint Plan of Reorganization, all outstanding
unexercised stock options, warrants and similar rights will in effect be
cancelled.
14. Stockholders' Deficit
In connection with the GP Holding Transaction, 13,000 shares of the Company's
Series B Preferred Stock was issued for an aggregate purchase price of $65.0
million. Net proceeds associated with the transaction was approximately $58.8
million, after giving effect to approximately $6.2 million of transaction costs.
For the first four years, the Series B Preferred Stock provides for dividends to
be paid equal to approximately 195,000 shares of the Company's Common Stock per
fiscal quarter.
On January 31, 1996, the Company entered into an interim employment agreement
(the "Interim Employment Agreement") with Richard E. Snyder, whereby Mr. Snyder
became President of the Company. Pursuant to the Interim Employment Agreement,
the Company issued 599,465 shares of Common Stock (the "Snyder Incentive Stock")
to Mr. Snyder at a price of $8 per share in exchange for a non-recourse note in
the amount of the purchase price secured by a pledge of the shares. On May 8,
1996, the Interim Employment Agreement was superseded by a five-year employment
agreement (the "Employment Agreement") pursuant to which Mr. Snyder was entitled
to receive annual compensation of $500,000 and received options to acquire
1,113,293 shares of Common Stock at a price of $12.81 per share (the "Snyder
Option"), as well as special bonuses based on the market price of the Common
Stock, supplemental retirement benefits, post-retirement medical benefits and
certain other benefits. Accordingly, the Company recorded a charge of
approximately $12.8 million in costs associated with the Employment Agreement
which is included in the consolidated statements of operations for the eleven
months ended December 28, 1996. In connection with the offering of the Preferred
Securities (see Note 10), the Broadway Video Acquisition (see Note 12) and the
Hallmark Transaction (see below), and in accordance with the anti-dilution
provisions of the Employment Agreement, the Company issued 84,987 additional
shares of Snyder Incentive Stock in exchange for a non recourse note in the
amount of the purchase price, increased by 157,796 the number of shares
exercisable under the Snyder Option and adjusted the special bonuses provided
for in the Employment Agreement. Accordingly, the Company recorded an additional
charge of approximately $1.5 million which is included in the consolidated
statements of operations for the eleven months ended December 28, 1996. On
September 9, 1997, the Employment Agreement was amended whereby Mr. Snyder's
annual compensation was increased and his term of employment was extended to May
8, 2003. On February 26, 1999, the
F-28
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
14. Stockholders' Deficit (continued)
Company filed petitions for reorganization under Chapter 11 of the United States
bankruptcy Code. In accordance with the Joint Plan of Reorganization, Mr.
Snyder's employment agreement will be amended, as more fully described in the
Disclosure Statement and the exhibits thereto, and Mr. Snyder will receive, in
consideration of his surrendering certain claims and rights under his current
employment arrangement, 2 1/2% of the Company's new common stock, among other
things (see Note 2).
On September 6, 1996, the Company completed the sale to H.C. Crown Corporation,
a wholly owned subsidiary of Hallmark Cards Incorporated, of 2,356,198 shares of
Common Stock for approximately $25.0 million (the "Hallmark Transaction").
On September 26, 1997, the Company entered into a licensed book publishing
agreement (the "Agreement") with Disney Licensed Publishing ("Disney"). In
connection with the Agreement, Disney received warrants to purchase 1.1 million
shares of the Company's Common Stock (valued at approximately $6.6 million) at a
per share price of $11.375 exercisable beginning on the earlier of (i) 90 days
after the expiration of the Agreement or (ii) 30 days after the announcement by
either Disney or the Company (a) that they will be entering into a new license
agreement or (b) that they will not be entering into a new license agreement,
and expiring on March 31, 2008.
As of December 26, 1998, the Company has reserved 24,283,214 shares of common
stock for the conversion of the (i) Series B Preferred Stock, (ii) warrants
issued in connection with the GPH Transaction, (iii) Preferred Securities, (iv)
warrants issued in connection with the Disney Agreement and (v) the exercise of
outstanding options.
As described in Note 2, in accordance with the Joint Plan of Reorganization, the
existing preferred and common shareholders will surrender their shares for
out-of-the money warrants to purchase 5% of the new Company stock to be
allocated two-thirds to the preferred and one-third to the common shareholders,
to be issued post recapitalization, prior to dilution.
15. Commitments and Contingencies
The Company leases certain facilities, machinery and vehicles under various
noncancellable operating lease agreements over periods of one to ten years.
Future minimum lease payments required under such leases in effect at December
26, 1998 and thereafter are as follows:
Amount
(In thousands)
--------------
1,999 $ 5,873
2,000 4,816
2,001 4,486
2,002 3,998
2,003 4,070
and thereafter 41,655
Total rent expense charged to operations was approximately $5.8 million, $5.7
million and $4.7 million for the years ended December 26, 1998 and December 27,
1997 and the eleven months ended December 28, 1996, respectively. In January
1999, the Company reduced their New York office space from six floors to three
floors. In connection with
F-29
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
15. Commitments and Contingencies (continued)
such reduction, the Company recorded a non-cash charge of approximately $3.1
million as a component of restructuring, net of (gains) losses on sales of
assets in the consolidated statement of operations and comprehensive loss.
The Company is required to meet certain contractual payments under contracts in
effect at December 26, 1998 and thereafter, as follows:
Amount
(In thousands)
--------------
1,999 $ 13,351
2,000 14,908
2,001 15,638
2,002 1,388
2,003 --
and thereafter 5,585
Contingencies
On August 12, 1998, a class action complaint was filed in the United States
District Court for the Southern District of New York on behalf of all persons
who purchased the Common Stock of the Company between May 13, 1997 and August 4,
1998, inclusive (the "Class Period"). On October 7, 1998, holders of the
Company's TOPrS filed a class- action complaint based on substantially identical
allegations, which complaints were subsequently consolidated. The consolidated
complaint charges that the Company and certain officers and directors of the
Company during the relevant time period were in violation of Section 10(b) and
20(a) of the Securities Exchange Act of 1934. The complaint alleges that the
defendants issued a series of materially false and misleading statements
concerning the impact of the Company's restructuring plan on the Company's
financial condition, liquidity and future prospects. While the outcome of the
case cannot be predicted with any certainty, the Company believes that it has
meritorious defenses to the claims, and that the claim against the Company will
be relieved or discharged during the pendency of the Chapter 11 proceedings.
Golden Books Publishing and Penn Corporation have been informed by the
Environmental Protection Agency (the "EPA") and/or state regulatory agencies
that they may be potentially responsible parties ("PRPs") and face liabilities
under the Comprehensive Environmental Response, Compensation, and Liability Act
(commonly know as "CERCLA" or "Superfund") or similar state laws. In all cases
except those described below, the Company has resolved its liability or is in
the process of resolving its liability for amounts not material. Although the
Company divested Penn in December 1996, the Company has agreed to indemnify
Peacock Papers, Inc. against certain of Penn's environmental liabilities,
including the Cork Street Landfill and Fulford Street Property discussed herein.
The Wisconsin Department of Natural Resources (the "WDNR") alleges that the
Company is a responsible party for drums found at a site located in
unincorporated Racine County. The WDNR and the Company have entered into an
agreement which requires the Company to remove drums and soil from the site. The
disposal of these drums dates back almost 30 years. Golden Books Publishing did
not authorize disposal of its waste drums at the site. The Company has completed
the removal of drums and soil from the site.
At the Hunt's Landfill site in Racine County, Wisconsin, Golden Books
Publishing's liability pursuant to the terms of a consent decree is limited to
approximately 4% of the total remedial costs. Although the last phase of
construction activities was completed in 1996, Golden Books Publishing and the
other potentially responsible parties are obligated to fund the operation and
maintenance of the site for the next 20-30 years. The current estimate of the
total costs of such
F-30
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
15. Commitments and Contingencies (continued)
operation and maintenance is in the range of $14 million. In accordance with the
consent decree, the Company has established a reserve for its share of the
probable clean-up costs.
In 1991 the EPA issued a unilateral administrative order (the "1991 Order") to
the Company and four other PRPs, requiring the respondents to perform a remedial
design and remedial action at the Hertel Landfill Superfund Site in Plattekill,
New York (the "Site"). The Company did not agree to comply with the Order. EPA
subsequently sued the Company and other PRPs seeking recovery of its costs at
the Site. Various PRPs in the litigation brought claims for contribution against
each other and the Company. The Company settled its liability to the United
States for noncompliance with the 1991 Order and agreed to comply with the Order
by implementing the remedy at the Site, which is now estimated to cost up to
$4.9 million, excluding potential groundwater remediation costs.
On July 9, 1998, the Company and other PRPs entered into a Consent Decree with
the United States and the State of New York to resolve their alleged liability
for past response costs and formalize their agreement to perform the remedy at
the site. Under the decree, the Company and the other settling parties are
jointly and severally obligated to perform the remedy and reimburse certain
governmental past and future costs. The Company has paid approximately $1.7
million toward remedial costs since 1996 and has completed construction of the
landfill cap. The Company's share of future costs for operation and maintenance
of the cap and landfill monitoring are expected to be less that $500,000.
Golden Books Publishing also has been identified as a PRP at another site
located in Poughkeepsie, New York. Golden Books Publishing and eight other PRPs
received a notice letter in 1995 from the State of New York regarding this site.
New York State will be seeking recovery of its past oversight costs of more than
$600,000 plus future oversight and maintenance costs associated with this site,
currently estimated by the State at $830,000. There has been no attempt made to
develop an allocation or to identify all PRPs to date, but the construction
phase of the remedy has been completed by other parties without Company
involvement.
On October 2, 1996, the Company received notice from the City Attorney of
Kalamazoo, Michigan that Beach Products, a division of Penn, will be asked to
participate in the remediation of the Cork Street Landfill site located in the
city which commitments and contingencies was allegedly used by Beach Products in
the past. Current cost estimates for the remediation required at the site are as
high as $24,000,000. More than 70 entities will be requested to provide
financial contribution to the remediation.
On November 14, 1996, the Michigan Department of Environmental Quality requested
that corrective actions be taken as a result of the discovery of a leaking
underground storage tank system at the Fulford Street Property of the Company on
November 8, 1996. An initial site assessment is being completed by the Company's
outside consultant. Current estimates indicate that the costs associated with
this release should not exceed $200,000. However, in the event that the
contamination has migrated off the Company's property, these costs could
increase.
It is uncertain whether the claims against the Company in the foregoing
environmental matters will be resolved during the pendency of the Chapter 11
proceedings.
In addition to these environmental matters, Golden Books Publishing filed an
action in 1994 in the United States District Court, Eastern District of
Wisconsin captioned as Western Publishing Company, Inc. v. MindGames, Inc.
seeking a declaration of rights in regard to Golden Books Publishing's alleged
breach of various of its obligations under its licensing agreement with the
defendant for distribution through 1994 of the adult board game known as "Clever
Endeavor." This case involves the Company's now-discontinued adult and
children's game division. The defendant, believing its board game had the
potential to become one of the most popular of all time, has maintained that
certain
F-31
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
15. Commitments and Contingencies (continued)
of the alleged breaches entitle it to damages of as much as $40 million
resulting from lost profits and unpaid royalties. The Court recently granted
Golden Books Publishing's partial motion for summary judgment and held that the
defendant is precluded from recovering lost profits. Accordingly, the
defendant's damage claim is now limited to its unpaid royalties of $1.2 million.
Golden Books Publishing denies that it has any liability to defendant.
In consideration of the aforementioned matters, the Company has recorded
accruals in the "deferred compensation and other deferred liabilities" account
of approximately $5.8 million in the consolidated balance sheet.
While it is not feasible to predict or determine the outcomes of these
aforementioned proceedings, it is the opinion of management that they maintain
adequate reserves in the consolidated balance sheet.
The Company and its subsidiaries are parties to certain other legal proceedings
which are incidental to their ordinary business, none of which the Company
believes are material to the Company and its subsidiaries taken together as a
whole.
The Company's Common Stock was delisted from the NASDAQ National Market on
February 17, 1999 for failure to meet continued listing standards. The Company's
Common Stock is currently being quoted on the OTC bulletin board.
16. Income Taxes
Income tax expense calculated in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes", consisted of the
following:
<TABLE>
<CAPTION>
Eleven
Year Year Months
Ended Ended Ended
December 26, December 27, December 28,
1998 1997 1996
------------ ------------- -------------
(In thousands)
<S> <C> <C> <C>
Current payable (benefit):
Federal $ - $ - $ 2,051
State 25 59 (53)
Foreign (691) (22) (105)
------------ ------------- -------------
(666) 37 1,893
------------ ------------- -------------
Deferred:
Federal - - -
State - - -
Foreign - - -
- - -
------------ ------------- -------------
$ (666) $ 37 $ 1,893
============= ============= =============
</TABLE>
Loss before income tax expense of Golden Books Publishing's Canadian subsidiary
was approximately $(3,067,000), $(669,000) and $(577,000) for the years ended
December 26, 1998 and December 27, 1997 and the eleven months ended December 26,
1996, respectively.
F-32
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
16. Income Taxes (continued)
A reconciliation of the statutory United States Federal income tax rate to the
Company's effective income tax rate follows:
<TABLE>
<CAPTION>
Eleven
Year Year Months
Ended Ended Ended
December 26, December 27, December 28,
1998 1997 1996
-------------- -------------- -------------
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
State income taxes, net of Federal benefit 5.0 5.0 4.2
Valuation allowance, net of refundable amounts (42.0) (38.5) (33.7)
Permanent differences relating to the sale of
Division/Subsidiaries - (0.6) (4.1)
Other - net 2.6 (1.0) (2.4)
-------------- -------------- -------------
0.6% (0.1)% (1.0)%
============== ============== =============
</TABLE>
The income tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 26, 1998 and
December 27, 1997 are as follows:
<TABLE>
<CAPTION>
December 26, 1998 December 27, 1997
-------------------- -------------------
(In thousands)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts and returns $ 11,704 $ 9,950
Inventories - 1,368
Property, plant & equipment 5,164 -
Accrued expenses 28,874 24,450
Post retirement benefits 11,843 11,746
Net operating loss carryforwards 126,519 87,991
Other - net - 133
-------------------- ------------------
Total deferred tax assets 184,104 135,638
Valuation allowance (182,102) (133,569)
-------------------- ------------------
Deferred tax assets, net of valuation allowance 2,002 2,069
Deferred tax liabilities:
Property, plant & equipment 290 397
Pension contributions 1,661 1,672
Other - net 51 -
-------------------- ------------------
Total deferred tax liabilities 2,002 2,069
-------------------- ------------------
Net deferred tax assets/(liabilities) $ - $ -
==================== ==================
</TABLE>
The IRS has completed its examination of the Company's consolidated federal
income tax returns through the years ended January 28, 1995. The Fiscal 1998 and
Fiscal 1997 consolidated financial statements reflect the net receivable due to
the Company as a result of this examination.
F-33
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
16. Income Taxes (continued)
At December 26, 1998 the Company has net operating loss carryforwards of
approximately $305.0 million with expiration dates between 2011 and 2018.
Utilization of such losses in the future could be significantly limited should
there have been an ownership change (as defined in Internal Revenue Code Section
382). Further, there are specific modifications which may be required to be made
to the net operating loss carryforwards of the Company as a result of the
Chapter 11 Bankruptcy proceedings. At such time as the Company emerges from
Bankruptcy, it is likely there will be an ownership change for tax purposes
which would result in a Section 382 limitation on future utilization of net
operating losses. Since there are a number of variables which could affect the
Company's Bankruptcy proceedings (including the fact that the Joint Plan of
Reorganization has not yet been approved by the Bankruptcy Court), it is not
currently possible to determine whether the Company's net operating loss
carryforwards will produce tax benefits in the future. Benefit was not provided
for these loss carryforwards at December 26, 1998.
17. Pension, Post-retirement and Post-employment Benefits
Golden Books Publishing has a noncontributory defined benefit retirement plans
covering substantially all domestic hourly employees. The benefits are generally
based on a unit amount at the date of termination multiplied by the
participant's credited service. The Company's funding policy is to contribute
amounts within the limits which can be deducted for income tax purposes.
The Company adopted SFAS No. 132 during the fourth quarter of 1998. SFAS No. 132
is intended to standardize certain footnote disclosure requirements for pensions
and other retiree benefits. Information concerning the Company's defined benefit
pension plan consists of the following:
<TABLE>
<CAPTION>
Defined Benefit Plans:
December 26, 1998 December 27, 1997
----------------------- -------------------------
(In thousands)
<S> <C> <C>
Change in Plan Assets:
Fair Value of plan assets at beginning of year $ 20,836 $ 17,843
Actual return on plan assets 3,359 3,542
Benefits Paid (764) (549)
----------------------- -------------------------
Fair value of plan assets at the end of the year $ 23,431 $ 20,836
======================= ==========================
Changes in Benefit Obligations:
December 26, 1998 December 27, 1997
----------------------- -------------------------
(In thousands)
Benefit obligations at the beginning of the year $ 17,184 $ 15,989
Service Cost 368 455
Interest Cost 1,288 1,115
Plan Amendments 1,296 --
Other actuarial gains (losses) (449) 174
Benefits Paid (764) (549)
----------------------- -------------------------
Benefits obligations at the end of the year $ 18,923 $ 17,184
======================= =========================
</TABLE>
F-34
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
17. Pension, Post-retirement and Post-employment Benefits (continued)
Funded Status Reconciliation:
<TABLE>
<CAPTION>
December 26, 1998 December 27, 1997
----------------------- ----------------------
(In thousands)
<S> <C> <C>
Funded Status $ 4,508 $ 3,653
Unrecognized prior amounts:
Prior Service Costs 2,713 1,843
Net Gains (losses) (3,069) (1,314)
----------------------- ----------------------
Total (356) 529
----------------------- ----------------------
Prepaid benefit recognized in
consolidated balance
sheet at the end of the year $ 4,152 $ 4,182
======================== ======================
</TABLE>
<TABLE>
<CAPTION>
Components of Net Benefits Expense:
Year Ended Year Ended Eleven Months
December 26, December 27, December 28,
1998 1997 1998
--------------- ----------------- ----------------
(In thousands)
<S> <C> <C> <C>
Service cost $ 368 $ 455 $ 475
Interest cost 1,288 1,115 1,030
Expected return on plan assets (2,052) (1,760) (1,619)
Net amortization:
Transition (Asset/Obligation) -- (32) (108)
Prior Service Cost 426 286 269
Total 426 254 161
--------------- ------------------ ----------------
Net benefits expense for the year $ 30 $ 64 $ 47
=============== ================== ================
</TABLE>
Other Post-retirement Benefit Plans:
<TABLE>
<CAPTION>
December 26, December 27,
1998 1997
----------------- -----------------
(In thousands)
<S> <C> <C>
Benefit obligations at the beginning
of the year $ 30,065 $ 31,287
Service cost 654 565
Interest cost 2,070 1,981
Plan amendments (186)
Actuarial (gains) losses 438 (1,827)
Net retiree benefit payments:
Benefits payments (2,870) (2,191)
Retiree contributions 563 436
----------------- ------------------
Total (2,307) (1,755)
----------------- ------------------
Benefit obligations at the end of
the year $ 30,920 $ 30,065
================= ==================
</TABLE>
F-35
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
17. Pension, Post-retirement and Post-employment Benefits (continued)
Funded Status Reconciliation:
<TABLE>
<CAPTION>
December 26, December 27,
1998 1997
------------------ -----------------
(In thousands)
<S> <C> <C>
Funded Status $ 30,920 $ 30,065
Unrecognized amounts:
Transition asset (obligation)
Prior service costs 2,263 2,499
Net gains (losses) (3,574) (3,200)
------------------ -----------------
Total (1,311) (701)
------------------ -----------------
Accrued benefit recognized in the
consolidated balance sheet at the end
of the year $ 29,609 $ 29,364
================== =================
</TABLE>
Components of Net Benefits Expense:
<TABLE>
<CAPTION>
Eleven Months
Year Ended Year Ended Ended
December 26, December 27, December 28,
1998 1997 1996
------------------ ----------------- ------------------
(In thousands)
<S> <C> <C> <C>
Service cost $ 654 $ 565 $ 550
Interest cost 2,070 1,981 1,925
Net amortization
Transition (asset) obligation 47 5
Prior service cost (221) (221)
Prior (gains) losses -- -- --
------------------ ----------------- ------------------
Total (174) (216) --
------------------ ----------------- ------------------
Net benefit expense for the year $ 2,550 $ 2,330 $ 2,475
================== ================= ==================
Net retire benefit payments (2,307) (1,755) (1,260)
Net balance sheet recognition 243 575 1,215
The weighted average actuarial assumptions utilized in determining the above
amounts for other benefit plans as of the year were as follows:
December 26, December 27,
1998 1997
------------------ -----------------
Discount rate 7% 7%
Rate of compensation increase 1.5% 5%
</TABLE>
F-36
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
17. Pension, Post-retirement and Post-employment Benefits (continued)
The weighted average actuarial assumptions utilized in determining the above
amounts for other post-retirement benefit plans as of the year were as follows:
December 26, December 27,
1998 1997
------------------ -----------------
Discount rate 7% 7%
Rate of compensation increase 4% 4%
The Company's other post-retirement benefit plans identified above provide
health and life insurance benefits to a number of existing retirees from certain
of its operations under the provision of a number of different plans.
Contributions currently required to be paid by the retirees towards the cost of
such plans range from zero to 100%. The Company also has a number of active
employees who might receive such benefits upon retirement. Relative to the above
information, the actuarial valuations assume a medical cost trend of 7% for
fiscal 1998, decreasing linearly to 5% in 2010; and remaining level thereafter.
The assumed health care trend rate has a significant effect on the amounts
reported. A one-time percentage-point change in the assumed health care trend
rate would have the following effects:
<TABLE>
<CAPTION>
1% 1%
Increase Decrease
-------- --------
<S> <C> <C>
Effect on the total of service and interest cost for 1998 $ 375 $ (310)
Effect on post retirement benefit obligation as of the end of the year $ 3,909 $(3,277)
</TABLE>
Pension expense charged to operations for these plans and for other
multi-employer plans in which certain union employees of the Company's
subsidiaries participate was approximately $305,000, $326,000 and $349,000 for
the years ended December 26, 1998 and December 27, 1997, and the eleven months
ended December 28, 1996, respectively.
Subsidiaries of the Company also maintain defined contribution contributory
retirement plans for substantially all domestic employee groups. Under the
plans, the subsidiaries make contributions based on employee compensation and in
certain cases based upon specified levels of voluntary employee contributions.
Golden Books Publishing and its Canadian subsidiary also maintain a profit
sharing plan for certain salaried employees. Expense for these plans was
approximately $0.8 million, $2.0 million and $2.5 million for the years ended
December 26, 1998 and December 27, 1997 and the eleven months ended December 28,
1996, respectively.
18. Industry Segments
The Company adopted SFAS No. 131 during the fourth quarter of 1998. Operating
segments are defined as components of an enterprise about which separate
financial information is available that is evaluated regularly by the chief
operating decision maker(s) in deciding how to allocate resources and in
assessing performance. The Company identifies such segments based on management
responsibility within the United States and geographically for all international
units.
The Company has three operating segments: Consumer Products, Commercial Products
and Entertainment. The Company's Consumer Products Segment is engaged in the
creation, publication, manufacturing, printing and marketing of story and
picture books, coloring books and other activity books, interactive electronic
books and games, and products for children as well as multimedia "entertainment"
products. The Company's foreign operations within the Consumer Products Segment
consist of a sales subsidiary in Canada and a small sales branch in the United
Kingdom.
F-37
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
18. Industry Segments (continued)
The Consumer Product segment includes the Company's children's and adult
publishing divisions. The Commercial Products segment provides printing,
graphic, creative and distribution services, and printing business. The
Company's Entertainment Segment operates as the Golden Books Entertainment Group
division which was established in August 1996, upon the acquisition by the
Company from Broadway Video Entertainment, L.P. of an extensive library of
character-based family entertainment properties. The Golden Books Entertainment
division's library is comprised of copyrights, distribution rights, trademarks
or licenses relating to characters, television programs and motion pictures,
both animation and live action, and includes individual specials and multiple
episode series.
Identifiable assets are those assets used specifically in the operations of each
operating segment or which are allocated when used jointly. Corporate assets are
principally comprised of cash and cash equivalents, refundable income taxes,
deferred income taxes, prepaid pension costs and certain other assets. Domestic
sales to foreign markets were less than 10% of total consolidated sales for the
years ended December 26, 1998 and December 27, 1997 and for the eleven months
ended December 28, 1996.
The Company evaluates performance based on several factors, of which the primary
measure is operating segment earnings before interest, taxes, depreciation and
amortization ("EBITDA"). The accounting policies of the operating segments are
the same as described in the Summary of Significant Accounting Policies (Note
3).
Information by industry segment is set forth below:
<TABLE>
<CAPTION>
Eleven Months
Year Ended Year Ended Ended
December 26, 1998 December 27, 1997 December 28, 1996
-------------------- ------------------- --------------------
(In millions)
<S> <C> <C> <C>
Consumer Products $ 150.7 $ 171.7 $ 208.5
Commercial Products 14.5 42.5 42.4
Entertainment 29.0 29.3 4.1
-------------------- -------------------- --------------------
Total $ 194.2 $ 243.5 $ 255.0
==================== ==================== ====================
Gross Profit:
Consumer $ 5.9 $ 48.2 $ 20.9
Entertainment 11.6 15.6 0.6
-------------------- -------------------- --------------------
17.5 63.8 21.5
Commercial Facility Sold - 3.5 1.7
-------------------- -------------------- --------------------
17.5 67.3 23.2
Transition Costs (4.4) - -
-------------------- -------------------- --------------------
Total $ 13.1 $ 67.3 $ 23.2
==================== ==================== ====================
SG&A
SG&A before Transition Costs $ 90.5 $ 99.9 $ 142.7
Restructuring, Net of (Gains) Losses
on Sales of Assets 6.5 (10.8) 65.7
Write-off of assets 10.6 - -
-------------------- -------------------- --------------------
107.6 89.1 208.4
Transition Costs 7.8 11. -
-------------------- -------------------- --------------------
Total $ 115.4 $ 100.5 $ 208.4
==================== ==================== ====================
</TABLE>
F-38
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
18. Industry Segments (continued)
<TABLE>
<CAPTION>
Eleven Months
Year Ended Year Ended Ended
December 26, 1998 December 27, 1997 December 28, 1996
-------------------- -------------------- --------------------
(In millions)
<S> <C> <C> <C>
EBITDA
Gross Profit before Transition Costs $ 17.5 $ 67.3 $ 23.2
SG&A before Transition Costs 107.6 89.1 170.2
-------------------- -------------------- --------------------
Operating Results before Transition (90.1) (21.8) (147.0)
Costs
Depreciation and Amortization 12.6 11.2 14.0
-------------------- -------------------- --------------------
EBITDA before Transition Costs $ (77.5) $ (10.6) $ (133.0)
==================== ==================== ====================
Operating Results before
Transition Costs $ (90.1) $ (21.8) $ (185.2)
Transition Cost 12.2 11.4 --
-------------------- -------------------- --------------------
Operating Loss $ (102.3) $ (33.2) $ (185.2)
==================== ==================== ====================
Eleven Months
Year Ended Year Ended Ended
December 26, 1998 December 27, 1997 December 28, 1996
-------------------- -------------------- --------------------
(In thousands)
Depreciation of Property, Plant and
Equipment:
Consumer Products $ 6,273 $ 2,959 $ 9,891
Commercial Products 409 3,175 1,550
Entertainment 4,817 4,591 1,523
Corporate 1,081 489 1,057
=================== ==================== ====================
Total Depreciation & Amortization $ 12,580 $ 11,214 $ 14,021
=================== ===================== ====================
Assets:
Consumer Products $ 129,467 $ 146,969 $ 181,256
Commercial Products 11,051 29,846 25,923
Entertainment 102,217 113,334 99,527
Corporate 12,216 33,015 60,529
-------------------- -------------------- --------------------
Total Assets $ 254,951 $ 323,164 $ 367,235
==================== ==================== ====================
Capital Expenditures:
Consumer Products $ 11,874 $ 5,797 $ 3,890
Commercial Products 1,422 4,653 1,275
Entertainment -- 50 116
Corporate 104 9,886 458
-------------------- -------------------- --------------------
Total Capital Expenditures $ 13,400 $ 20,386 $ 5,739
==================== ==================== ====================
</TABLE>
F-39
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
18. Industry Segments (continued)
For the years ended December 26, 1998 and December 27, 1997 and eleven months
ended December 28, 1996, revenues from one single customer did not exceed more
than 10% of the Company's net sales. The Company's products are primarily sold
to mass market retailers throughout the United States and to a lesser degree
Canada and the United Kingdom.
19. Net Loss Per Basic Common Share
Loss per basic common share was computed as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Years Ended
December 26, 1998 December 27, 1997 December 28, 1996
-------------------- -------------------- -------------------
(In thousands except for per share data)
<S> <C> <C> <C>
Net loss $ (128,599) $ (49,680) $ (197,503)
Preferred dividend requirements (5,491) (7,849) (6,136)
-------------------- -------------------- -------------------
Loss applicable to basic common stock (134,090) $ (57,529) $ (203,639)
==================== ==================== ===================
Weighted average basic common
shares outstanding 27,433 26,357 23,317
==================== ==================== ===================
Loss per basic common share $ (4.89) $ (2.18) $ (8.73)
==================== ==================== ===================
</TABLE>
20. Related Party Transactions
Georgetown Transaction
Pursuant to a letter agreement (the "Georgetown Agreement") dated as of August
1, 1996, The Georgetown Company ("Georgetown"), a corporation of which Marshall
Rose (a current director of the Company) is the Managing Partner, has acted as a
real estate advisor to the Company. In March 1999 the Company and Georgetown
agreed to terminate all remaining obligations under the Georgetown agreement.
Pursuant to the Georgetown Agreement, the Company was obligated to make the
following payments to Georgetown: (i) $25,000 per month for the period beginning
August 1, 1996 and ending July 1, 1999; and (ii) an incentive fee, payable in
cash or Common Stock, for each completed real estate transaction during the
period beginning August 1, 1996 and ending July 3, 2000, in an amount equal to
one-half of each commission that would be paid to an outside broker representing
the Company. To date, the Company has paid to Georgetown (i) $75,000 in respect
of a property located at 630 Fifth Avenue, New York, New York, (ii)
approximately $580,000 in respect of a property located at 888 Seventh Avenue,
New York, New York, (iii) approximately $131,000 in respect of a property
located at 850 Third Avenue, New York, New York, (iv) approximately $217,000 in
respect of a property located in Fayetteville, North Carolina, and (v)
approximately $78,000 in respect of a property located in Coffeyville, KS.
Tribeca Transaction
Pursuant to a letter agreement (the "Tribeca Agreement") dated as of July 1,
1996, the Company was obligated to pay to Tribeca Technologies LLC ("Tribeca"),
a limited liability company in which Philip E. Rowley (an officer of the Company
through May 1998) was a member, as compensation for the loss by Tribeca of the
exclusive services of Mr. Rowley following his employment by the Company, the
sum of $200,000 on each of the following dates (provided that Mr. Rowley is in
the employment of the Company at such time); (i) July 1, 1996; (ii) July 1,
1997; and (iii) July 1, 1998. In consideration for such payments, Tribeca is
obligated to pay the Company one-third of the aggregate amount of any and all
distributions otherwise to be made by Tribeca to Mr. Rowley and the President of
Tribeca on or before June 30, 1999 (or such earlier time as Mr. Rowley's
employment with the Company ceases), provided, that the maximum amount payable
to the Company is the lesser of (i) $600,000 or (ii) the amount paid by the
Company to Tribeca pursuant to the
F-40
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 26, 1998 (CONTINUED)
- --------------------------------------------------------------------------------
20. Related Party Transactions (continued)
Tribeca Transaction (continued)
previous sentence. As of December 26, 1998, the Company has fulfilled its
obligation and made payments totaling $570,000 as follows: $200,000 in Fiscal
1996, $200,000 during June 1997, and $170,000 (paid in advance at a discounted
rate) during November 1997.
Powerhouse Transaction
On May 8, 1996, the Company and Powerhouse Entertainment Company, Inc.,
("Powerhouse"), a corporation affiliated with Richard A. Bernstein, the former
Chairman and Chief Executive Officer of the Company, entered into a software
development agreement (the "Development and Licensing Agreement") relating to
the development by Powerhouse of six interactive PC CD-ROM storybooks under the
Little Golden Books Interactive name and logo (the "Powerhouse Products") and
certain other computer software products.
Under the terms of the Development and Licensing Agreement, Powerhouse received
a fee in the amount of $1.0 million for the development of the Powerhouse
Products. All development costs were incurred by Powerhouse with the Powerhouse
Products' content, packaging and design subject to the Company's approval.
Separately, Powerhouse is paid a royalty based upon the net proceeds of sales of
the Powerhouse Products and such royalty obligation continues for the term of
copyright. The Company has paid approximately $75,000 to Powerhouse in royalties
through December 26, 1998.
There is also an agreement of even date between the parties wherein, Powerhouse,
on behalf of Company and at the Company's sole cost and expense, performed all
services relating to the manufacturing, marketing, distribution, sales and
licensing of the Powerhouse Products. To date, the Company has paid
approximately $615,000 to Powerhouse in connection with such services.
F-41
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
- --------------------------------------------------------------------------------
Condensed Balance Sheets
(In Thousands)
<TABLE>
<CAPTION>
December 26, 1998 December 27, 1997
-------------------- --------------------
<S> <C> <C>
Assets
Current assets
Cash $ 1,511 $ 19,155
Deposits 3,708 -
Refundable income taxes 637 637
Other current assets 2,166 1,375
-------------------- --------------------
Total current assets 8,022 21,167
Other assets 3,164 8,963
Property, plant and equipment 99 9,985
Less allowances for depreciation and
amortization (69) (489)
-------------------- --------------------
30 9,496
Investment and advances in subsidiaries (184,796) (83,335)
-------------------- --------------------
$ (173,580) $ (43,709)
==================== ====================
Liabilities and stockholders' equity
Current liabilities
Accrued compensation and fringe benefits $ 89 $ 20
Other current liabilities 7,485 6,671
-------------------- --------------------
7,574 6,691
Deferred compensation 7,927 7,909
Other noncurrent liabilities - 3,000
-------------------- --------------------
7,927 10,909
Stockholders' deficit
Convertible preferred stock - series B 65,000 65,000
Common stock 279 269
Additional paid in capital 128,956 128,533
Accumulated deficit (379,390) (250,791)
Cumulative translation adjustment (1,104) (1,498)
-------------------- --------------------
(186,259) (58,487)
Less common stock in treasury (2,822) (2,822)
-------------------- --------------------
(189,081) (61,309)
-------------------- --------------------
$ (173,580) $ (43,709)
==================== ====================
</TABLE>
S-1
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
- --------------------------------------------------------------------------------
Condensed Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
Eleven
Months
Year Ended Year Ended Ended
December 26, December 27, December 28,
1998 1997 1996
------------------ ------------------ -------------------
<S> <C> <C> <C>
Net revenues (principally intercompany interest
income) $ 10,055 $ 8,730 $ 8,736
Costs and expenses:
Selling, general and administrative (346) 1,063 14,335
Restructuring charges - - 1,072
Interest expense (primarily intercompany) 250 - 4,143
------------------ ------------------ -------------------
Income (loss) before provision for income taxes 10,151 7,667 (10,814)
Provision for income taxes - - 272
------------------ ------------------ -------------------
10,151 7,667 (11,086)
Deficit in net loss of subsidiary (138,750) (57,347) (186,417)
------------------ ------------------ -------------------
Net loss $ (128,599) $ (49,680) $ (197,503)
================== ================== ===================
</TABLE>
S-2
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
- --------------------------------------------------------------------------------
Condensed Statements of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Eleven
Year Year Months
Ended Ended Ended
December December December
26, 1998 27, 1997 28, 1996
----------------- --------------- ---------------
<S> <C> <C> <C>
Cash (used in) provided by Operating Activities $ (18,077) $ 6,254 $ 6,366
Investing Activities:
Purchase of property, plant and equipment (84) (9,885) (99)
Deposits (211) (3,497) -
----------------- ---------------- ---------------
Net cash used in investing activities (295) (13,382) (99)
Financing Activities:
Proceeds from issuance of Preferred Stock - Series B - - 65,000
Issuance costs of Preferred Stock - Series B - - (6,248)
Redemption of Preferred Stock - Series A - - (9,985)
Dividends paid on Preferred Stock - Series A - - (646)
Proceeds from sale of Common Stock - 1,556 28,886
Proceeds from Municipal Government Grants - 3,000 -
Net loans to subsidiaries - (38,109) (23,208)
Common Stock Transactions - Other 728 (159) (85)
--------------- ------------- ---------------
Net cash (used in) provided by financing activities 728 (33,712) 53,714
Net (decrease) increase in cash and cash equivalents (17,644) (40,840) 59,981
Cash and cash equivalents, beginning of period 19,155 59,995 14
--------------- ------------- ---------------
Cash and cash equivalents, end of period $ 1,511 $ 19,155 $ 59,995
=============== ============= ===============
</TABLE>
Notes to Condensed Financial Statements
Note A - Basis of Presentation
In the Golden Books Family Entertainment, Inc. (the "Company")-only financial
statements, the Company's investment in subsidiaries is stated at cost plus
equity in undistributed losses of subsidiaries since the date of acquisition.
Descriptions of the Company's long-term obligations, mandatory dividend and
guarantees of the Company have been separately disclosed in the Company's
consolidated financial statements. The Company-only financial statements should
be read in conjunction with the Company's consolidated financial statements.
S-3
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 26, 1998 AND DECEMBER 27, 1997 AND THE ELEVEN MONTHS ENDED
DECEMBER 28, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Allowance
for Sales
Allowance Discounts
for Doubtful and
Accounts Returns Total
--------------- ------------- ----------------
<S> <C> <C> <C>
BALANCES, February 3, 1996 $ 2,522 $ 4,482 $ 7,004
Additions charged to costs and expenses 5,719 21,742 27,461
Deductions - amounts written off (3,865) (9,480) (13,345)
Foreign currency conversion 3 3 6
--------------- ------------- ----------------
BALANCES, December 28, 1996 4,379 16,747 21,126
Additions charged to costs and expenses 3,608 13,736 17,344
Deductions - amounts written off (776) (13,426) (14,202)
Foreign currency conversion (3) (16) (19)
--------------- ------------- ----------------
BALANCES, DECEMBER 27, 1997 7,208 17,041 24,249
Additions charged to costs and expenses 2,859 35,970 38,829
Deductions - amounts written off (3,267) (26,184) (29,451)
--------------- ------------- ----------------
BALANCES, DECEMBER 26, 1998 $ 6,800 $ 26,827 $ 33,627
=============== ============= ================
</TABLE>
S-4
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000790706
<NAME> GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-26-1998
<PERIOD-END> DEC-26-1998
<CASH> 15,330
<SECURITIES> 0
<RECEIVABLES> 75,038
<ALLOWANCES> (33,627)
<INVENTORY> 33,068
<CURRENT-ASSETS> 124,953
<PP&E> 74,052
<DEPRECIATION> (44,097)
<TOTAL-ASSETS> 254,951
<CURRENT-LIABILITIES> 389,250
<BONDS> 150,000
115,000
65,000
<COMMON> 279
<OTHER-SE> (381)
<TOTAL-LIABILITY-AND-EQUITY> 254,951
<SALES> 193,573
<TOTAL-REVENUES> 194,226
<CGS> 181,141
<TOTAL-COSTS> 296,505
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (666)
<INTEREST-EXPENSE> 28,686
<INCOME-PRETAX> (129,265)
<INCOME-TAX> (128,599)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> (4.89)
<EPS-DILUTED> 0<F1>
<FN>
<F1>For the attached financials, the value EPS-DILUTED is not applicable
</FN>
</TABLE>
EXHIBIT 2.1
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)
Michael E. Foreman (MF-5802)
Scott K. Rutsky (SR-0712)
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
JOINT PLAN OF REORGANIZATION
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
Dated: March 25, 1999
New York, New York
<PAGE>
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
JOINT PLAN OF REORGANIZATION
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
Golden Books Family Entertainment, Inc., Golden Books Publishing
Company, Inc. and Golden Books Home Video, Inc., propose the following joint
plan of reorganization under Section 1121(a) of title 11 of the United States
Code:
ARTICLE 1
DEFINITIONS AND CONSTRUCTION OF TERMS
Definitions; Interpretation; Application of Definitions and Rules of
Construction. For purposes of this Plan, the following terms shall have the
meanings specified in this Article 1. A term used herein that is not defined
herein, but that is used in the Bankruptcy Code, shall have the meaning ascribed
to that term in the Bankruptcy Code. Wherever from the context it appears
appropriate, each term stated in either the singular or the plural shall include
both the singular and the plural and pronouns stated in the masculine, feminine
or neuter gender shall include the masculine, feminine and neuter. Unless
otherwise specified, all Section, article, schedule or exhibit references in the
Plan are to the respective Section in, Article of, Schedule to, or Exhibit to,
the Plan. The words "herein," "'hereof," "hereto," "hereunder" and other words
of similar import refer to the Plan as a whole and not to any particular
Section, subSection or clause contained in the Plan. The rules of construction
contained in Section 102 of the Bankruptcy Code shall apply to the construction
hereof. The headings in the Plan are for convenience of reference only and shall
not limit or otherwise affect the provisions hereof.
1
<PAGE>
1.1 "Administrative Expense Claim" shall mean a Claim Allowed under
Section 503(b) of the Bankruptcy Code that is entitled to priority under Section
507(a)(1) of the Bankruptcy Code, including, without limitation, (a) any actual
and necessary costs and expenses of preserving the Estates or administering the
Chapter 11 Cases as authorized and approved by a Final Order, (b) any actual and
necessary costs and expenses incurred in the ordinary course of the Debtors'
business, (c) fees and expenses of Professionals to the extent Allowed by Final
Order under Sections 330, 331, or 503 of the Bankruptcy Code, and (d) all fees
and charges assessed against the Estates pursuant to 28 U.S.C. ss. 1930.
1.2 "Allowed" shall mean, with reference to any Claim: (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 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 this Plan.
1.3 "Ballot" shall mean the form or forms distributed to each holder of
an impaired Claim or Equity Interest entitled to vote on the Plan on which an
acceptance or rejection of the Plan shall be indicated.
1.4 "Bankruptcy Code" shall mean title 11 of the United States Code, as
amended from time to time, as applicable to the Chapter 11 Cases.
1.5 "Bankruptcy Court" shall mean the United States District Court for
the Southern District of New York having jurisdiction over the Chapter 11 Cases
and, to the extent of any reference under 28 U.S.C. ss. 157, the unit of such
District Court under 28 U.S.C. ss. 151.
1.6 "Bankruptcy Rules" shall mean the Federal Rules of Bankruptcy
Procedure as promulgated under 28 U.S.C. ss. 2075, and any Local Rules of the
Bankruptcy Court.
1.7 "Bar Date" shall mean the date fixed by order of the Bankruptcy
Court by which Persons asserting a Claim against the Debtors must file a proof
of claim or be forever barred from asserting a Claim against the Debtors or
their property and from voting on the Plan and/or sharing in distributions
hereunder.
1.8 "Business Day" shall mean any day other than a Saturday, Sunday or
legal holiday, as such term is defined in Bankruptcy Rule 9006.
2
<PAGE>
1.9 "Cash" shall mean cash, cash equivalents (including personal checks
drawn on a bank insured by the Federal Deposit Insurance Corporation, certified
checks and money orders) and other readily marketable direct obligations of the
United States of America and certificates of deposit issued by banks.
1.10 "Causes of Action" shall mean, without limitation, any and all
actions, causes of action, liabilities, obligations, rights, suits, debts, sums
of money, damages, judgments, Claims and demands whatsoever, whether known or
unknown, in law, equity or otherwise.
1.11 "Chapter 11 Cases" shall mean the Debtors' cases under Chapter 11
of the Bankruptcy Code administered in the Bankruptcy Court.
1.12 "Claim" shall mean a claim against a Person or its property as
defined in Section 101(5) of the Bankruptcy Code, including, without limitation,
(a) any 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 (b) any 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.
1.13 "Class" shall mean a category of Persons holding Claims or Equity
Interests which are substantially similar in nature to the Claims or the Equity
Interests of other holders in such Class, as designated in Article 3 of this
Plan.
1.14 "Collateral" shall mean any property or interest in property of
the Estates subject to a Lien to secure the payment or performance of a Claim,
which Lien is not subject to avoidance under the Bankruptcy Code or otherwise
invalid under the Bankruptcy Code or applicable state law.
1.15 "Confirmation Date" shall mean the date on which the Clerk of the
Bankruptcy Court enters the Confirmation Order on the docket.
1.16 "Confirmation Hearing" shall mean the hearing held by the
Bankruptcy Court to consider confirmation of the Plan pursuant to Section 1129
of the Bankruptcy Code, as such hearing may be adjourned or continued from time
to time.
1.17 "Confirmation Order" shall mean the order of the Bankruptcy Court
confirming the Plan pursuant to the provisions of the Bankruptcy Code.
1.18 "Contingent Claim" shall mean any Claim for which a proof of claim
has been filed with the Bankruptcy Court (a) which was not filed in a sum
certain, or which has not accrued and is dependent upon a future event that has
not occurred or may never occur, and (b) which has not been Allowed.
3
<PAGE>
1.19 "Convertible Debenture Claims" shall mean all Claims based upon or
evidenced by a Convertible Debenture.
1.20 "Convertible Debentures" shall mean the 8.75% convertible
debentures due 2016 issued by Publishing and Parent in the original principal
amount of $118 million pursuant to the Convertible Debenture Indenture.
1.21 "Convertible Debenture Indenture" shall mean that certain
indenture dated August 20, 1996, as amended or supplemented from time to time in
accordance with the terms thereof, among Parent, Publishing and the Bank of New
York, as Trustee.
1.22 "Debt Securities Recission or Damage Claims" shall mean any and
all Claims (including, without limitation, all Claims asserted or assertable in
that certain 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 Entertainment, Inc., et al., Case
No. 98 CIV 7072 (AGS)"): (i) for recission of the purchase or sale of any debt
instruments issued by any or all of the Debtors (including, without limitation,
Old Senior Notes, TOPrS Certificates or Convertible Debentures), (ii) for
damages arising from the purchase or sale of any debt instruments issued by any
or all of the Debtors (including, without limitation, Old Senior Notes, TOPrS
Certificates or Convertible Debentures), or (iii) for reimbursement or
contribution in connection with such recission or damage Claims.
1.23 "Debtors" shall mean, collectively, Parent, Publishing and Video.
1.24 "Debtors-in-Possession" shall mean the Debtors in their capacity
as debtors-in-possession in the Chapter 11 Cases pursuant to Sections 1107(a)
and 1108 of the Bankruptcy Code.
1.25 "DIP Financing Order" shall mean the order or orders of the
Bankruptcy Court approving and authorizing the terms of debtor-in-possession
financing arrangements in the Chapter 11 cases pursuant to the DIP Loan
Documents.
1.26 "DIP Lender" shall mean the lender or lenders under the DIP Loan
Documents.
1.27 "DIP Loan Documents" shall mean all documents and instruments
evidencing and/or setting forth the terms of debtor-in-possession financing
arrangements in the Chapter 11 Cases as approved by the DIP Financing Order.
1.28 "Disclosure Statement" shall mean the disclosure statement
relating to the Plan, including, without limitation, all exhibits and schedules
thereto, in the form approved by the Bankruptcy Court pursuant to Section 1125
of the Bankruptcy Code.
4
<PAGE>
1.29 "Disputed" shall mean, with respect to Claims or Equity Interests,
any such Claim or Equity Interest:
(a) that is listed in the Schedules as unliquidated, disputed
or contingent; or
(b) as to which the Debtors or any other party-in-interest has
interposed a timely objection or request for estimation, or have sought to
equitably subordinate or otherwise limit recovery in accordance with the
Bankruptcy Code and the Bankruptcy Rules, or which is otherwise disputed by the
Debtors in accordance with applicable law, which objection, request for
estimation, action to limit recovery or dispute has not been withdrawn or
determined by Final Order; or
(c) which is a Contingent Claim.
1.30 "Distribution Agreement" shall mean, collectively, (i) that
certain agreement dated as of November 11, 1997, by and between Video and Sony
Music (a Group of Sony Music Entertainment, Inc.), as such agreement may have
been amended or supplemented from time to time, and (ii) that certain license
agreement, dated as of January 1, 1998, between Publishing and Video, respecting
Video's license from Publishing of rights to the Golden Properties (as defined
therein), as such agreement may have been amended or supplemented from time to
time.
1.31 "Distribution Record Date" shall mean the Confirmation Date.
1.32 "Effective Date" shall mean the date which is eleven (11) days
after the Confirmation Date, or if such date is not a Business Day, the next
succeeding Business Day; provided, however, that if, as of such date, all
conditions to the occurrence of the Effective Date set forth in Section 8.1 of
this Plan have not been satisfied or waived pursuant to Section 8.2 of this
Plan, then the first Business Day on which all such conditions have been
satisfied or waived.
1.33 "Equity Interests" shall mean, collectively, Old Preferred
Stock Interests and Old Common Stock Interests.
1.34 "Equity Interest Recission or Damage Claims" shall mean any and
all Claims (including, without limitation, all Claims asserted or assertable in
that certain 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 Entertainment, Inc., et al., Case
No. 98 CIV 7072 (AGS)"): (i) for recission of the purchase or sale of Old
Preferred Stock Interests and/or Old Common Stock Interests; (ii) for damages
arising from the purchase or sale of Old Preferred Stock Interests and/or Old
Common Stock Interests; or (iii) for reimbursement or contribution in connection
with such recission or damage Claims.
5
<PAGE>
1.35 "Estates" shall mean the estates created in the Chapter 11 Cases
pursuant to Section 541 of the Bankruptcy Code.
1.36 "Final Order" shall mean an order or judgment of the Bankruptcy
Court as to which the time to appeal, petition for certiorari, or move for
reargument or rehearing has expired and as to which no appeal, petition for
certiorari, or other proceedings for reargument or rehearing shall then be
pending or as to which any right to appeal, petition for certiorari, reargue, or
rehear shall have been waived in writing in form and substance satisfactory to
the Debtors or the Reorganized Debtors or, in the event that an appeal, writ of
certiorari, or reargument or rehearing thereof has been sought, such order or
judgment of the Bankruptcy Court shall have been determined by the highest court
to which such order was appealed, or certiorari, reargument or rehearing shall
have been denied and the time to take any further appeal, petition for
certiorari or move for reargument or rehearing shall have expired; provided,
however, that the possibility that a motion under Rule 59 or Rule 60 of the
Federal Rules of Civil Procedure, or any analogous rule under the Bankruptcy
Rules, may be filed with respect to such order shall not cause such order not to
be a Final Order.
1.37 "General Secured Claim" shall mean any Secured Claim other than an
Old Senior Note Claim and a GPH Claim.
1.38 "General Unsecured Claim" shall mean any Claim that is not a
Secured Claim, Administrative Expense Claim, Priority Tax Claim, Priority Claim,
Old Senior Note Claim, GPH Claim, TOPrS Claim, TOPrS Securities Litigation Claim
or Common Stock Securities Litigation Claim. General Unsecured Claims shall not
include any portion of Old Senior Note Claims or GPH Claims that are not Secured
Claims.
1.39 "GPH" shall mean Golden Press Holding, L.L.C., a Delaware limited
liability company.
1.40 "GPH Claims" shall mean all Claims based upon or evidenced by a
GPH Note.
1.41 "GPH Note Purchase Agreement" shall mean that certain note
purchase agreement dated as of September 8, 1998, among GPH, Publishing and
Video.
1.42 "GPH Notes" shall mean the promissory notes of Video in the
original principal amount of $10 million issued pursuant to the GPH Note
Purchase Agreement.
1.43 "Indemnification Claims" shall mean all obligations relating to
contribution, indemnification and exculpation by Parent and its subsidiaries, as
arise under applicable laws or agreements or as provided in any of (i) Parent's
certificate of incorporation as in effect prior to or as of the date hereof,
(ii) Parent's by-laws in effect prior to or as of the date hereof, (iii) any
agreement with Parent, or (iv) the certificates of incorporation, by-laws, or
similar documents or agreements of or with any of Parent's subsidiaries as in
effect prior to or as of the date hereof.
6
<PAGE>
1.44 "Indenture Trustee Charging Lien" shall mean any lien or other
priority in payment available to the Old Senior Note Indenture Trustee pursuant
to the Old Senior Note Indenture, or the TOPrS Trustee pursuant to the TOPrS
Trust and/or Convertible Debenture Indenture, or otherwise available to all such
Persons under applicable law, for the payment of fees and expenses incurred by
such Persons, to the extent not paid pursuant to the applicable terms of the
Plan.
1.45 "Informal Committees" shall mean, collectively, the Informal
Senior Note Committee and the Informal TOPrS Committee.
1.46 "Informal Senior Note Committee" shall mean the ad hoc committee
of holders of Old Senior Notes as constituted and in existence as of the
Petition Date and which has retained Stroock & Stroock & Lavan LLP, as counsel,
and Houlihan Lokey Howard & Zukin, as financial advisors, as same may be
reconstituted from time to time.
1.47 "Informal TOPrS Committee" shall mean the ad hoc committee of
holders of TOPrS Certificates as constituted and in existence as of the Petition
Date and which has retained Cleary, Gottlieb, Steen & Hamilton, as counsel, and
Jefferies & Co., Inc., as financial advisors, as same may be reconstituted from
time to time.
1.48 "Lien" shall have the meaning set forth in Section 101(37) of the
Bankruptcy Code; except that a lien that has been avoided in accordance with
Sections 544, 545, 546, 547, 548 or 549 of the Bankruptcy Code shall not
constitute a lien.
1.49 "Management Stock Option Plan" shall mean the stock option plan to
be established by Reorganized Parent, substantially in the form included in the
Plan Supplement, which plan shall provide for the issuance upon exercise of such
options of shares of New Parent Common Stock constituting 10%, on a
fully-diluted basis, of the authorized shares of New Parent Common Stock on the
Effective Date.
1.50 "New Parent Common Stock" shall mean the $____ par value common
stock of Reorganized Parent issued pursuant to this Plan and the Reorganized
Parent Charter.
1.51 "New Senior Notes" shall mean the senior secured notes to be
issued by Reorganized Publishing pursuant to the New Senior Note Indenture and
distributed to holders of Allowed Old Senior Note Claims pursuant to Section
4.3(c) of the Plan.
1.52 "New Senior Note Indenture" shall mean the indenture, dated as of
the Effective Date, between Reorganized Publishing and the New Senior Note
Indenture Trustee respecting the New Senior Notes, substantially in the form
included in the Plan Supplement.
1.53 "New Senior Note Indenture Trustee" shall mean the Old Senior Note
Indenture Trustee or such other entity reasonably acceptable to the Informal
Senior Note Committee who shall act as indenture trustee under the New Senior
Note Indenture.
7
<PAGE>
1.54 "New Senior Note Security Agreement" shall mean the security
agreement, dated as of the Effective Date, respecting the collateral which shall
secure the New Senior Notes.
1.55 "New Warrants" shall mean warrants issued pursuant to the Warrant
Agreement to purchase that number of shares of New Parent Common Stock
constituting 5% of the authorized shares of New Parent Common Stock on the
Effective Date, which shall be exercisable until the third anniversary of the
Effective Date at a price of $__________ per share; 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.
1.56 "Official Committee" shall mean the official committee(s), if any,
appointed in the Chapter 11 Cases pursuant to Section 1102 of the Bankruptcy
Code, as the same may be constituted from time to time.
1.57 "Old Common Stock Interests" shall mean the equity interests
represented by duly authorized, validly issued and outstanding shares of common
stock of Parent, par value $.01 per share, together with all accrued and unpaid
dividends on the Old Preferred Stock Interests, prior to the Effective Date.
1.58 "Old Preferred Stock Interests" shall mean the equity interests
represented by duly authorized, validly issued and outstanding shares of Series
B Convertible Preferred Stock of Parent, no par value per share, prior to the
Effective Date.
1.59 "Old Senior Notes" shall mean the 7.65% senior notes due 2002, in
the original principal amount of $150 million, issued pursuant to the Old Senior
Note Indenture.
1.60 "Old Senior Note Claims" shall mean all claims based upon or
evidenced by an Old Senior Note.
1.61 "Old Senior Note Indenture" shall mean that certain indenture
dated as of September 15, 1992, as amended or supplemented from time to time in
accordance with the terms thereof, between Publishing and the Old Senior Note
Indenture Trustee, pursuant to which the Old Senior Notes were issued.
1.62 "Old Senior Note Indenture Trustee" shall mean Marine Midland
Bank, as successor indenture trustee to the Bank of New York under the Old
Senior Note Indenture.
1.63 "Parent" shall mean Golden Books Family Entertainment, Inc., a
Delaware corporation.
8
<PAGE>
1.64 "Person" shall mean any individual, corporation, partnership,
joint venture, association, joint-stock company, trust, unincorporated
association or organization, governmental agency or political subdivision
thereof.
1.65 "Petition Date" shall mean the respective date or dates upon which
the Debtors filed their voluntary Chapter 11 petitions with the Bankruptcy Court
pursuant to the Bankruptcy Code.
1.66 "Plan" shall mean this Chapter 11 plan of reorganization,
including, without limitation, the Plan Supplement and the Plan Documents, and
all exhibits, supplements, appendices and schedules hereto and thereto, either
in its present form or as the same may be altered, amended or modified from time
to time.
1.67 "Plan Documents" shall mean the Reorganized Debtors' Charters, the
Management Stock Option Plan, the New Senior Note Indenture, the New Senior Note
Security Agreement (and all other documents relating to the New Senior Notes),
the Registration Rights Agreement, the Warrant Agreement, and the Post-Effective
Date Financing Facility Documents, as they may be amended at any time prior to
the conclusion of the Confirmation Hearing, or thereafter, in accordance with
Section 12.4 hereof.
1.68 "Plan Supplement" shall mean the supplement, containing copies of
the Plan Documents, which shall be filed with the Bankruptcy Court. The Plan
Supplement is incorporated into, and is a part of, this Plan as if set forth in
full herein, and all references to this Plan shall refer to this Plan together
with all documents contained in the Plan Supplement. The Plan Supplement
(containing drafts or final versions of the Plan Documents) shall be filed with
the Bankruptcy Court as early as practicable (but in no event later than seven
(7) Business Days) prior to the deadline fixed for filing objections to
Confirmation of the Plan, or on such other date as the Bankruptcy Court may
establish.
1.69 "Post-Effective Date Financing Facility" shall mean a
post-Effective Date term loan and working capital revolving credit financing
between the Reorganized Debtors and a lender selected by the Reorganized Debtors
in consultation with the Informal Committees containing terms and conditions in
form and substance acceptable to the Reorganized Debtors.
1.70 "Post-Effective Date Financing Facility Documents" shall mean the
documents or term sheets setting forth the terms of the Post-Effective Date
Financing Facility, substantially in the form included in the Plan Supplement.
1.71 "Priority Claims" shall mean any and all Claims (or portions
thereof), if any, entitled to priority under Section 507(a) of the Bankruptcy
Code other than Priority Tax Claims and Administrative Expense Claims.
9
<PAGE>
1.72 "Priority Tax Claim" shall mean any Claim of a governmental unit
entitled to priority under Section 507(a)(8) of the Bankruptcy Code.
1.73 "Professionals" shall mean those Persons (a) employed pursuant to
an order of the Bankruptcy Court in accordance with Sections 327 or 1103 of the
Bankruptcy Code and to be compensated for services pursuant to Sections 327,
328, 329, 330 and 331 of the Bankruptcy Code, or (b) for which compensation and
reimbursement has been allowed by the Bankruptcy Court pursuant to Section
503(b)(4) of the Bankruptcy Code.
1.74 "Pro Rata Share" shall mean a proportionate share, so that the
ratio of the consideration distributed on account of an Allowed Claim or Equity
Interest in a Class to the amount of such Allowed Claim or Equity Interest is
the same as the ratio of the amount of the consideration distributed on account
of all Allowed Claims or Equity Interests in such Class to the amount of all
Allowed Claims or Equity Interests in such Class.
1.75 "Publishing" shall mean Golden Books Publishing Company, Inc.,
a Delaware corporation.
1.76 "Publishing Notes" shall mean the promissory notes of Publishing,
dated as of September 8, 1998, in the original principal amount of $10 million,
issued in connection with, and pledged as collateral for, the GPH Notes.
1.77 "Recission or Damage Claims" shall mean, collectively Debt
Securities Recission or Damage Claims and Equity Interest Recission or Damage
Claims.
1.78 "Registration Rights Agreement" shall have the meaning set forth
in Section 5.20 of the Plan.
1.79 "Released Parties" shall mean, collectively, the Debtors,
Reorganized Debtors, members of the Informal Senior Note Committee, members of
the Informal TOPrS Committee, GPH (and including, without limitation, each of
its members and all of the partners of any such member), and all past and
present officers, directors, agents, employees, counsel, financial advisors and
Professionals of each of the foregoing.
1.80 "Reorganized Debtors" shall mean collectively, Reorganized Parent,
Reorganized Publishing and Reorganized Video, or any successors thereto by
merger, consolidation or otherwise, on or after the Effective Date.
1.81 "Reorganized Debtors' Charters" shall mean, collectively, the
amended and restated certificates of incorporation and bylaws of each of
Reorganized Parent, Reorganized Publishing, and Reorganized Video, which shall
be substantially in the forms contained in the Plan Supplement.
10
<PAGE>
1.82 "Reorganized Parent" shall mean Parent, or any successor thereto
by merger, consolidation or otherwise, on and after the Effective Date.
1.83 "Reorganized Parent Charter" shall mean, collectively, the amended
and restated certificate of incorporation and bylaws of Reorganized Parent,
which shall be substantially in the forms contained in the Plan Supplement.
1.84 "Reorganized Publishing" shall mean Publishing, or any successor
thereto by merger, consolidation or otherwise, on and after the Effective Date.
1.85 "Reorganized Video" shall mean Video, or any successor thereto by
merger, consolidation or otherwise, on and after the Effective Date.
1.86 "Restructuring Agreement" shall mean that certain restructuring
agreement, dated as of March 11, 1999, a copy of which is attached as Exhibit D
to the Disclosure Statement.
1.87 "Retiree Benefits" shall mean payments to any entity or Person for
the purpose of providing or reimbursing payments for retired employees of the
Debtors and of any other entities as to which the Debtors are obligated to
provide retiree benefits and the eligible spouses and eligible dependents of
such retired employees, for medical, surgical, or hospital care benefits, or in
the event of death of a retiree under any plan, fund or program (through the
purchase of insurance or otherwise) maintained or established by the Debtors
prior to the Petition Date, as such plan, fund or program was then in effect or
as heretofore or hereafter amended.
1.88 "Schedules" shall mean the schedules of assets and liabilities,
the list of holders of interests and the statements of financial affairs filed
by the Debtors under Section 521 of the Bankruptcy Code and Bankruptcy Rule
1007, as such schedules, lists and statements have been or may be supplemented
or amended from time to time.
1.89 "Secured Claim" shall mean any Claim, to the extent reflected in
the Schedules or a proof of claim as a Secured Claim, which is secured by a Lien
on Collateral to the extent of the value of such Collateral, as determined in
accordance with Section 506(a) of the Bankruptcy Code, or, in the event that
such Claim is subject to setoff under Section 553 of the Bankruptcy Code, to the
extent of such setoff.
1.90 "Subsidiary" shall mean any entity of which the outstanding
capital stock entitled to vote for the election of directors is owned or
controlled, directly or indirectly, by a Debtor, by one or more Subsidiaries of
a Debtor, or by a Debtor and one or more of its other Subsidiaries.
1.91 "Subsidiary Equity Interest" shall mean any share of common stock
or other instrument evidencing a present ownership interest in any of the
Subsidiaries, whether or not transferable, and any option, warrant or right,
contractual or otherwise, to acquire any such interest.
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1.92 "Substantive Consolidation Order" shall mean the order, or
provisions of the Confirmation Order, substantively consolidating the Debtors'
Estates as provided in Article 8 hereof.
1.93 "TOPrS Certificates" shall mean the 8.75% Convertible Trust
Originated Preferred Securities due 2016 issued by Golden Books Financing Trust,
a Delaware business trust, pursuant to the TOPrS Trust.
1.94 "TOPrS Claims" shall mean, collectively, all claims based upon or
evidenced by a TOPrS Certificate and/or a Convertible Debenture, provided,
however, that TOPrS Claims shall not include any Debt Securities Recission or
Damage Claims.
1.95 "TOPrS Trust" shall mean that certain amended and restated
declaration of trust dated August 20, 1996 respecting the issuance of the TOPrS
Certificates.
1.96 "TOPrS Trustee" shall mean, collectively, the trustee with respect
to the TOPrS Trust and the indenture trustee under the Convertible Debenture
Indenture.
1.97 "Video" shall mean Golden Books Home Video, Inc., a Delaware
corporation.
1.98 "Warrant Agreement" shall mean the warrant agreement between
Reorganized Parent and the warrant agent named therein, substantially in the
form included in the Plan Supplement.
ARTICLE 2
TREATMENT OF ALLOWED ADMINISTRATIVE
EXPENSE CLAIMS AND ALLOWED PRIORITY TAX CLAIMS
2.1 Non-Classification. As provided in Section 1123(a)(1) of the
Bankruptcy Code, Administrative Expense Claims and Priority Tax Claims against
the Debtors are not classified for the purposes of voting on or receiving
distributions under this Plan. All such Claims are instead treated separately
upon the terms set forth in this Article 2.
2.2 Administrative Expense Claims.
(a) In General. 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. Such Administrative Expense Claims shall include
obligations to the DIP Lender, costs incurred in the operation of the Debtors'
businesses after the Petition Date, the fees and expenses of Professionals
retained by the Debtors, the Informal Senior Note Committee, the Old Senior Note
Indenture Trustee, the Informal TOPrS Committee, the TOPrS Trustee, GPH, any
statutory
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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 reasonable fees and
expenses incurred on or before the Effective Date by the Old Senior Note
Indenture Trustee, the TOPrS Trustee, the members of the Informal Senior Note
Committee and the Informal TOPrS Committee, including the respective counsel and
financial advisors to such committees, and the reasonable fees and expenses of
counsel to GPH, incurred in connection with the Chapter 11 Cases or this Plan
shall be paid by the Reorganized Debtors as Administrative Expense Claims
(without application by, or on behalf of, any such Person to the Bankruptcy
Court, unless specifically ordered by the Bankruptcy Court, or any such Person
has been retained by an Official Committee pursuant to Sections 327 or 1103 of
the Bankruptcy Code, in either of which events, Section 2.2(b) of this Plan
shall apply). If the Reorganized Debtors and any such Person cannot agree on the
amount of fees and expenses to be paid to such Person, such amount shall be
determined by the Bankruptcy Court.
(b) Professional Compensation and Expense Reimbursement
Claims. 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 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.
(c) Treatment of Claims of DIP Lender. 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.
2.3 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
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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 agree, as determined by the Bankruptcy Court.
ARTICLE 3
CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS
Claims, other than Administrative Expense Claims and Priority Tax
Claims, and Equity Interests are classified for all purposes, including voting
on, confirmation of and distribution pursuant to the Plan, as follows:
Class Status
----- ------
Class 1 -- Priority Claims.........................................Unimpaired
Class 2 -- General Secured Claims..................................Unimpaired
(Each General Secured Claim shall constitute a separate Class
numbered 2.1, 2.2, 2.3 and so on.)
Class 3 -- Old Senior Note Claims....................................Impaired
Class 4 -- GPH Claims................................................Impaired
Class 5 -- TOPrS Claims..............................................Impaired
Class 6 -- General Unsecured Claims ...............................Unimpaired
Class 7 -- Debt Securities Recission or Damage Claims................Impaired
Class 8 -- Old Preferred Stock Interests.............................Impaired
Class 9 -- Old Common Stock Interests................................Impaired
Class 10 - Equity Interest Recission or Damage Claims................Impaired
Class 11 - Subsidiary Equity Interests.............................Unimpaired
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ARTICLE 4
TREATMENT OF CLAIMS AND EQUITY INTERESTS
4.1 CLASS 1 -- ALLOWED PRIORITY CLAIMS.
(a) Impairment and Voting. Class 1 is unimpaired by the Plan.
Consequently, each holder of an Allowed Priority Claim is conclusively presumed
to have accepted the Plan and is not entitled to vote to accept or reject the
Plan.
(b) Distributions. 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.
4.2 CLASS 2 -- GENERAL SECURED CLAIMS.
(a) Impairment and Voting. Class 2 is unimpaired by the Plan.
Consequently, each holder of an Allowed General Secured Claim is conclusively
presumed to have accepted the Plan and is not entitled to vote to accept or
reject the Plan.
(b) Distributions. 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.
4.3 CLASS 3 -- ALLOWED OLD SENIOR NOTE CLAIMS.
(a) 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.
(b) Impairment and Voting. Class 3 is impaired by the Plan.
Consequently, each holder of an Allowed Old Senior Note Claim shall be entitled
to vote to accept or reject the Plan.
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(c) 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)
______shares of New Parent Common Stock. The New Parent Common Stock issued to
holders of Allowed Old Senior Note Claims pursuant to this Section 4.3(c), 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.
(d) Principal Terms of New Senior Notes. Subject to the
occurrence of the Effective Date, the New Senior Notes issued pursuant to the
New Senior Note Indenture shall contain the following principal terms:
Issuer: Reorganized Publishing
Guarantor: Reorganized Parent and Reorganized Video
(and their respective direct and indirect
subsidiaries and affiliates other than
Reorganized Publishing).
Principal Amount: $87.0 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 the
Disclosure Statement (including, without
limitation, the
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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.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 New
Senior Notes will be secured by either a
first or a 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 100.0%
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.
(e) Cancellation of Old Senior Notes and Related Instruments.
As of the Effective Date, all Old Senior Notes, and all indentures, agreements,
instruments and other
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documents evidencing Old Senior Note Claims and the rights of the holders
thereof, shall be cancelled 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 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.
4.4 CLASS 4 -- GPH CLAIMS.
(a) 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 relating to the period up to but not including the
Petition Date.
(b) Impairment and Voting. Class 4 is impaired by the Plan.
Consequently, each holder of an Allowed GPH Claim shall be entitled to vote to
accept or reject the Plan.
(c) 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)
______ shares of New Parent Common Stock. The New Parent Common Stock issued to
the holder of the Allowed GPH Claim pursuant to this Section 4.4(c), 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.
(d) 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.
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4.5 CLASS 5 -- TOPrS CLAIMS.
(a) 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.
(b) Impairment and Voting. Class 5 is impaired by the Plan.
Consequently, each holder of an Allowed TOPrS Claim shall be entitled to vote to
accept or reject the Plan.
(c) 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 ____ shares of New Parent Common Stock. The
New Parent Common Stock issued to holders of Allowed TOPrS Claims pursuant to
this Section 4.5(c), 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.
(d) 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 cancelled 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.
4.6 CLASS 6 -- GENERAL UNSECURED CLAIMS.
(a) Impairment and Voting. Class 6 is unimpaired by the Plan.
Consequently, each holder of an Allowed General Unsecured Claim is conclusively
presumed to have accepted the Plan and is not entitled to vote to accept or
reject the Plan.
(b) Distributions. 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 (i) the
Effective Date, (ii) the date a General Unsecured Claim becomes an Allowed
Claim, (iii) 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 (iv) 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 this Section 4.6(b) will
result in the payment of any Allowed General Unsecured Claim, in Cash, in an
amount equal to such Allowed General Unsecured Claim
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(which payment shall include interest, only to the extent to which the holder of
such Claim may be contractually entitled, accrued through the date of payment).
4.7 CLASS 7 -- DEBT SECURITIES RECISSION OR DAMAGE CLAIMS.
-----------------------------------------------------
(a) Impairment and Voting. Class 7 is impaired by the Plan.
Consequently, each holder of an Allowed Debt Securities Recission or Damage
Claim shall be entitled to vote to accept or reject the Plan.
(b) Distributions. Subject to the releases contained in
Section 9.1 herein, each holder of an Allowed Debt Securities Recission 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 this Plan.
4.8 CLASS 8 -- OLD PREFERRED STOCK INTERESTS.
(a) Impairment and Voting. Class 8 is impaired by the Plan.
Consequently, the holder of the Old Preferred Stock Interests shall be entitled
to vote to accept or reject the Plan.
(b) Distributions. 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.
4.9 CLASS 9 -- OLD COMMON STOCK INTERESTS.
(a) 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.
(b) 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.
4.10 CLASS 10-- EQUITY INTEREST RECISSION OR DAMAGE CLAIMS.
-----------------------------------------------------
(a) Impairment and Voting. Class 10 is impaired by the Plan.
Consequently, each holder of an Allowed Equity Interest Recission or Damage
Claim shall be entitled to vote to accept or reject the Plan.
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(b) Distributions. Subject to the releases contained in
Section 9.1 herein, each holder of an Allowed Equity Interest Recission 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 this Plan.
4.11 CLASS 11 -- SUBSIDIARY EQUITY INTERESTS.
(a) Impairment and Voting. Class 11 is unimpaired by the Plan.
Consequently, each holder of an Allowed Subsidiary Equity Interest is
conclusively presumed to have accepted the Plan and is not entitled to vote to
accept or reject the Plan.
(b) Distributions. 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.
ARTICLE 5
IMPLEMENTATION AND EFFECT OF CONFIRMATION OF PLAN
5.1 Plan Funding. 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.
5.2 Post-Effective Date Financing Facility. On or prior to the
Effective Date, the Debtors or Reorganized Debtors, as the case may be, shall
execute the Post-Effective Date Financing Facility Documents. 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 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.
5.3 Reorganized Debtors' Charters. On the Effective Date, the
Reorganized Debtors' Charters will become effective. The Reorganized Debtors'
Charters, together with the provisions of the Plan, shall, as applicable,
provide for, among other things, the authorization and issuance of the New
Parent Common Stock and the New Warrants, and such other provisions as are
necessary
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to facilitate consummation of the Plan, including a provision prohibiting the
issuance of non-voting equity securities in accordance with Section 1123(a)(6)
of the Bankruptcy Code, all without any further action by the stockholders or
directors of the Debtors, Debtors-in-Possession or the Reorganized Debtors.
5.4 Issuance of New Securities; Listing on National Securities
Exchange. The Reorganized Debtors shall authorize the issuance, in accordance
with the terms of the Plan, of approximately ________ shares of New Parent
Common Stock, the New Senior Notes and _______ 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 entitled to distributions thereof pursuant to this 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 this 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.
5.5 Management of Reorganized Debtors. On the Effective Date, the
management, control and operation of the Reorganized Debtors shall become the
general responsibility of the respective boards of directors of the Reorganized
Debtors, who shall, thereafter, have responsibility for the management, control
and operation of the Reorganized Debtors in accordance with applicable law.
5.6 Directors and Officers of Reorganized Debtors.
(a) Boards of Directors of Reorganized Debtors. 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.
(b) Officers of Reorganized Debtors. 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.
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(c) Employment Contracts. Except as otherwise provided in this
Section 5.6(c), on the Effective Date, employment 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 shall be filed with the Bankruptcy Court
prior to the hearing to consider approval of the Disclosure Statement.
5.7 Management Stock Option Plan. The Management Stock Option Plan
shall be effective immediately upon the Effective Date. The Management Stock
Option Plan shall contain the principal terms set forth on Exhibit "A" hereto.
5.8 Cancellation and Surrender of Existing Securities and
Agreements.
(a) 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 cancelled
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.
(b) 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 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.
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5.9 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.
5.10 Revesting of Assets. Except as otherwise provided by the Plan,
upon the Effective Date, 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).
5.11 General Release of Liens. Except as otherwise provided in the Plan
in connection with the New Senior Notes and the Post-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 hereby 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.
5.12 Full and Final Satisfaction. All payments and all distributions
hereunder shall be in full and final satisfaction, settlement, release and
discharge of all Claims and Equity Interests, except as otherwise provided in
the Plan.
5.13 Causes of Action.
(a) In General. As of the Effective Date, pursuant to Section
1123(b)(3)(B) of the Bankruptcy Code, any and all Causes of Action accruing to
the Debtors and Debtors-in-Possession, including, without limitation, causes of
actions under Sections 545, 549 and 551 of the Bankruptcy Code, but excluding
Causes of Action under Sections 510, 544, 547, 548, 550 and 553 of the
Bankruptcy Code, shall become assets of the Reorganized Debtors, and the
Reorganized Debtors shall have the authority to prosecute such Causes of Action
for the benefit of the Estates. The Reorganized Debtors shall have the authority
to compromise and settle, or otherwise resolve, discontinue, abandon or dismiss
all such Causes of Action without approval of the Bankruptcy Court.
(b) Avoiding Powers. 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, hereby waive and release any of the Causes of
Action under Sections 510, 544, 547, 548, 550 and 553 of the Bankruptcy Code.
5.14 Indenture Trustee Charging Liens. In full satisfaction of Allowed
Claims secured by Indenture Trustee Charging Liens, the Old Senior Note
Indenture Trustee and/or the TOPrS Trustee, as the case may be, will receive
from the Reorganized Debtors, Cash equal to the amount of such
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Claims, and upon such payment, in full, the Indenture Trustee Charging Liens
will be automatically deemed released. Distributions to be made to holders of
Allowed Claims pursuant to the Plan will not be reduced on account of payment of
Allowed Claims secured by an Indenture Trustee Charging Lien.
5.15 Termination of Subordination Rights and Settlement of Related
Claims and Controversies. 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. Pursuant to
Bankruptcy Rule 9019 and in consideration for the distributions and other
benefits provided under the Plan, the provisions of this Section 5.15 shall
constitute a good faith compromise and settlement of all claims or controversies
relating to the termination of all contractual, legal and equitable
subordination rights that a holder of a Claim or Equity Interest may have with
respect to any Allowed Claim or Allowed Equity Interest, or any distribution to
be made on account of an Allowed Claim or an Allowed Equity Interest. The entry
of the Confirmation Order shall constitute the Bankruptcy Court's approval of
the compromise or settlement of all such claims or controversies, and the
Bankruptcy Court's finding that such compromise or settlement is in the best
interests of the Debtors, Reorganized Debtors and their respective property and
holders of Claims and Equity Interests and is fair, equitable and reasonable.
5.16 Administration Pending Effective Date. Prior to the Effective
Date, the Debtors shall continue to operate their businesses as
Debtors-in-Possession, subject to all applicable requirements of the Bankruptcy
Code and the Bankruptcy Rules. After the Effective Date, the Reorganized Debtors
may operate their businesses, and may use, acquire, and dispose of property free
of any restrictions of the Bankruptcy Code or the Bankruptcy Rules, but subject
to the continuing jurisdiction of the Bankruptcy Court as set forth in Article
11 hereof.
5.17 Setoffs. Nothing contained in this Plan shall constitute a waiver
or release by the Debtors of any rights of setoff the Debtors may have against
any Person other than holders of Old Senior Notes, TOPrS Certificates, the GPH
Note, the Old Senior Note Trustee and the TOPrS Trustee.
5.18 Corporate Action. Pursuant to Section 303 of the Delaware General
Corporation Law, all terms of this Plan may be put into effect and carried out
without further action by the directors or shareholders of the Debtors or
Reorganized Debtors, who shall be deemed to have
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unanimously approved the Plan and all agreements and transactions provided for
or contemplated herein, including, without limitation: (i) the adoption of the
Reorganized Debtors' Charters, (ii) the initial selection of directors and
officers of the Reorganized Debtors, (iii) the distribution of Cash and the
issuance and distribution of New Parent Common Stock, New Senior Notes and New
Warrants pursuant to this Plan.
5.19 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 reports, until a final
decree is entered. A final decree shall be entered as soon as practicable after
distributions have commenced under this Plan.
5.20 Registration Rights. As soon as practicable following 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). Within thirty (30) days following the Effective Date, the
Reorganized Debtors (as applicable) shall file appropriate shelf registration
documents as required pursuant to the Restructuring Agreement.
5.21 Section 1145 Exemption. The Confirmation Order shall provide that
the issuance of the New Senior Notes, the New Parent Common Stock and the New
Warrants shall be exempt from registration requirements in accordance with
Section 1145 of the Bankruptcy Code.
ARTICLE 6
PROVISIONS REGARDING VOTING AND DISTRIBUTIONS
UNDER THE PLAN AND TREATMENT OF DISPUTED, CONTINGENT
AND UNLIQUIDATED CLAIMS AND EQUITY INTERESTS
6.1 Voting of Claims. Each holder of an Allowed Claim or Equity
Interest in an impaired Class which retains or receives property under the Plan
shall be entitled to vote separately to accept or reject the Plan and indicate
such vote on a duly executed and delivered Ballot as provided in such order as
is entered by the Bankruptcy Court establishing certain procedures with respect
to the solicitation and tabulation of votes to accept or reject the Plan, or any
other order or orders of the Bankruptcy Court.
6.2 Nonconsensual Confirmation. If any impaired Class entitled to vote
shall not accept the Plan by the requisite statutory 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 in accordance
with Section 12.4 of the Plan to the extent necessary to obtain entry of the
Confirmation Order.
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6.3 Method of Distributions Under the Plan.
(a) In General. 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.
(b) Distributions of Cash. 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.
(c) Timing of Distributions. 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.
(d) Fractional Cents. 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).
(e) Fractional Shares. No fractional shares of New Parent
Common Stock or New Warrants shall be distributed under the Plan. When any
distribution on account of an Allowed Claim or Equity Interest pursuant to the
Plan would otherwise result in the issuance of a number of shares of New Parent
Common Stock or New Warrants that is not a whole number, such fractional
interests shall be combined into as many whole shares or warrants, as the case
may be, as possible and shall be redistributed to holders of Claims and Equity
Interests (as applicable) with fractional interests, in descending order, until
all such whole shares or warrants are distributed.
(f) Unclaimed Distributions. 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.
(g) Distributions to Holders as of the Distribution Record
Date. 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
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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.
6.4 Objections to and Resolution of Administrative Expense Claims,
Claims and Equity Interests. 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) hereof 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 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.
6.5 Disputed Claims. (a) With respect to any Disputed Claims and Equity
Interests, for the purposes of effectuating the provisions of this Section 6.5
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.
(b) 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 this Plan.
6.6 Disputed Payments. 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.
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ARTICLE 7
EXECUTORY CONTRACTS AND UNEXPIRED LEASES; INDEMNIFICATION
CLAIMS; RETIREE BENEFITS; POST - CONFIRMATION FEES AND FINAL DECREE
7.1 Executory Contracts and Unexpired Leases. Any unexpired lease or
executory contract that has not been expressly rejected by the Debtors or
treated in this 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 this Section 7.1
by making a Cash payment in an amount agreed to between the Reorganized Debtors
and the claimant, or as otherwise fixed pursuant to a Final Order.
7.2 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 this 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.
7.3 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 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
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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) In the event that: (i) the Bankruptcy Court does not
approve any or all of the material provisions of Article 9 herein, and (ii) the
Plan is not terminated pursuant to Section 12.5 hereof, then all Indemnification
Claims shall be assumed by the Reorganized Debtors without limitation.
7.4 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 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.
7.5 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.
ARTICLE 8
SUBSTANTIVE CONSOLIDATION
8.1 Substantive Consolidation. 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. Pursuant to the Substantive Consolidation Order, 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 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.
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ARTICLE 9
PROVISIONS REGARDING RELEASES,
INJUNCTIONS, AND DISCHARGE
9.1 Releases.
(a) Release of Released Parties. 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 this
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 Recission or Damage Claims to pursue such Claims against present or
former officers and directors of the Debtors as named defendants in litigations
respecting such Recission 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 extent of such
insurance proceeds and any other proceeds made available under the
indemnification rights as provided for in Section 7.3 of the Plan.
(b) Mutual Releases by Released Parties. 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.
9.2 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
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discharge shall not apply to rights of holders of Recission or Damage Claims,
and Indemnification Claims arising from or related thereto, to pursue such
Claims against the Debtors solely to obtain a right of 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
against any other property of the Debtors or Reorganized Debtors).
9.3 Injunctions.
(a) Injunction Related to Claims Released by Released Parties
and All Other Persons. 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 hereby 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 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 Recission or Damage Claims, and Indemnification Claims or rising 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.
(b) Injunction Relating to the Plan. As of the Effective Date,
except as otherwise provided in the Plan, all Persons are hereby 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.
(c) Consent by Holders of Claims and Interests to Entry of
Injunctive Relief. 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 hereby deemed to have specifically conssented to the releases and
injunctions set forth in this Plan.
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ARTICLE 10
EFFECTIVENESS OF THE PLAN
10.1 Conditions Precedent to Effectiveness. 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 Debtors, GPH, and the Informal Committees, shall have been
effected or executed and delivered, and the New Common Stock, the New Senior
Notes and the 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.
10.2 Effect of Failure of Conditions. 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.
10.3 Waiver of Conditions. Upon 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 filed with the Bankruptcy Court,
one or more of the conditions precedent to effectiveness of the Plan set forth
in Section 10.1 above.
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ARTICLE 11
RETENTION OF JURISDICTION
11.1 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:
(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;
(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.
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ARTICLE 12
MISCELLANEOUS PROVISIONS
12.1 Effectuating Documents and Further Transactions. Each of the
Debtors or Reorganized Debtors, as the case may be, is authorized to execute,
deliver, file or record such contracts, instruments, releases, indentures and
other agreements or documents and take such actions as may be necessary or
appropriate to effectuate and further evidence the terms and conditions of the
Plan and any notes or securities issued pursuant to the Plan.
12.2 Exemption from Transfer Taxes. 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 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.
12.3 Exculpation. 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
35
<PAGE>
covenants arising pursuant to this Plan.
12.4 Amendment or Modification of the Plan. Alterations, amendments or
modifications of the Plan may be proposed in writing by the Debtors, upon the
consent of each of the Informal Committees and GPH, at any time prior to the
Confirmation Date, provided that the Plan, as altered, amended or modified,
satisfies the conditions of Sections 1122 and 1123 of the Bankruptcy Code, and
the Debtors shall have complied with Section 1125 of the Bankruptcy Code. The
Plan may be altered, amended or modified at any time before or after the
Confirmation Date and before substantial consummation, provided that the Plan,
as altered, amended or modified, satisfies the requirements of Sections 1122 and
1123 of the Bankruptcy Code and the Bankruptcy Court, after notice and a
hearing, confirms the Plan, as altered, amended or modified, under Section 1129
of the Bankruptcy Code. A holder of a Claim or Equity Interest that has accepted
the Plan shall be deemed to have accepted the Plan, as altered, amended or
modified, if the proposed alteration, amendment or modification does not
materially and adversely change the treatment of the Claim or Equity Interest of
such holder. The Debtors may, without notice to holders of Claims or Equity
Interests insofar as it does not materially and adversely affect the interests
of any such holders, correct any defect or omission in this Plan and any exhibit
hereto or in any Plan Document.
12.5 Severability. In the event that the Bankruptcy Court determines,
prior to the Confirmation Date, that any provision in the Plan is invalid, void
or unenforceable, such provision shall be invalid, void or unenforceable with
respect to the holder or holders of such Claims or Equity Interests as to which
the provision is determined to be invalid, void or unenforceable. The
invalidity, voidness or unenforceability of any such provision shall in no way
limit or affect the enforceability and operative effect of any other provision
hereof; provided, however, that each Informal Committee and GPH, in their sole,
good faith judgment, may cause the Plan to not be confirmed if such
determination of the Bankruptcy Court would result in a material adverse effect
to the interests of such Informal Committees' constituents (which shall include,
without limitation, the invocation of Section 7.3(b) of this Plan unless
consented to by each of the Informal Committees) or GPH (and/or any member of
GPH or partners of the managing member thereof as of the Petition Date in any
capacity), as the case may be.
12.6 Revocation or Withdrawal of the Plan. Subject to the terms of the
Restructuring Agreement, the Debtors reserve the right to revoke or withdraw the
Plan prior to the Confirmation Date. If the Debtors revoke or withdraw the Plan
prior to the Confirmation Date, then the Plan shall be deemed null and void. In
such event, nothing contained herein shall constitute or be deemed a waiver or
release of any Claims 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.
12.7 Binding Effect. The Plan shall be binding upon and inure to the
benefit of the Debtors, the holders of Claims and Equity Interests, and their
respective successors and assigns, including, without limitation, the
Reorganized Debtors.
36
<PAGE>
12.8 Notices. All notices, requests and demands to or upon the Debtors,
the Informal Senior Note Committee, or the Informal TOPrS Committee, to be
effective, shall be in writing and, unless otherwise expressly provided herein,
shall be deemed to have been duly given or made when actually delivered or, in
the case of notice by facsimile transmission, when received and telephonically
confirmed, addressed as follows:
If to the Debtors: If to the Informal Senior Note
Committee:
c/o Golden Books Family Entertainment, Inc.
888 Seventh Avenue c/o Stroock & Stroock & Lavan LLP
New York, New York 10106 180 Maiden Lane
tel: 212.547.6700 New York, New York 10035-4982
fax: 212.371.1091 tel: 212.806.5642
Attn: Richard E. Snyder fax: 212.806.6006
Attn: Fred S. Hodara, Esq
with a copy to:
Proskauer Rose LLP If to the Informal TOPrS Committee:
Attorneys for the Debtors
1585 Broadway c/o Cleary, Gottlieb, Steen &
New York, New York 10036-8299 Hamilton
tel: 212.969.3000 One Liberty Plaza
fax: 212.962.2900 New York, New York 10006-1470
Attn: Alan B. Hyman, Esq. tel: 212.225.3999
fax: 212.225.3999
Attn: James E. Millstein, Esq.
If to GPH:
c/o Willkie Farr & Gallagher
787 Seventh Avenue
New York, New York 10019
tel: 212.728.8000
fax: 212.728.8111
Attn: Marc Abrams, Esq.
12.9 Termination of Committees. Except as otherwise provided in this
Section 12.9, on the Effective Date, the Official Committee, the Informal Senior
Note Committee and the Informal TOPrS Committee shall cease to exist and their
respective members and employees or agents (including, without limitation,
attorneys, investment bankers, financial advisors, accountants and other
professionals) shall be released and discharged from any further authority,
duties,
37
<PAGE>
responsibilities and obligations relating to, arising from or in connection with
the Official Committee, Informal Senior Note Committee and the Informal TOPrS
Committee, as the case may be. The Official Committee, the Informal Senior Note
Committee and the Informal TOPrS Committee shall continue to exist after such
date (i) solely with respect to all the applications filed pursuant to Section
330 of the Bankruptcy Code or Claims for fees and expenses by Professionals,
(ii) any post-confirmation modifications to the Plan or Confirmation Order, and
(iii) any matters pending as of the Effective Date before the Bankruptcy Court
to which the Official Committee, the Informal Senior Note Committee and the
Informal TOPrS Committee is party, until such matters are resolved.
12.10 Governing Law. Except to the extent the Bankruptcy Code,
Bankruptcy Rules or other federal law is applicable, or to the extent the Plan,
including documents contained in the Plan Supplement, provides otherwise, the
rights and obligations arising under this Plan shall be governed by, and
construed and enforced in accordance with, the laws of the State of New York,
without giving effect to the principles of conflicts of law of such
jurisdiction.
12.11 Withholding and Reporting Requirements. In connection with the
consummation of the Plan, the Debtors or the Reorganized Debtors, as the case
may be, shall comply with all withholding and reporting requirements imposed by
any federal, state, local or foreign taxing authority and all distributions
hereunder shall be subject to any such withholding and reporting requirements.
12.12 Plan Supplement. Forms of the Plan Documents shall be contained
in the Plan Supplement. Upon its filing with the Bankruptcy Court, the Plan
Supplement may be inspected in the office of the Clerk of the Bankruptcy Court
during normal court hours. Holders of Claims or Equity Interests may obtain a
copy of the Plan Supplement upon written request to the Debtors in accordance
with Section 12.8 hereof. The Plan Supplement is incorporated into and a part of
the Plan as if set forth in full herein.
12.13 Allocation of Plan Distributions Between Principal and Interest.
To the extent that any Allowed Claim entitled to a distribution under the Plan
is comprised of indebtedness and accrued but unpaid interest thereon, such
distribution shall, for federal income tax purposes, be allocated to the
principal amount of the Claim first and then, to the extent the consideration
exceeds the principal amount of the Claim, to accrued but unpaid interest.
12.14 Headings. Headings are used in the Plan for convenience and
reference only, and shall not constitute a part of the Plan for any other
purpose.
12.15 Filing of Additional Documents. On or before substantial
consummation of the Plan, the Debtors shall file with the Bankruptcy Court such
agreements and other documents as may be necessary or appropriate to effectuate
and further evidence the terms and conditions hereof.
38
<PAGE>
12.16 Inconsistency. In the event of any inconsistency between the Plan
and the Disclosure Statement, any exhibit to the Plan or Disclosure Statement or
any other instrument or document created or executed pursuant to the Plan, the
Plan shall govern.
Dated: New York, New York
March 25, 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
39
<PAGE>
EXHIBIT "A" TO THE PLAN
Principal Terms of Management Stock Option Plan
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:
(i) 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 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).
(ii) 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
the 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).
(iii) 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 (i) or (ii) above, with the remainder to be determined
by the board of directors of Reorganized Parent.
A-1
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE 1 DEFINITIONS AND CONSTRUCTION OF TERMS....................1
1.1 "Administrative Expense Claim"...........................2
1.2 "Allowed"................................................2
1.3 "Ballot".................................................2
1.4 "Bankruptcy Code"........................................2
1.5 "Bankruptcy Court".......................................2
1.6 "Bankruptcy Rules".......................................2
1.7 "Bar Date"...............................................2
1.8 "Business Day"...........................................2
1.9 "Cash"...................................................3
1.10 "Causes of Action".......................................3
1.11 "Chapter 11 Cases".......................................3
1.12 "Claim"..................................................3
1.13 "Class"..................................................3
1.14 "Collateral".............................................3
1.15 "Confirmation Date"......................................3
1.16 "Confirmation Hearing"...................................3
1.17 "Confirmation Order".....................................3
1.18 "Contingent Claim".......................................3
1.19 "Convertible Debenture Claims"...........................4
1.20 "Convertible Debentures".................................4
1.21 "Convertible Debenture Indenture"........................4
1.22 "Debt Securities Recission or Damage Claims".............4
1.23 "Debtors"................................................4
1.24 "Debtors-in-Possession"..................................4
1.25 "DIP Financing Order"....................................4
1.26 "DIP Lender".............................................4
1.27 "DIP Loan Documents".....................................4
1.28 "Disclosure Statement"...................................4
1.29 "Disputed"...............................................5
1.30 "Distribution Agreement".................................5
1.31 "Distribution Record Date"...............................5
1.32 "Effective Date".........................................5
1.33 "Equity Interests".......................................5
1.34 "Equity Interest Recission or Damage Claims".............5
1.35 "Estates"................................................6
1.36 "Final Order"............................................6
1.37 "General Secured Claim"..................................6
1.38 "General Unsecured Claim"................................6
i
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1.39 "GPH"....................................................6
1.40 "GPH Claims".............................................6
1.41 "GPH Note Purchase Agreement"............................6
1.42 "GPH Notes"..............................................6
1.43 "Indemnification Claims".................................6
1.44 "Indenture Trustee Charging Lien"........................7
1.45 "Informal Committees"....................................7
1.46 "Informal Senior Note Committee".........................7
1.47 "Informal TOPrS Committee"...............................7
1.48 "Lien"...................................................7
1.49 "Management Stock Option Plan"...........................7
1.50 "New Parent Common Stock"................................7
1.51 "New Senior Notes".......................................7
1.52 "New Senior Note Indenture"..............................7
1.53 "New Senior Note Indenture Trustee"......................7
1.54 "New Senior Note Security Agreement".....................8
1.55 "New Warrants"...........................................8
1.56 "Official Committee".....................................8
1.57 "Old Common Stock Interests".............................8
1.58 "Old Preferred Stock Interests"..........................8
1.59 "Old Senior Notes".......................................8
1.60 "Old Senior Note Claims".................................8
1.61 "Old Senior Note Indenture"..............................8
1.62 "Old Senior Note Indenture Trustee"......................8
1.63 "Parent".................................................8
1.64 "Person".................................................9
1.65 "Petition Date"..........................................9
1.66 "Plan"...................................................9
1.67 "Plan Documents".........................................9
1.68 "Plan Supplement"........................................9
1.69 "Post-Effective Date Financing Facility".................9
1.70 "Post-Effective Date Financing Facility Documents".......9
1.71 "Priority Claims"........................................9
1.72 "Priority Tax Claim"....................................10
1.73 "Professionals".........................................10
1.74 "Pro Rata Share"........................................10
1.75 "Publishing"............................................10
1.76 "Publishing Notes"......................................10
1.77 "Recission or Damage Claims"............................10
1.78 "Registration Rights Agreement".........................10
1.79 "Released Parties"......................................10
1.80 "Reorganized Debtors"...................................10
1.81 "Reorganized Debtors' Charters".........................10
ii
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1.82 "Reorganized Parent"....................................11
1.83 "Reorganized Parent Charter"............................11
1.84 "Reorganized Publishing"................................11
1.85 "Reorganized Video".....................................11
1.86 "Restructuring Agreement"...............................11
1.87 "Retiree Benefits"......................................11
1.88 "Schedules".............................................11
1.89 "Secured Claim".........................................11
1.90 "Subsidiary"............................................11
1.91 "Subsidiary Equity Interest"............................11
1.92 "Substantive Consolidation Order".......................12
1.93 "TOPrS Certificates"....................................12
1.94 "TOPrS Claims"..........................................12
1.95 "TOPrS Trust"...........................................12
1.96 "TOPrS Trustee".........................................12
1.97 "Video".................................................12
1.98 "Warrant Agreement".....................................12
ARTICLE 2 TREATMENT OF ALLOWED ADMINISTRATIVE
EXPENSE CLAIMS AND ALLOWED PRIORITY TAX CLAIMS..........12
2.1 Non-Classification......................................12
2.2 Administrative Expense Claims...........................12
(a) In General.......................................12
(b) Professional Compensation and Expense
Reimbursement Claims.............................13
(c) Treatment of Claims of DIP Lender................13
2.3 Priority Tax Claims.....................................13
ARTICLE 3 CLASSIFICATION OF CLAIMS AND EQUITY INTERESTS...........14
ARTICLE 4 TREATMENT OF CLAIMS AND EQUITY INTERESTS................15
4.1 CLASS 1-- ALLOWED PRIORITY CLAIMS.......................15
(a) Impairment and Voting............................15
(b) Distributions....................................15
4.2 CLASS 2-- GENERAL SECURED CLAIMS........................15
(a) Impairment and Voting............................15
(b) Distributions....................................15
4.3 CLASS 3-- ALLOWED OLD SENIOR NOTE CLAIMS................15
(a) Allowance of Old Senior Note Claims..............15
(b) Impairment and Voting............................15
(c) Distributions....................................16
(d) Principal Terms of New Senior Notes..............16
(e) Cancellation of Old Senior Notes and
Related Instruments..............................17
4.4 CLASS 4-- GPH CLAIMS....................................18
iii
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(a) Allowance of GPH Claims..........................18
(b) Impairment and Voting............................18
(c) Distributions....................................18
(d) Cancellation of GPH Notes and
Related Instruments..............................18
4.5 CLASS 5-- TOPrS CLAIMS..................................19
(a) Allowance of TOPrS Claims........................19
(b) Impairment and Voting............................19
(c) Distributions....................................19
(d) Cancellation of TOPrS Certificates and
Related Instruments..............................19
4.6 CLASS 6-- GENERAL UNSECURED CLAIMS......................19
(a) Impairment and Voting............................19
(b) Distributions....................................19
4.7 CLASS 7-- DEBT SECURITIES RECISSION OR DAMAGE
CLAIMS..................................................20
(a) Impairment and Voting............................20
(b) Distributions....................................20
4.8 CLASS 8-- OLD PREFERRED STOCK INTERESTS.................20
(a) Impairment and Voting............................20
(b) Distributions....................................20
4.9 CLASS 9-- OLD COMMON STOCK INTERESTS....................20
(a) Impairment and Voting............................20
(b) Distributions....................................20
4.10 CLASS 10 -- EQUITY INTEREST RECISSION OR DAMAGE
CLAIMS..................................................20
(a) Impairment and Voting............................20
(b) Distributions....................................21
4.11 CLASS 11-- SUBSIDIARY EQUITY INTERESTS..................21
(a) Impairment and Voting............................21
(b) Distributions....................................21
ARTICLE 5 IMPLEMENTATION AND EFFECT OF CONFIRMATION OF PLAN.......21
5.1 Plan Funding............................................21
5.2 Post-Effective Date Financing Facility..................21
5.3 Reorganized Debtors' Charter............................21
5.4 Issuance of New Securities..............................22
5.5 Management of Reorganized Debtors.......................22
5.6 Directors and Officers of Reorganized Debtors...........22
(a) Boards of Directors of Reorganized Debtors.......22
(b) Officers of Reorganized Debtors..................22
(c) Employment Contracts.............................23
5.7 Management Stock Option Plan............................23
5.8 Cancellation and Surrender of Existing
Securities and Agreements...............................23
5.9 Continuation of Bankruptcy Injunction or Stays..........24
iv
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5.10 Revesting of Assets.....................................24
5.11 General Release of Liens................................24
5.12 Full and Final Satisfaction.............................24
5.13 Causes of Action........................................24
(a) In General.......................................24
(b) Avoiding Powers..................................24
5.14 Indenture Trustee Charging Liens........................24
5.15 Termination of Subordination Rights and
Settlement of Related Claims and Controversies..........25
5.16 Administration Pending Effective Date...................25
5.17 Setoffs.................................................25
5.18 Corporate Action........................................25
5.19 Post-Confirmation Fees, Final Decree....................26
5.20 Registration Rights.....................................26
5.21 Section 1145 Exemption..................................26
ARTICLE 6 PROVISIONS REGARDING VOTING AND DISTRIBUTIONS
UNDER THE PLAN AND TREATMENT OF DISPUTED, CONTINGENT
AND UNLIQUIDATED CLAIMS AND EQUITY INTERESTS............26
6.1 Voting of Claims........................................26
6.2 Nonconsensual Confirmation..............................26
6.3 Method of Distributions Under the Plan..................27
(a) In General.......................................27
(b) Distributions of Cash............................27
(c) Timing of Distributions..........................27
(d) Fractional Cents.................................27
(e) Fractional Shares................................27
(f) Unclaimed Distributions..........................27
(g) Distributions to Holders as of the
Distribution Record Date.........................27
6.4 Objections to and Resolution of Administrative
Expense Claims,Claims and Equity Interests..............28
6.5 Disputed Claims.........................................28
6.6 Disputed Payments.......................................28
ARTICLE 7 EXECUTORY CONTRACTS AND UNEXPIRED LEASES;
INDEMNIFICATION CLAIMS; RETIREE BENEFITS; POST -
CONFIRMATION FEES AND FINAL DECREE......................29
7.1 Executory Contracts and Unexpired Leases................29
7.2 Bar Date for Filing Proofs of Claims Relating
to Executory Contracts and Unexpired Leases
Rejected Pursuant to the Plan...........................29
7.3 Indemnification Claims..................................29
7.4 Compensation and Benefit Programs.......................30
7.5 Retiree Benefits........................................30
v
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ARTICLE 8 SUBSTANTIVE CONSOLIDATION...............................30
8.1 Substantive Consolidation...............................30
ARTICLE 9 PROVISIONS REGARDING RELEASES,
INJUNCTIONS, AND DISCHARGE..............................31
9.1 Releases................................................31
(a) Release of Released Parties......................31
(b) Mutual Releases by Released Parties..............31
9.2 Discharge...............................................31
9.3 Injunctions.............................................32
(a) Injunction Related to Claims Released by
Released Parties and All Other Persons...........32
(b) Injunction Relating to the Plan..................32
(c) Consent by Holders of Claims and Interests
to Entry of Injunctive Relief....................32
ARTICLE 10 EFFECTIVENESS OF THE PLAN...............................33
10.1 Conditions Precedent to Effectiveness...................33
10.2 Effect of Failure of Conditions.........................33
10.3 Waiver of Conditions....................................33
ARTICLE 11 RETENTION OF JURISDICTION...............................34
11.1 Retention of Jurisdiction...............................34
ARTICLE 12 MISCELLANEOUS PROVISIONS................................35
12.1 Effectuating Documents and Further Transactions.........35
12.2 Exemption from Transfer Taxes...........................35
12.3 Exculpation.............................................35
12.4 Amendment or Modification of the Plan...................36
12.5 Severability............................................36
12.6 Revocation or Withdrawal of the Plan....................36
12.7 Binding Effect..........................................36
12.8 Notices.................................................37
12.9 Termination of Committees...............................37
12.10 Governing Law...........................................38
12.11 Withholding and Reporting Requirements..................38
12.12 Plan Supplement.........................................38
12.13 Allocation of Plan Distributions Between
Principal and Interest..................................38
12.14 Headings................................................38
12.15 Filing of Additional Documents..........................38
12.16 Inconsistency...........................................39
vi
EXHIBIT 2.2
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)
Michael E. Foreman (MF-5802)
Scott K. Rutsky (SR-0712)
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
DISCLOSURE STATEMENT PURSUANT TO SECTION
1125 OF THE BANKRUPTCY CODE FOR THE 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: March 25, 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. ss.ss. 101 et seq. (the "Bankruptcy Code") and
Rule 3017 of the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules"), in
connection with their Joint Plan of Reorganization dated March 25, 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.
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 INFORMAL TOPrS COMMITTEE ALSO STRONGLY RECOMMEND
THAT ALL
1
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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 provision of the Plan.
Accordingly, reference should be made to the entire Disclosure
(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 the
Claims later of Claims (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)
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)____ 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,
each 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),
______ 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 ____ 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 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, 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 interest, only to the extent
to which the holder of such Claim may
be contractually entitled, accrued
through the date of payment).
7
<PAGE>
Class Type of Claim/Interest Treatment
- -------------- ------------------------- --------------------------------
7 Debt Securities Impaired. Subject to the releases con-
Rescission or Damage tained in Section 9.1 of the Plan,each
Claims 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 Warrants.
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 cont-
Rescission or Damage ained in Section 9.1 of the Plan, each
Claims 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 Date,
Interests 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.
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.
9
<PAGE>
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
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 PUBLIC FILINGS WITH THE SECURITIES AND EXCHANGE
COMMISSION WHICH ARE ATTACHED HERETO AS EXHIBITS "B" AND "C") 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.
10
<PAGE>
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 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
11
<PAGE>
THE SECURITIES AND EXCHANGE COMMISSION, NOR HAS SUCH COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN.
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.
12
<PAGE>
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) 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.
13
<PAGE>
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 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 ____ __.m., New York City Time, on _______, 1999 (the
"Voting Record Date") as the time and date 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
14
<PAGE>
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:
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.
15
<PAGE>
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.
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.
16
<PAGE>
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.
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.
17
<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 the
Parent's Old Preferred Stock Interests.2 At that time, the name of the Debtors'
parent corporation was changed from Western Publishing Company, Inc. to Golden
Books Family Entertainment, Inc.
- -------
2 GPH also purchased $10 million of GPH Notes on or about September 8,
1998. Class 4 under the Plan is made up of the holders of GPH Notes.
18
<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.3
1. Children's Publishing Division
------------------------------
Golden Books 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 by Golden Books from third parties, such as Barney and the Muppets. The
Children's Publishing Division's products 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, special markets and international channels.
- --------
3 For a detailed description of Golden Books and its operations, see
Golden Books' Annual Report on Form 10-K for the fiscal year ended
1997, a copy of which is annexed hereto as Exhibit "B." The
aforementioned financial information is provided to permit the holders
of Claims and Equity Interests to better understand Golden Books'
historical business performance.
19
<PAGE>
2. Adult Publishing Division
-------------------------
The Adult Publishing Division publishes trade books focusing primarily
on hobbies, parenting and the family. The products of the Adult Publishing
Division are distributed primarily through bookstores, although the line
includes books published in formats suitable for mass market distribution. In
February 1998, the Adult Publishing Division signed an agreement with St.
Martin's Press, Incorporated to distribute its books in the United States and
Canada.4
3. Entertainment Group Division
----------------------------
The Golden Books Entertainment Group Division (the "Entertainment
Division") was established in August 1996 upon the acquisition by Golden Books
of 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 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 As discussed later in this Disclosure Statement, Golden Books has
entered into an agreement to sell the Adult Publishing Division to St.
Martin's Press. A hearing to consider this sale is presently scheduled
for March 25, 1999.
20
<PAGE>
4. Commercial Printing Division
----------------------------
The Commercial Printing Division allows the company, as a leading
publisher, to market its 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 Filing 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.
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
21
<PAGE>
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 under the NationsCredit
Agreement. 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 under the
NationsCredit Agreement was approximately $16 million and the outstanding
balance owed to NationsCredit was approximately $10 million.5
- --------
5 On March 1, 1999 , the Debtors obtained entry of an Interim Order
authorizing them 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.
>
22
<PAGE>
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 of the Old Senior
Note Indenture. Parent provided a guaranty of Publishing's obligations under the
Old Senior Notes. Publishing also provided the Old Senior Note Indenture with
certain collateral described below. Publishing did not make the interest payment
due on September 15, 1998. As of the Filing Date, the aggregate amount owed
under the Old Senior Notes (including accrued and unpaid interest) was
approximately $160 million.
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,
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copyright licenses, trademarks and trademark licenses associated therewith, (b)
certain personal property and fixtures owned by Publishing and located at the
Debtors' distribution center in Crawfordsville, Indiana, manufacturing facility
in Racine, Wisconsin, and 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 original principal amount of $10 million to GPH. 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
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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 Filing 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 Filing Date, Parent and Publishing issued $118 million in
original principal amount of 8.75% Convertible Debentures due 2016 (the
"Convertible Debentures") to 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.
- --------
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.
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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, provided,
however, 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 right 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 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 as quarterly dividends 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,
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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 interest payment in respect of the Old
Senior Notes, but rather attempt to pursue long-term strategic financial and
capital restructuring options. Publishing's failure to make the September 15,
1998 interest payment on the Old Senior Notes 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
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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 advisor.
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, which, upon information
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and belief, hold 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 under the NationsCredit
Agreement with respect to 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
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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.
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 "D",
outlining the terms and provisions by which the Debtors, members of the Informal
Senior Note Committee and of the Informal TOPrS Committee and certain other
signatory holders of such securities,
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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 Stock Interests.
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.
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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 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).
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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 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
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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 designed to allow the Debtors
to continue business operations with minimum disruptions and dislocations, and
to ease the strain on the Debtors' relationships with their employees and other
parties. Included among the orders entered by the 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
and maintain their consolidated cash management system, existing bank accounts,
and to use 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,
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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 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 Filing 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
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
presently scheduled for March 25, 1999. Pursuant to the Interim Order, as
security for the interim borrowings under the CITBC loan facility, CITBC was
granted senior and junior liens on specified assets of the Debtors, and a
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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 Interim Order, the Debtors were
authorized to use collateral (including cash collateral) in which liens and
security interests were held by the Old Senior Note Indenture Trustee and by
GPH. Pursuant to the Interim 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, Incorporated for approximately $11 million (subject to certain
adjustments). The proposed sale is subject to higher and better offers on terms
and conditions contained in an order of the Bankruptcy Court dated March 15,
1999. A hearing to approve of the sale to St. Martin's Press, Incorporated (or
to any successful overbidder) is presently scheduled for March 25, 1999.
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IV.
OVERVIEW OF THE PLAN
A. General
The following is a summary 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 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. 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."
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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
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,
- --------
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 intent
of the Debtors, to the extent permitted by the Bankruptcy Court, to
modify the Plan to provide for whatever 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.
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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 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.
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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 TOPrS Securities Litigation Claims, Class 8
consisting of Old Preferred Stock Interests Claims, Class 9 consisting of Old
Common Stock Interests Claims, Class 10 consisting of Common Stock Securities
Litigation Claims and Class 11 consisting of Equity Interests in Subsidiaries.
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 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.
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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, the
Informal Senior Note Committee, the Old Senior Note Indenture Trustee, GPH, the
Informal TOPrS Committee, the TOPrS Trustee, 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 reasonable fees and expenses incurred on or
before the Effective Date by the members of 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 such
committees, and the reasonable fees and expenses of counsel to GPH, incurred in
connection with the Chapter 11 Cases or the Plan shall be paid by the
Reorganized Debtors as Administrative Expense Claims (without application by,
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or on behalf of, any such Person to the Bankruptcy Court, unless specifically
ordered by the Bankruptcy Court or any such Person has been retained by an
Official Committee pursuant to Sections 327 or 1103 of the Bankruptcy Code, in
which event, the provisions of the next paragraph shall apply). If the
Reorganized Debtors and any such Person cannot agree on the amount of fees and
expenses to be paid to such Person, such amount shall be determined by the
Bankruptcy Court.
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 the occurrence of the Effective Date, the
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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
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<PAGE>
to be agreed to by the Debtors and the appropriate governmental unit or, if they
are unable to agree, as determined by the Bankruptcy Court.
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.
44
<PAGE>
b. Class 2 -- General Secured Claims
---------------------------------
At the option of the Reorganized Debtors, (i) an Allowed Gen- eral
SecuredClaim 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 a $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 a $3 million secured
obligation to the Wisconsin Department of Revenue Bureau of Business Finance
which
45
<PAGE>
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 interest, only to the extent to which the
holder of such Claim may be contractually entitled, accrued through the date of
payment).
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<PAGE>
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.
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 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.
47
<PAGE>
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)______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:
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-
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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 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:
- --------
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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<PAGE>
Years From
Effective Date Redemption Price
--------------- ----------------
1 year 105.00%
2 years 103.33%
3 years 101.25%
Thereafter 100.0%
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.
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 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.
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<PAGE>
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 relating to the period up to but not including the Petition Date.
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) ______
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.
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
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<PAGE>
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 ____ 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.
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
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<PAGE>
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 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, 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 deny the allegations and have filed a motion to dismiss the
case. The plaintiffs filed an opposition to the Debtors' motion to dismiss. The
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<PAGE>
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.
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.
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<PAGE>
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 Entertainment, Inc., et al., Case
No. 98 CIV 7072 (AGS), alleging an Equity Interest Recession or Damages Claim.
55
<PAGE>
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 is included as an exhibit in
the Plan Supplement.
2. New Warrants
------------
On the Effective Date, 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 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 Effective Date at a price of $__________ per share and will have normal and
customary terms for a security of this nature.
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<PAGE>
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
----------------------------
The Management Stock Option Plan 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:
a. 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 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).
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<PAGE>
b. 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).
c. 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.
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
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<PAGE>
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 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
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<PAGE>
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 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 D.
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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 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
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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 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
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<PAGE>
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.
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.
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<PAGE>
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.
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 authorize the issuance, in accordance
with 1the terms of the Plan, of approximately ________ shares of New Parent
Common Stock, the New
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Senior Notes and _______ 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 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
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(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 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 and Settlement
of Related Claims and Controversies
------------------------------------------------------
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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Pursuant to Bankruptcy Rule 9019, and in consideration for the
distributions and other benefits provided under the Plan, the provisions of the
Plan shall constitute a good faith compromise and settlement of all claims or
controversies relating to the termination of all contractual, legal and
equitable subordination rights that a holder of a Claim or Equity Interest may
have with respect to any Allowed Claim or Allowed Equity Interest, or any
distribution to be made on account of an Allowed Claim or an Allowed Equity
Interest. The entry of the Confirmation Order shall constitute the Bankruptcy
Court's approval of the compromise or settlement of all such claims or
controversies, and the Bankruptcy Court's finding that such compromise or
settlement is in the best interests of the Debtors, Reorganized Debtors and
their respective property and holders of Claims and Equity Interests and is
fair, equitable and reasonable.
7. Additional Releases
-------------------
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
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(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 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.
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.
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
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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 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
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the Plan is deemed to have specifically consented to the releases and injunc-
tions set forth in the Plan.
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
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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 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 in accordance with the Plan to the extent necessary to
obtain entry of the Confirmation Order.
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.
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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 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 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.
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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 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.
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<PAGE>
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:
(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 Pro-
fessionals 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 proceed- ings
which have been or may be brought prior to the Effective Date to set aside liens
or encumbrances and
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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;
(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 ex-
pressly 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
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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 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.
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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 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
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thereof, then all Indemnification Claims shall be assumed by the Reorganized
Debtors without limitation.9
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 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.
- --------
9 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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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 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,
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
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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).
24. General Release of Liens
------------------------
Except as otherwise provided in the Plan in connection with the New
Senior Notes and the Post-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
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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 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; and
(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
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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 filed with the Bankruptcy Court, one or more of the
conditions precedent to effectiveness of the Plan as set forth above.
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.
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Post-Confirmation
Name Title Base Salary
---- ----- -----------------
Richard E. Snyder Chairman of the Board and $750,000
Chief Executive Officer
Philip Galanes Executive Vice President, $350,000
Chief Administrative Officer,
General Counsel and
Secretary
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
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or prior to the commencement date of the Confirmation Hearing, or such later
date as the Bankruptcy Court may establish.
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
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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.
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 Interest 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 in writing, must conform with the Bankruptcy Rules and the
Local Rules of the Bankruptcy Court, must set forth the name of the objectant,
the nature and amount of Claims or Equity Interests held or asserted by the
objectant against the Debtors' Estates or property, and the basis for the
objection and the specific grounds in support thereof. Such objection must be
filed with the Bankruptcy Court, with a copy forwarded directly to the Chambers
of the Honorable Tina L. Brozman, together with proof of service thereof, and
served upon (a) counsel to the Debtors, Proskauer Rose LLP, 1585 Broadway, New
York, New York 10036, Attn: Alan B. Hyman, Esq.; Scott K.
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Rutsky, Esq., (b) counsel to the Informal Senior Note Committee, Stroock &
Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038-4982, Attn: Fred
S. Hodara, Esq., (c) counsel to the Informal TOPrS Committee, Cleary, Gottlieb,
Steen & Hamilton, One Liberty Plaza, New York, New York 10006-1470, Attn: James
E. Millstein, Esq., and (d) counsel to GPH, Willkie Farr & Gallagher, 787
Seventh Avenue, New York, New York 10019, Attn: Marc Abrams, Esq., so as to be
received no later than the date and time designated in the notice of the
Confirmation Hearing.
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 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;
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(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
Reorganization Cases, has been disclosed to the Bankruptcy Court, and any such
payment made before Confirmation 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 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
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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 E is a liquidation analysis prepared by
the Debtors. 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, TOPrS Claims, GPH Claims,
General Unsecured Claims and Equity Interests would receive less than they will
receive under the Plan;
(g) Each Class of Claims or Equity Interests has either ac-
cepted 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) willbe 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;
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(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 F are projections for approximately ____ years following confirmation
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, 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.
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 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.
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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, (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.
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VI.
VALUATION
[to be filed with the Bankruptcy Court prior to the hearing to consider approval
of the Disclosure Statement]
VII.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
[to be filed with the Bankruptcy Court prior to the hearing to consider approval
of the Disclosure Statement]
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 its 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 its significant customers
and licensors have been contentious from time to time because of disputes, in
the case of its 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. Impairments or
difficulties 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 F 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.
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.
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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 the 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."
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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
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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.
Date: New York, New York
March 25, 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
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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..................................12
1. Who May Vote...................................................14
2. Voting Instructions............................................14
3. Acceptance or Rejection of the Plan............................16
4. Confirmation Hearing...........................................17
5. Objections.....................................................17
II. BACKGROUND AND EVENTS PRECIPITATING
CHAPTER 11 FILING AND SOLICITATION......................................18
A. Overview of the Debtors and their Business Operations...............18
1. Children's Publishing Division.................................19
2. Adult Publishing Division......................................20
3. Entertainment Group Division...................................20
4. Commercial Printing Division...................................21
B. Pre-Petition Debt Structure of the Debtors..........................21
1. Pre-Petition Working Capital Facility..........................21
2. The Old Senior Notes...........................................23
3. GPH Claims.....................................................24
4. TOPrS Certificates.............................................25
C. Pre-Petition Capital Structure......................................26
D. Events Precipitating Chapter 11 Filing..............................27
E. Pre-Petition Asset Disposition and Expense Reduction Efforts........33
III. SIGNIFICANT POST-PETITION EVENTS.....................................33
A. Commencement Of Chapter 11 Cases................................33
B. First Day Orders................................................34
C. Professional Retentions.........................................34
D. Post-Petition Financing.........................................35
E. Sale of Assets of the Adult Publishing Division.................36
IV. OVERVIEW OF THE PLAN.................................................37
A. General.........................................................37
B. Classification of Claims and Equity Interests...................38
C. Treatment of Claims and Equity Interests Under the Plan.........40
1. Unclassified Categories of Claims.........................41
a. Category 1 -- Administrative Expense Claims...............41
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b. Category 2-- Priority Tax Claims..........................43
2. Unimpaired Classes of Claims...................................44
a. Class 1-- Priority Claims..............................44
b. Class 2-- General Secured Claims.......................45
c. Class 6-- General Unsecured Claims.....................46
d. Class 11-- Subsidiary Equity Interests.................47
3. Impaired Classes.......................................47
a. Class 3--Old Senior Note Claims........................47
b. Class 4--GPH Claims....................................51
c. Class 5--TOPrS Claims..................................52
d. Class 7--Debt Securities Rescission or Damage Claims...53
e. Class 8--Old Preferred Stock Interests.................54
f. Class 9--Old Common Stock Interests....................54
g. Class 10--Equity Interest Rescission or Damage Claims..55
D. Description of Transactions to Be Implemented in Connection
with the Plan...............................................56
1. New Senior Notes...................................56
2. New Warrants.......................................56
3. Reorganized Debtors' Charters......................57
4. Management Stock Option Plan.......................57
a. Richard E. Snyder (Chief Executive Officer)........57
b. Richard K. Collins (Chief Operating Officer),
Philip Galanes (Chief Administrative Officer) and
Colin Finkelstein (Chief Financial Officer)........58
c. Other Grants.......................................58
5. Cancellation and Surrender of Existing Securities
and Agreements.....................................58
6. Employment Contracts...............................60
7. Registration Rights Agreements.....................61
8. Substantive Consolidation..........................61
E. Funding for the Plan........................................63
F. Description of Other Provisions of the Plan.................63
1. Disputed Claims....................................63
2. Disputed Payments..................................64
3. Unclaimed Property.................................64
4. Issuance of New Securities.........................64
5. Discharge..........................................65
6. Termination of Subordination Rights and Settlement
of Related Claims and Controversies................66
7. Additional Releases................................67
8. Injunctions........................................68
9. Exculpation........................................70
10. Section 1146 Exemption.............................70
11. Full and Final Satisfaction........................71
12. Cram-Down..........................................72
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13. Disbursement of Funds and Delivery of
Distribution.......................................72
14. Avoidance and Recovery Actions.....................74
15. Retention of Jurisdiction..........................75
16. Executory Contracts and Unexpired Leases...........76
17. Bar Date for Filing Proofs of Claims Relating to
Executory Contracts and Unexpired Leases Rejected
Pursuant to the Plan...............................77
18. Indemnification Claims.............................78
19. Compensation and Benefit Programs..................79
20. Retiree Benefits...................................80
21. Post-Confirmation Fees, Final Decree...............80
22. Continuation of Bankruptcy Injunction or Stays.....80
23. Revesting of Assets................................80
24. General Release of Liens...........................81
25. Conditions to Effective Date of the Plan...........81
G. Post-Confirmation Officers and Directors....................83
V. ACCEPTANCE AND CONFIRMATION OF THE PLAN..............................85
A. Acceptance of the Plan......................................85
B. Confirmation................................................86
1. Confirmation Hearing...............................86
2. Statutory Requirements for Confirmation of
the Plan...........................................87
3. Confirmation Without Acceptance by All Impaired
Classes............................................90
VI. VALUATION............................................................92
VII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN..................92
VIII. RISK FACTORS.........................................................92
A. Leverage....................................................93
B. Dependence on Key Personnel.................................93
C. Dependence On and Relationships with Key Customers
and Licensors...............................................94
D. Competitive Conditions......................................94
E. Risks Relating to Intellectual Properties...................95
F. Projected Financial Information.............................96
G. Lack of Market for Securities Issued Pursuant to Plan.......97
H. Certain Bankruptcy Related Considerations...................97
1. Risk of Non-Confirmation of the Plan...............97
2. Nonconsensual Confirmation.........................98
I. Dividends...................................................98
IX. EXEMPTIONS FROM SECURITIES ACT
REGISTRATION; REGISTRATION RIGHTS....................................99
A. Issuance of New Securities Pursuant to the Plan.............99
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B. Subsequent Transfer of Securities Issued Under the Plan....100
C. Registration Rights........................................101
X. ALTERNATIVES TO THE PLAN AND CONSEQUENCES OF REJECTION..............103
A. Alternative Plans..........................................103
B. Chapter 7 Liquidation......................................103
XI. RECOMMENDATION AND CONCLUSION.......................................104
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EXHIBITS
A - Plan of Reorganization
B - Form 10-K dated December 27, 1997
C - Form 10-Q dated September 26, 1998
D - Restructuring Agreement
E - Liquidation Analysis
F - Pro Forma balance sheet and financial projections
v
<PAGE>
EXHIBITS
[Exhibit A to the Disclosure Statement (the Plan) has been filed
separately with the Bankruptcy Court. All other exhibits will be filed with the
Bankruptcy Court prior to the hearing to approve the Disclosure Statement.]
vi
EXHIBIT 10.21
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT by and between Golden Books Family Entertainment, Inc.
(the "Company"), and Philip Galanes (the "Executive"), effective as of May 7,
1998 (the "Effective Date").
1. Employment Term. The Company hereby agrees to employ
the Executive, and the Executive hereby agrees to enter the employ of the
Company, commencing on the Effective Date and continuing through and including
May 6, 2002, unless terminated earlier in accordance with Section 4 below.
2. Title, Reporting and Duties.
(a) Commencing on the Effective Date and for the remainder
of the Employment Term, the Executive shall serve as the Company's General
Counsel and Senior Vice President of Legal Affairs, with such duties,
responsibilities and authority in such capacities as shall be consistent
therewith. The Executive shall be based in New York City.
(b) In the Executive's capacity as General Counsel and
Senior Vice President of Legal Affairs, he shall report to the Company's
Chairman and Chief Executive Officer.
(c) During the Employment Term, and excluding any periods of
vacation, holiday and sick leave to which the Executive is entitled, the
Executive agrees to devote full time during normal business hours to the
business and affairs of the Company and to use the Executive's best efforts to
perform faithfully and efficiently such responsibilities.
3. Compensation and Benefits.
(a) Base Salary. During the Employment Term, the Executive
shall receive an annual base salary ("Annual Base Salary") of $350,000 for the
first year of the term, $375,000 for the second year of the term, $400,000 for
the third and fourth years of the term, provided that the Company agrees to
consider in good faith an increase of the Annual Base Salary in the fourth year
of the term. The Annual Base Salary will be reviewed by the Company's
Compensation Committee at the end of each year of the term and may be increased
at the discretion of the Compensation Committee. The Annual Base Salary shall be
paid in equal biweekly installments.
(b) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year during the Employment Term, an
annual bonus (the "Annual Bonus") pursuant to the Company's annual incentive
plans (the "Annual Plans"). The Executive shall have a target annual bonus of
100% of his Annual Base Salary (the "Target
<PAGE>
Bonus") and a maximum level Annual Bonus of 200% of his Annual Base Salary,
subject in each case to attainment of the performance goals set forth in the
Annual Plans. Bonuses shall be paid no later than the end of the third month of
the fiscal year next following the fiscal year for which the Annual Bonus is
awarded, unless the Executive shall elect to defer the receipt of such Annual
Bonus. Notwithstanding the above, it is the intent of the parties hereto that
the Annual Plans meet all applicable requirements for the exemption of the
payments thereunder from the limitations of Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code") including the requirement that the
Annual Plans be approved by the shareholders of the Company prior to the payment
of any bonuses thereunder. The Board may award the Executive bonuses other than
pursuant to the Annual Plans in its discretion.
(c) Stock Options. The Executive will be granted, as of the
Effective date hereof, a stock option (the "Option") to purchase 200,000 shares
of the Company's common stock ("Stock"). Executive acknowledges that certain
action will need to be taken by the Board of Directors and the Compensation
Committee to effectuate such Option grant. The exercise price with respect to
each share of Stock subject to the Option will be the last transaction price of
the Stock on the NASDAQ market on the Effective Date. The Option will become
exercisable as to one-quarter of the shares of Stock subject thereto on the
first anniversary of the date of grant, as to an additional one-quarter of such
shares on the second anniversary of the date of grant, as to an additional
one-quarter of such shares on the third anniversary of the date of grant and as
to an additional one-quarter of such shares on the fourth anniversary of the
date of grant. The Option will have a term of seven years (the "Option Term").
Upon the termination of Executive's employment:
(1) by reason of death, the Executive's estate may exercise
the Option (to the extent exercisable at the time of death) until the earliest
of one year following the Executive's death or the end of the Option Term,
following which time the Option shall terminate and be no longer exercisable;
(2) by reason of Disability (as such term is defined in
Section 4 below), the Option shall become fully and immediately exercisable and
the Executive (or, following his death, his estate) may exercise the Option
until the earlier of one year following the Date of Termination (as such term is
defined in Section 4 below) or the end of the Option Term, following which time
the Option shall terminate and be no longer exercisable;
(3) by the Company for "cause" other than for Disability (as
each term is defined in Section 4 below), the Option shall terminate and no
longer be exercisable on the date the Executive is advised by the Board that he
is being terminated for cause;
(4) by the Executive without "Good Reason" (as such term is
defined in Section 4 below), the Option, to the extent exercisable on the Date
of Termination, shall remain exercisable by the Executive (or, following his
death, his estate) until the earlier of 90 days following such date or the end
of the Option Term, following which time the Option shall terminate and be no
longer exercisable; or
2
<PAGE>
(5) by the Company without Cause or by the Executive with
Good Reason, the entire Option shall become fully and immediately exercisable
and the Executive may exercise the Option until the earliest of one year
following the Executive's termination or the end of the Option Term, following
which time the Option shall terminate and be no longer exercisable.
The Executive shall be entitled to participate in other
Company stock option grants or other equity plans or programs, if any, in which
senior executives of the Company are eligible to participate generally
commensurate with his position as may be determined by the Compensation
Committee.
The Executive will be entitled to pay the exercise price of
the Option with shares of Stock previously acquired by the Executive and may
elect to have any withholding taxes required to be withheld as a result of the
exercise of the Option taken out of Stock issuable to the Executive as a result
of such exercise.
Other than as stated above, the Option will be governed by
the terms and conditions of the Company's Stock Option Plan and the standard
Stock Option Agreement thereunder to be executed by the Executive and the
Company.
(d) Incentive, Savings and Retirement Plans. During the
Employment Term, the Executive shall be eligible to participate in all
incentive, savings and retirement plans, practices, policies and programs, if
any, that are applicable generally to other senior executives of the Company and
its affiliated companies. The Company intends to establish incentive, savings
and retirement plans that are comparable in level of benefits to such plans as
generally exist in the Company's industry.
(e) Welfare Benefit Plans. During the Employment Term, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee term life, group life, accidental death
and travel accident insurance plans and programs, if any) that are applicable
generally to other senior executives of the Company and its affiliated
companies. It is acknowledged that the Executive's level of participation in
these plans shall be consistent with an executive of his stature in the
Company's industry.
(f) Expenses. During the Employment Term, the Company shall
pay or promptly reimburse the Executive for all reasonable business and
professional expenses upon presentation of receipts therefor in accordance with
the normal practices of the Company. It is acknowledged that the Executive will
incur expenses consistent with an executive of his stature in the Company's
industry and in connection with his membership and participation in bar
associations and other professional organizations.
3
<PAGE>
(g) Fringe Benefits. During the Employment Term, the
Executive shall be entitled to fringe benefits appropriate to an executive of
Executive's stature in the Company's industry. Additionally, the Company shall
pay the Executive's reasonable legal fees for preparation and review of this
Employment Agreement, and shall reimburse the Executive, up to $7,500.00 per
year, for personal tax and financial planning services.
(h) Vacation and Holidays. During the Employment Term, the
Executive shall be entitled to four weeks of paid vacation per year and all
other paid holidays given to employees of the Company.
4. Termination of Employment.
(a) Cause. The Company may terminate the Executive's
employment during the Employment Period for Cause. For purposes of this
Agreement, "Cause" shall mean: (i) the conviction of, or pleading guilty to, a
felony or crime involving moral turpitude, (ii) the Executive's suspension or
disqualification from the practice of law in the State of New York, or (iii) the
willful failure of the Executive to perform, in any material respect, his
obligations under this Agreement after a written demand for such performance is
delivered to the Executive by the Board, which specifically identifies the
manner in which the Board or Chief Executive Officer believes that the Executive
has not performed the Executive's duties; or (iv) a disability that prohibits
the Executive from substantially meeting his responsibilities as a senior
executive of the Company on a full-time basis for 90 out of 120 consecutive
business days ("Disability").
For purposes of this provision, no act or failure to act, on
the part of the Executive shall be considered "willful" unless it is done, or
omitted to be done, by the Executive in bad faith or without reasonable belief
that the Executive's action or omission was in the best interests of the
Company. Any act, or failure to act, by the Executive based upon authority given
to the Executive pursuant to a resolution duly adopted by the Board or based
upon the advice of regular outside counsel for the Company shall be conclusively
presumed to be done, or omitted to be done, by the Executive in good faith and
in the best interests of the Company. Termination of the Executive's employment
for Cause shall be effective upon receipt of notice pursuant to Section 4(d).
For purposes of this provision, termination of the Executive's employment on
account of the Disability of the Executive shall be by written notice to the
Executive, effective 30 days after receipt thereof by the Executive, provided
that, within 30 days after such receipt, the Executive shall not have returned
to full-time performance of the Executive's duties.
(b) Good Reason. The Executive's employment may be terminat-
ed by the Executive for Good Reason. For purposes of this Agreement, "Good
Reason" shall mean in each case, without the Executive's prior written consent:
(i) the assignment to the Executive of any duties
materially inconsistent with the Executive's position
(including status, offices, titles and reporting
requirements), authority, duties or responsibilities as
contemplated by Section 2 of this Agreement, or any other
action by the
4
<PAGE>
Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this
purpose any action not taken in bad faith and which is
remedied by the Company within twenty (20) days after receipt
of notice thereof given by the Executive;
(ii) any failure by the Company, in any material
respect, to comply with any of the compensation and benefits
provisions of Section 3 of this Agreement, other than failure
not occurring in bad faith and which is remedied by the
Company within twenty (20) days after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be based
at any office or location outside New York City;
(iv) any failure by the Company to comply with and
satisfy any covenant or agreement contained in this
Agreement, excluding for this purpose any failure or omission
not occur-ring in bad faith or any action not taken in bad
faith and which is remedied by the Company within twenty (20)
days after receipt of notice thereof given by the Executive;
or
(v) the occurrence of a "Change of Control", which
shall be deemed to have occurred if (1) any "person" (as such
term is used in Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), other
than the Company, an employee benefit plan of the Company, or
any of the Company's direct or indirect affiliates
(hereinafter, a "Third Party"), is or becomes the "beneficial
owner" (as defined in Rule 13d-3 promulgated under the
Exchange Act), directly or indirectly, of the securities of
the Company representing 33% or more (on a fully-diluted
basis) of the combined voting power of the then outstanding
voting securities of the Company entitled to vote generally
in the election of directors of the Company or (ii) all or
substantially all of the assets of the Company are acquired
by a Third Party. All references in this Agreement to "Good
Reason" shall be deemed to include a reference to termination
upon a Change of Control.
(c) Death. The Executive's employment shall terminate
automatically upon the Executive's death during the Employment Period.
(d) Notice of Termination. Any termination by the Company
for Cause, or by the Executive for Good Reason, shall be communicated by Notice
of Termination to the other party hereto given in accordance with Section 13 (b)
of this Agreement. For purposes of this Agreement, a "Notice of Termination"
means a written notice which (i) indicates the specific termination provision in
this Agreement relied upon, (ii) to the extent applicable, sets forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination
5
<PAGE>
of the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than thirty
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right of
the Executive or the Company, respectively, hereunder or preclude the Executive
or the Company, respectively, from asserting such fact or circumstance in
enforcing the Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i) if
the Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be (although such Date of
Termination shall retroactively cease to apply if the circumstances providing
the basis of termination for Cause or Good Reason are cured in accordance with
Section 4(a) or 4(b) of this Agreement, respectively), (ii) If the Executive's
employment is terminated by the Company other than for Cause, the Date of
Termination shall be the date on which the Company notifies the Executive of
such termination and (iii) if the Executive's employment is terminated by reason
of death, the Date of Termination shall be the date of death of the Executive.
5. Obligations of the Company Upon Termination. (a) Good Reason;
Other Than for Cause. If, during the Employment Term, the Company shall
terminate the Executive's employment other than for Cause or the Executive shall
terminate employment for Good Reason:
(i) the Company shall pay to the Executive the
aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to the extent not
theretofore paid, and (2) any compensation previously
deferred by the Executive (together with any accrued
interest or earnings thereon) and any accrued vacation
pay, and (3) any Annual Bonus for the fiscal year of the
Company terminating prior to the Date of Termination, in
each case to the extent not theretofore paid (the sum of
the amounts described in clauses (1), (2) and (3) shall
be hereinafter referred to as the "Accrued
Obligations"). All Accrued Obligations shall be paid in
a lump sum in cash within 30 days of the Date of
Termination; and
B. an amount equal to (i) two times the Annual
Base Salary payable to the Executive under this
Agreement, at the annual rate in effect as of the
Termination Date as provided in Section 3(a), plus (ii)
two times the Target Bonus which would have been paid or
payable to Executive (assuming such Target
6
<PAGE>
Bonus had been earned), under Section 3(b) based upon
the Annual Base Salary which would have been in effect
as of the Termination Date, in each case to be paid in a
lump sum within 30 days after the Date of Termination.
The Executive shall have no duty or obligation to
mitigate the amounts or obligations provided in this
Section 5(a)(i), even in the event the Executive becomes
reemployed by another employer.
(ii) all stock options, restricted stock and other
stock-based compensation shall become exercisable or vested
in the manner provided for Options in Section 3(c)(5) herein;
(iii) for two years after the Executive's Date of
Termination, the Company shall continue benefits to the
Executive and/or the Executive's family at least equal to
those which would have been provided to them in accordance
with the plans, programs, practices and policies described in
Section 3(e) of this Agreement if the Executive's employment
had not been terminated, provided, however, that if the
Executive becomes reemployed with another employer and is
eligible to receive medical or other welfare benefits under
another employer provided plan, the corresponding medical and
other welfare benefits described herein shall be terminated.
Those welfare benefits not offered by the new employer shall
continue until termination of the above-described two-year
period. For purposes of determining eligibility (but not the
time of commencement of benefits) of the Executive for
retiree benefits pursuant to such plans, practices, programs
and policies, the Executive shall be considered to have
remained employed until the later of two years after the Date
of Termination or the end of the Employment Term and to have
retired on the last day of such period;
(iv) to the extent not theretofore paid or provided,
the Company shall timely pay or provide to the Executive any
other amounts or benefits required to be paid or provided to
the Executive or which the Executive is entitled to receive
under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies, to the
extent payment of any such amounts or benefits are not
already provided for under this Agreement (such other amounts
and benefits shall be hereinafter referred to as the "Other
Benefits").
The Executive shall have the right to approve, such approval
not to be unreasonably withheld by the Company, any written announcement, if
any, of the termination of the Executive's employment with the Company.
7
<PAGE>
(b) Death. If the Executive's employment is terminated by
reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations, the right to exercise the Executive's Stock Option under Section
3(c)(1) herein, and the timely payment or provision of Other Benefits. Accrued
Obligations shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination.
(c) Cause; Other Than for Good Reason. If, during the
Employment Term, the Executive's employment shall be terminated by the Company
for Cause or by the Executive without Good Reason, this Agreement shall
terminate without further obligations to the Executive other than the payment of
Accrued Obligations, and the payment or provision of Other Benefits. All Accrued
Obligations shall be paid to the Executive in a lump sum in cash within 30 days
of the Date of Termination. Upon a termination of the Executive's employment for
Cause by the Company or by the Executive without Good Reason, the Executive
shall forfeit all stock options that are not vested on the Date of Termination.
If the Executive's employment is terminated for Cause, nothing in this Agreement
shall prevent the Company from pursuing any other available remedies against the
Executive.
6. Non-Exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future participation in any
plan, program, policy or practice provided by the Company or any of its
affiliated companies and for which the Executive may qualify nor shall anything
herein limit or otherwise affect such rights as the Executive may have under any
contract or agreement with the Company or any of its affiliated companies.
Amounts which are vested benefits or which the Executive is otherwise entitled
to receive under any plan, policy, practice or program of or any contract or
agreement with the Company or any of its affiliated companies at or subsequent
to the Date of Termination shall be payable in accordance with such plan,
policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
7. Full Settlement; Legal Fees. The Company's obligation to
make the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the Company may have
against the Executive or others.
8. Certain Reductions. (a) Anything in this Agreement to
the contrary notwithstanding, in the event it shall be determined that any
payment or distribution by the Company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to this
Agreement or otherwise, a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code (the "Excise Tax"), then the payments pursuant to
this Agreement shall be reduced to the extent that such reduction would result
in after-tax payments and benefits to the Executive that exceed the after-tax
payments and benefits to which the Executive would be entitled without such
reduction. In the event of any such reduction, the Executive shall be entitled
to designate the specific payments or benefits reduced.
8
<PAGE>
(b) All determinations required to be made under this
Section 8 shall be made by such certified public accounting firm as may be
designated by the Executive. Such accounting firm shall provide detailed
supporting calculations to either party hereto upon request therefore. All fees
and expenses of such accounting firm shall be borne solely by the Company. Any
determination by such accounting firm shall be binding upon the Company and the
Executive, and such parties agree not to take any position (in any tax return or
otherwise) inconsistent with such determination.
(c) As a result of potential uncertainty in the application
of Section 4999 of the Code, it is possible that a payment will be made to
Executive which should not have been made. In the event of determination by the
IRS or a court that the Excise Tax applies to any Payment which is not
appealable or which the Executive chooses not to appeal, the Executive shall
return to the Company all or any portion of the payments or benefits provided
pursuant to this Agreement (without interest) that the Executive determines
would result in the Excise Tax ceasing to apply to any Payment.
9. Confidential Information; Non-Solicitation.
(a) The Executive shall hold in a fiduciary capacity for the
benefit of the Company all secret or confidential information, knowledge or data
relating to the Company or any of its affiliated companies, and their respective
businesses, which shall have been obtained by the Executive during the
Executive's employment by the Company or any of its affiliated companies and
which shall not be or become public knowledge (other than by acts by the
Executive or representatives of the Executive in violation of this Agreement).
After termination of the Executive's employment with the Company, the Executive
shall not, without the prior written consent of the Company or as may otherwise
be required by law or legal process, communicate or divulge any such
information, knowledge or data to anyone other than the Company and those
designated by it. In no event shall an asserted violation of the provisions of
this Section 9 constitute a basis for deferring or withholding any amounts
otherwise payable to the Executive under this Agreement.
(b) For a period of one year following the termination of
the Executive's employment for any reason, the Executive shall not, directly or
indirectly, employ or seek to employ any person who is at the Date of
Termination, or was at any time within the six month period preceding the Date
of Termination, an employee of the Company or any of its subsidiaries or
affiliates or otherwise cause or induce any employee of the Company or any of
its subsidiaries or affiliates to terminate such employee's employment with the
Company or such subsidiary or affiliate for the employment of another company
(included for this purpose the contracting with any person who was an
independent contractor of the Company during such period), without the prior
written consent of the Company's Board of Directors.
10. Employment Renewal. At least six months prior to
expiration of the Employment Term, the Company and the Executive shall enter
into good-faith negotiations for a new employment agreement. If the Company
fails to offer the Executive a new agreement
9
<PAGE>
with terms no less favorable to Executive than those in effect at the scheduled
termination of this Agreement (i.e., May 6, 2002), or if such offer is
subsequently revoked, the Executive shall be entitled to the benefits described
in Section 5(a) hereof.
11. Indemnification; Directors and Officers Insurance.
During the Employment Period and thereafter, the Company shall indemnify
Executive and hold Executive harmless from and against any claim, loss or cause
of action arising from or out of Executive's performance as an officer, director
or employee of the Company, or any of its respective subsidiaries or in any
other capacity, including any fiduciary capacity, in which Executive serves at
the request of the Company to the maximum extent permitted by applicable law.
The Company agrees to provide Executive with coverage under a directors and
officers liability insurance policy providing coverage at least equal to the
coverage provided by the Company to its other directors and officers.
12. Successors.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
executors, successors and legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly in writing and agree to perform this Agreement in the same manner and
to the same extent that the Company would be required to perform it if no such
succession had taken place. Failure to do so shall constitute Good Reason for
the Executive to terminate his employment. As used in this Agreement, "Company"
shall mean the Company as hereinbefore defined and any successor to its business
and/or assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
13. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
10
<PAGE>
(b) All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive:
Mr. Philip Galanes
26 East 10th Street
#5-F
New York, New York 10003
If to the Company:
Golden Books Family Entertainment, Inc.
888 Seventh Avenue
New York, NY 10106
Attention: Senior Vice President, Human Resources
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon
strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 4 (b) of this
Agreement, shall not be deemed to be a waiver of such provision or right or any
other provision or right of this Agreement.
(f) This Agreement supersedes and replaces in its entirety
the Employment Agreement, dated as of October 9, 1996, between the Executive and
the Company; provided that the stock option grant to Executive set forth in
Paragraph 3(c) of such Employment Agreement shall survive.
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IN WITNESS WHEREOF, the Executive has hereunto set the
Executive's hand and, pursuant to the authorization from its Board of Directors,
the Company has caused these presents to be executed in its name on its behalf,
all as of the day and year first above written.
PHILIP GALANES
/s/
---------------------------------------------------
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
By: /s/
---------------------------------------------------
Name: Michael Bruno
Title: SVP, Human Resources
12
EXHIBIT 10.23
REAL ESTATE PURCHASE AGREEMENT
THIS REAL ESTATE PURCHASE AGREEMENT ("Agreement") is made to be effective
as of the Effective Date (as hereinafter defined), between Golden Books
Publishing Company, Inc. (hereinafter the "Seller"), with a notice address c/o
Squire, Sanders & Dempsey, L.L.P., 350 Park Ave., New York, NY 10022, fax no.
212-872-9815, ATTN: Arnold S. Lehman, Esq., and ABLAH ENTERPRISES, INC.
(hereinafter the "Buyer"), with a notice address of 3101 North Rock Road, Suite
125, Wichita, Kansas 67226, fax no. 316-636-2380, ATTN: George J. Ablah.
W I T N E S S E T H:
1. Sale of the Real Property. Subject to the other provisions of this
Agreement, Seller agrees to sell and Buyer agrees to purchase, on the terms
hereafter stated, certain real property located near Fayetteville, North
Carolina ("Real Property"), which Real Property is described on Exhibit "A"
hereto, together with (a) all buildings thereon and all related improvements and
all equipment and fixtures appurtenant thereto, (b) any current service and
supply contracts, if any, pertaining to the Real Property; (c) any unexpired
warranties and guaranties relating to the Real Property and improvements and
fixtures thereon, if any; and (d) the Lease (as defined in Section 3.E.
below)related to the Property (with the items referenced in sub-paragraphs (a),
(b), (c), and (d) hereafter collectively the "Property". The date the Seller
delivers a fully-executed counterpart of this Agreement to the Title Company is
referred to herein as the "Effective Date".
2. Purchase Price. The purchase price ("Purchase Price") shall be
$7,250,000.00. Buyer shall deposit $50,000 (the "Earnest Money Deposit") as
earnest money with a mutually agreed upon title company (the "Title Company"),
within three (3) business days following the Effective Date, to be applied
against the Purchase Price payable on the Closing Date, or otherwise to be dealt
with as provided herein. The Earnest Money Deposit shall be increased as
provided in paragraph 7 below.
3. Title; Survey; Environmental Information; Lease, Etc.
A. Within twenty (20) days following the Effective Date, Buyer
will endeavor to obtain a preliminary binder for issuance of an owner's
title insurance policy ("Title Report") issued by the Chicago Title
Insurance Company through its agent, The Security Abstract Title
Company, Inc., 434 North Main Street, Wichita, Kansas 67202, phone no.
(316) 267-8371, facsimile no. (316) 267-8115 (the "Title Company"),
showing Buyer as the prospective named insured, showing the policy
amount as the Purchase Price, showing the status of Seller's title to
the Property, and containing legible copies of all documents referred
to in the Title Report. Within the same time, Buyer shall obtain
reports of searches made of the Uniform Commercial Code Records of the
county in which the Real Property is located and those maintained in
the Office of the Secretary of State of North Carolina (the "U.C.C.
Searches").
On the Closing Date (as defined in paragraph 4.A. below),
Seller will cause to be issued to Buyer a policy of owner's title
insurance in an amount equal to the Purchase Price, insuring fee simple
title to the Property in Buyer, subject only to those title exceptions
<PAGE>
contained in the Title Report (as corrected pursuant to the mutual
agreements of Seller and Buyer) and U.C.C. Searches.
B. Within twenty (20) days following the Effective Date, Buyer
will endeavor to obtain a survey of the Real Property, prepared and
certified by a licensed surveyor, which survey shall be certified
subsequent to the Effective Date and shall be in conformity with ALTA
As-Built Survey of Property requirements in accordance with ALTA/ACSM
Land Title Surveys.
C. Within ten (10) days following the Effective Date, Seller
shall provide Buyer copies of all plans, specifications, structural
reports, floor and roof reports, reports of any inspections of the
mechanical and electrical systems of the buildings located on the Real
Property, environmental reports and audits in the possession or under
the control of Seller concerning the Property, along with all
communications to and from environmental agencies or authorities.
D. Within ten (10) days following the Effective Date, Seller
shall provide Buyer an accurate copy of any management, service and
supply contracts to which Seller is a party concerning the Property.
E. Within twenty (20) days following the Effective Date,
Seller shall provide Buyer with a complete and accurate copy of the
only lease ("Lease") encumbering the Property, and an estoppel
certificate, in form and substance satisfactory to Buyer, from each
tenant thereunder which: (1) ratifies such lease; (2) expresses the
commencement and termination dates thereof; (3) certifies that the
lease is in full force and effect and has not been assigned, modified,
supplemented or amended (except by such written documents as shall be
stated); (4) states that all conditions under the lease to be performed
by the landlord have been satisfied; (5) states that there are no
defenses or offsets against the enforcement of the lease by the
landlord, or stating those claimed by the tenant; (6) states the amount
of advance rent, if any (or none if such is the case), paid by tenant;
(7) states the date to which rent has been paid; and (8) states the
amount of security deposited with the landlord, if any.
4. Closing. Buyer and Seller agree that the purchase of the Property
will be consummated as follows:
A. Closing Date. Subject to the satisfaction of any
contingencies contained herein and to prior termination hereof as
otherwise permitted hereunder, this transaction shall close (the
"Closing") on the fifteenth day following the expiration of Buyer's
Feasibility Period (the "Closing Date"); provided, however, that in the
event such fifteenth day is a weekend day or holiday, the Closing Date
shall be the next succeeding business day. The Closing will take place
at an office of the Title Company, with the exact time for Closing to
be designated by Buyer and approved by Seller.
<PAGE>
B. Seller's Deliveries. At the Closing, Seller shall cause to
be delivered to Buyer the following items (all documents will be duly
executed and acknowledged where required):
(1) A General Warranty Deed conveying to Buyer
the Property;
(2) Affidavits in form acceptable to the Title
Company concerning Seller's payment in full of all costs for
labor and materials delivered to, or in connection with, the
Property and related matters;
(3) An updated certificate of the representations of
Seller indicating whether the same remain true and correct in
all material respects to the time of Closing, or, if such
representations are no longer accurate, a statement indicating
the changes thereto;
(4) An assignment of the Lease related to the
Property;
(5) An assignment of all service and supply contracts
disclosed to Buyer hereunder;
(6) An assignment of all warranties and guarantees
required to be disclosed to Buyer hereunder;
(7) Originals or true copies of building permits and
certificates of occupancy for the buildings;
(8) An affidavit of non-foreign status in compliance
with Section 1445 of the Internal Revenue Code; and
(9) A Closing statement.
C. Buyer's Deliveries. Buyer shall pay the Purchase Price by
wire transfer of funds, subject to any adjustments provided herein, and
less the Earnest Money Deposit, which shall become the property of
Seller. Buyer shall execute such documents as are reasonably acceptable
to Seller in order that Buyer assume for the period from and after the
Closing the Seller's obligations under the Lease and the service and
supply contracts hereunder transferred.
D. Costs. Seller shall pay the entire premium associated with
the standard owner's title insurance policy; the cost for the survey;
and one-half of the Closing fee and cost reimbursement charged by the
Title Company. Buyer shall pay the costs of recording the deed
conveying title to the Property to Buyer and one-half of the Closing
fee and cost reimbursement charged by the Title Company.
5. Possession; Prorations. Possession of the Property will be
delivered to Buyer on the Closing Date, subject to the Lease. All utilities;
payments under service and supply contracts to be
<PAGE>
assigned hereunder; rent and other payments under the Lease; real property
taxes; and installments of special assessments, if any, pertaining to the Real
Property for the calendar year in which the Closing occurs, shall be prorated to
the Closing Date; provided, if the taxes or assessments for such calendar year
are not known as of the Closing Date, the proration shall be computed using the
best evidence and information available and, when actual figures are available,
a cash settlement shall be made between Seller and Buyer. Seller shall be
responsible for all operating expenses applicable to the Property prior to
Closing and Buyer shall be responsible for the same applicable following the
Closing.
6. Representations, Warranties and Covenants of Seller. Seller hereby
represents, warrants, and covenants to Buyer as follows, which representations
and warranties shall be true and correct as of the Closing Date and shall
survive the Closing:
A. The management, service and supply contracts delivered to
Buyer by Seller pursuant to paragraph 3.D. above are true, correct and
complete, and, to the best of Seller's knowledge, there are no
defaults, or events which with the passage of time will mature into
defaults, thereunder.
B. The Lease delivered to Buyer by Seller pursuant to
paragraph 3.E. above is true, correct and complete, and, to the best of
Seller's knowledge, there are no defaults, or events which with the
passage of time will mature into defaults, thereunder.
C. Seller has full right, power, and authority to enter into
this Agreement and to perform its obligations hereunder.
D. There are no pending claims, arbitrations, regulatory,
legal or other proceedings or, to the best of Seller's knowledge,
threatened, against Seller, or any basis therefor, that arises out of
the use or ownership of the Property or that might detrimentally affect
the use or operation of the Property for its intended purpose, the
value of the Property, or adversely affect the ability of Seller to
perform its obligations under this Agreement, and Seller is not aware
of any contemplated condemnation, eminent domain or similar proceedings
relating to the Property.
E. To the best of Seller's knowledge, except as disclosed
within the Phase I environmental report previously provided to Buyer by
Seller concerning the Property: (i) none of the Property, including
subsurface soil and groundwater, contains any substance, including, but
not limited to, any radioactive substance, hydrocarbons, industrial
solvents, oil, petroleum, oil byproducts, petroleum byproducts, metals,
flammables, or other hazardous substances or toxic materials, which
could presently, or at any time in the future, cause a health, safety
or environmental hazard on the Property or to any person who may enter
or use the Property or which may require remediation at the request of
any governmental authority (collectively, "Hazardous Materials"); (ii)
the ownership, operation, use or condition of all of the Property is
not in violation of any federal, state or local law, ordinance or
regulation relating to the Hazardous Materials, industrial hygiene,
hazardous or toxic materials (or similarly defined substances,
materials or wastes or environmental protection); (iii) no person
<PAGE>
has generated, manufactured, stored, treated or disposed of Hazardous
Materials on, into or under the Property or transported any Hazardous
Materials to, from or across the Property; and (iv) none of the
Property contains any underground treatment or storage tanks.
F. Seller has not received any notice of any violation of any
laws, ordinances, rules or administrative or judicial orders affecting
or regarding the Property.
G. So long as this Agreement is in effect, Seller shall not
modify the terms of the Lease, management, service or supply contracts
referenced herein and shall not enter into any new lease, management,
service or supply contracts which extend beyond the Closing Date,
without Buyer's prior written consent.
H. As of the Effective Date, all of the mechanical systems and
electrical systems, including, without limitation, all HVAC equipment
and systems, fire sprinkler systems, boilers, heaters, and doors of any
building comprising a portion of the Property (collectively "Systems")
are in good working condition and repair, except to the extent
referenced on Exhibit "B" hereto, which Exhibit shall be attached by
Seller prior to the Effective Date. Additionally, from the Effective
Date to the Closing Date, Seller shall maintain, repair and replace the
improvements comprising the Property, and Systems therein, so that as
of the Closing, such improvements and equipment are in the same
condition as of the date hereof, reasonable wear and tear excepted.
7. Feasibility Period, Termination Rights, and Additional Earnest
Money.
A. Buyer shall have a period of thirty (30) days following the
Effective Date (the "Feasibility Period") to enter onto the Property
and to inspect and investigate the Property, at its sole cost and
expense; to make such studies thereof as it deems appropriate to
consider and evaluate the suitability of the Property for Buyer's
purposes. Buyer agrees to indemnify and hold Seller harmless and free
from all claims, proceedings, actions, liens, costs, expenses,
liabilities, and damages incurred on or arising in connection with any
work done or performed by Buyer or its contractors, representatives, or
agents on the Property. Notwithstanding the foregoing, in the event
Buyer has not received the Title Report, UCC searches and survey, in
accordance with subparagraph 3.A. and B. above, on or before the 20th
day following the Effective Date hereof, the Feasibility Period shall
be extended for the number of days which elapse following such 20th day
until Buyer has received all the documents required by subparagraphs
3.A. and B. For example, if Buyer does not actually receive the survey
referenced in subparagraph 3.B. until the 25th day following the
Effective Date, the Feasibility Period shall extend 35 days rather than
30.
B. Buyer shall have the right to terminate this Agreement
without any excuse or reason at any time prior to the expiration of the
Feasibility Period upon written notice to the Seller. In the event of
such termination, the Earnest Money Deposit, with accrued interest
thereon, less $100.00, shall be returned to Buyer and neither party
shall have any further obligation hereunder. The remaining $100.00 of
the Earnest Money Deposit shall be paid
<PAGE>
to Seller. Seller acknowledges that the $100.00 shall constitute good,
valid and sufficient consideration for this Agreement.
C. In the event Buyer does not exercise its right of
termination under subparagraph B above, Buyer shall increase the
Earnest Money Deposit from $50,000 to $100,000 on the first day
following the expiration of the Feasibility Period.
8. Default; Remedy. In the event that either party fails to perform
such party's obligations hereunder (except as excused by the other's default),
the party claiming default will make written demand for performance upon the
defaulting party. If the defaulting party fails to comply with such written
demand within five (5) days after receipt of such notice to perform, the
non-defaulting party shall have the option to (a) waive such default; (b)
terminate this Agreement and, in the event the terminating party is (i) the
Buyer, the Earnest Money Deposit, together with accrued interest thereon, shall
be returned to Buyer, and Buyer shall have the right to seek specific
performance of Seller's obligations hereunder, or (ii) the Seller, the Earnest
Money Deposit shall be delivered to Seller by the Title Company, together with
accrued interest thereon as Seller's sole remedy. The rights and remedies
specified in this paragraph shall be the exclusive rights and remedies available
to the parties hereunder.
9. Damage or Destruction. In the event any buildings and/or related
improvements that are a part of the Property are damaged or destroyed prior to
the Closing, Seller shall give Buyer prompt notice thereof. Unless Seller shall
repair and restore the same in a good and workmanlike manner prior to the
Closing Date; agrees in writing to complete the same within thirty (30) days
following the Closing Date; or unless the insurance in effect with respect to
the Property will cover the entire cost of restoration (less any deductible
which Seller shall pay) to the satisfaction of Buyer and Seller assigns its
rights to the insurance proceeds to Buyer as part of the Closing, then, except
as otherwise agreed by the parties, this Agreement shall terminate automatically
and Buyer's Earnest Money Deposit, together with accrued interest thereon, shall
be returned to Buyer.
10. Condition of Real Property. Except as specifically provided herein
and in Sellers representations and warranties contained above, Seller makes no
representation or warranty of any kind, express or implied, with respect to the
Property, the same, except as specifically provided herein, being sold "AS IS,
WHERE IS, WITH ALL FAULTS."
11. Miscellaneous. It is further agreed as follows:
A. Time. Time is of the essence of this Agreement.
B. Fees and Expenses. Each party shall be responsible for and
shall pay their own attorneys fees incurred in connection with this
transaction. Additionally, Buyer and Seller each represent and warrant
to each other that they have not engaged the services of any broker in
connection with this Agreement or the transaction contemplated hereby
and that no person or entity can properly claim a right to a real
estate commission, real estate finder's fee, real estate acquisition
fee, or other real estate brokerage type compensation (collectively
"Real Estate Compensation") based upon the acts of that party with
respect to the transaction
<PAGE>
contemplated by this Agreement, except for the Hart Corporation, whose
fees shall be paid by Seller. Each party hereto agrees to indemnify and
defend the other against and to hold the other harmless from any and
all costs, loss, liability or expense (including, but not limited to,
attorneys fees and return commissions) resulting from any claim for
Real Estate Compensation by any person or entity based upon such
party's acts. The indemnity contained in this provision shall survive
the Closing of the transaction contemplated by this Agreement.
C. Notices. Any notice pursuant hereto shall be given in
writing by (a) personal delivery, or (b) expedited delivery service
with proof of delivery, or (c) United States Mail, postage prepaid,
registered or certified mail, return receipt requested, or (d)
telefacsimile transmission (provided that such telefacsimile
transmission is confirmed by expedited delivery service or by mail in
the manner previously described), sent to the intended addressee at the
address set forth above, and shall be deemed to have been given either
at the time of personal delivery or, in the case of expedited delivery
service or mail, as of the date of first attempted delivery at the
address or, in the case of telefacsimile transmission, upon receipt.
Any such notices may be under the signature of the Seller's or Buyer's
(as the case may be) agent, attorney, or representative.
D. Entire Agreement; Amendment; Survival. This Agreement
constitutes the entire understanding between Buyer and Seller, and
there are no agreements, understandings, warranties or representations
between Buyer and Seller except as set forth herein. This Agreement
cannot be amended except in writing executed by Buyer and Seller. The
representations, warranties and covenants contained herein shall
survive the Closing.
E. Binding Effect. This Agreement will inure to the benefit of
and bind the respective successors and assigns of the parties hereto.
F. Execution. This Agreement has been executed by the parties
on the dates set forth below their respective signatures.
G. Governing Law. This Agreement is to be governed by the laws
of the state in which the Property is located.
H. Assignment. Buyer may assign its rights and obligations
hereunder to an entity owned entirely or controlled by Buyer; however
such assignment shall not release Buyer hereunder.
I. Acceptance. Seller must accept this Agreement on or before
5 o'clock p.m. C.D.S.T. on October 23, 1998, by delivering a fully
executed copy of this Agreement to the Title Company no later than said
date. Should Seller fail to timely accept this Agreement, then Buyer's
offer herein contained shall be null and void.
<PAGE>
IN WITNESS WHEREOF, this instrument has been executed by the parties to
be effective as of the Effective Date.
"BUYER": "SELLER":
ABLAH ENTERPRISES, INC. GOLDEN BOOKS PUBLISHING COMPANY, INC.
By: /s/ By: /s/
----------------------------- ---------------------------------
George J. Ablah, President Name:
Title:
Date: October 12, 1998 Date: October __, 1998
EXHIBIT 10.26
Licensed Book Publishing Agreement
Between
Disney Licensed Publishing
and
Golden Books Publishing Company, Inc.
Dated December 12, 1998
Note: Portions of this Agreement have been intentionally omitted pursuant to a
confidential treatment request and are separately filed with the
Commission.
<PAGE>
INDEX
Page
Number
1. DEFINITIONS.......................................................... 1
1.1 "Licensed Property"......................................... 1
1.2 "Book"...................................................... 1
1.3 "Term"...................................................... 1
1.4 "Distribution Period"....................................... 1
1.5 "Territory"................................................. 1
1.6 "Royalties"................................................. 2
1.7 "Royalty Payment Period".................................... 4
1.8 [Intentionally omitted pursuant to a confidential
treatment request and separately filed with the
Commission]................................................. 4
1.9 "Guarantee"................................................. 4
1.10 "Promotion Commitment"...................................... 5
1.11 "Affiliate"................................................. 6
1.12 "Laws"...................................................... 6
1.13 "Suppliers"................................................. 7
1.14 [Intentionally omitted pursuant to a confidential
treatment request and separately filed
with the Commission]........................................ 7
2. GRANT OF RIGHTS...................................................... 7
3. ADVANCE............................................................. 10
4. GUARANTEE........................................................... 10
5. PUBLICATION, PRESS RUN & FREE COPIES................................ 11
6. CONTENT............................................................. 11
7. PRE-PRODUCTION APPROVALS............................................ 12
8. APPROVAL OF PRODUCTION SAMPLES...................................... 13
9. THIRD PARTY APPROVALS............................................... 15
10. COMPLIANCE WITH APPLICABLE LAWS AND STANDARDS....................... 15
11. PRINTING AND/OR MANUFACTURING BY THIRD PARTIES...................... 18
12. ADVERTISING......................................................... 20
13. PROMOTION COMMITMENT................................................ 20
14. COMMON MARKETING FUND............................................... 20
15. OWNERSHIP........................................................... 21
16. COPYRIGHT NOTICE.................................................... 23
17. REGISTRATIONS....................................................... 24
<PAGE>
18. UNLICENSED USE OF LICENSED PROPERTY................................. 24
19. WARRANTIES AND INDEMNITIES.......................................... 25
20. INSURANCE........................................................... 27
21. STATEMENTS AND PAYMENT OF ROYALTIES................................. 27
22. INTEREST............................................................ 31
23. AUDITS AND MAINTAINING RECORDS...................................... 32
24. WITHDRAWAL OF LICENSED MATERIAL..................................... 33
25. TERMINATION......................................................... 33
26. RIGHTS AND OBLIGATIONS UPON EXPIRATION OR TERMINATION............... 35
27. NON-ASSIGNABILITY................................................... 37
28. NOTICES............................................................. 39
29. MUSIC............................................................... 40
30. GOODWILL............................................................ 40
31. RELATIONSHIP........................................................ 41
32. CONSTRUCTION........................................................ 41
33. MODIFICATIONS OR EXTENSIONS OF THIS AGREEMENT....................... 41
34. RESERVATION OF RIGHTS............................................... 41
35. WAIVERS............................................................. 41
36. SEVERABILITY........................................................ 41
37. CHOICE OF LAW AND FORUM............................................. 42
38. EQUITABLE RELIEF.................................................... 42
39. POWER TO SIGN....................................................... 42
40. CONFIDENTIALITY..................................................... 42
41. PREVIOUS AGREEMENTS................................................. 43
42. SURVIVAL OF OBLIGATIONS............................................. 44
<PAGE>
LICENSED BOOK PUBLISHING AGREEMENT
This book publishing license agreement (the "Agreement") dated December 12,
1998, is made by and between Buena Vista Books, Inc., doing business as Disney
Licensed Publishing ("Licensor") located at 500 S. Buena Vista Street, Burbank,
California 91521 and Golden Books Publishing Company, Inc., a wholly-owned
subsidiary of Golden Books Family Entertainment, Inc. ("Licensee") located at
888 Seventh Avenue, New York, NY 10019.
1. DEFINITIONS
1.1 "Licensed Property" means the characters set forth in Schedule A,
which is attached hereto and incorporated herein by this reference.
It is hereby mutually acknowledged and agreed that the Licensed
Property shall not include any characters the publishing rights to
which Licensor does not own and that Licensee's use of the Licensed
Property is subject to Licensor's rights of approval as more fully
set forth in this Agreement.
1.2 "Book" means the book(s) described in Schedules B and C, which are
attached hereto and incorporated herein by this reference, in the
English language as developed by Licensee. For purposes of this
Agreement, the term "Book" shall not include educational books or
educational workbooks.
1.3 "Term" means the period commencing December 12, 1998, and ending
September 30, 2000. Subject to Subparagraph 2.7 below, the Term shall
not be extended or continued beyond such date, by implication or
otherwise, than by a separate written agreement newly entered into.
1.4 "Distribution Period" means the following period during which the
Book shall be distributed and available for purchase in the
distribution channels authorized pursuant to Subparagraph 2.3 below:
December 12, 1998 through the end of the Term, and any extension
thereof. Without limiting the foregoing, Licensee agrees to use its
best efforts to distribute any Book the publication of which is tied
to the release (or re-release) in any medium (e.g., home video and
motion picture) of a Disney- branded feature animation or live action
movie on or about the official release date for the overall licensing
program established for that movie, but in no event prior to such
official release date.
1.5 "Territory" means Canada, the United States, United States PX's
wherever located, and United States territories and possessions,
excluding Puerto Rico, Guam, Commonwealth of Northern Mariana Islands
and Palau.
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 2
1.6 "Royalties" means a royalty in the amounts set forth below:
(i) The royalty rates set forth in Schedule C, which is attached
hereto and incorporated herein by this reference.
(ii) On sublicenses (all sublicenses are subject to Licensor's
prior written approval pursuant to Subparagraph 27.4 below),
Licensee shall pay Licensor a royalty rate of [Intentionally
omitted pursuant to a confidential treatment request and
separately filed with the Commission] of Licensee's Net
Invoiced Billings for such sales of the Book;
(iii) For sales of the Book to book clubs, book fairs, schools,
libraries and other educational outlets (all of which are
subject to Licensor's prior written approval) and "special"
sales (i.e., sales of the Book outside of the distribution
channels set forth herein for which Licensee must obtain
Licensor's prior written approval), a royalty rate of
[Intentionally omitted pursuant to a confidential treatment
request and separately filed with the Commission] of
Licensee's Net Invoiced Billings if the sales are based on a
sublicense sale, or [Intentionally omitted pursuant to a
confidential treatment request and separately filed with the
Commission] of the applicable royalty rate for sales made on
an "inventory/all-in basis" (i.e., when the Book is sold
directly from Licensee's inventory stock to the purchaser).
(iv) For sales of "Golden Value" versions of the Book, for which
Licensee must obtain Licensor's prior written approval, a
royalty rate of [Intentionally omitted pursuant to a
confidential treatment request and separately filed with the
Commission] of the applicable royalty rate as set forth in
Schedule C hereto.
(v) "Net Invoiced Billings" means the following: actual invoiced
billings (i.e., gross sales quantity multiplied by
Licensee's selling price) for copies of the Book sold, and
all other receivables of any kind whatsoever, received in
payment for the Book, whether received by Licensee or any of
Licensee's Affiliates, except as provided in Subparagraph
1.6(vi) below, less "Allowable Deductions" as hereinafter
defined. The following are not part of Net Invoiced
Billings: invoiced charges for transportation of the Book
within the Territory which are separately identified on the
sales invoice, and sales taxes.
(vi) "Allowable Deductions" means the following: volume
discounts, and other discounts from the invoice price (or
post-invoice credits) unilaterally imposed
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 3
in the regular course of business by Licensee's customers,
so long as Licensee documents such discounts (or credits) to
Licensor's satisfaction. In the event a documented
unilateral discount (or credit) is taken with respect to
combined sales of the Book and other products not licensed
by Licensor, and Licensee cannot document the portion of the
discount (or credit) applicable to the Book, Licensee may
apply only a pro rata portion of the discount (or credit) to
the Book. Unilateral discounts or credits are never
deductible if they represent items listed hereinbelow.
Without limiting the generality of the foregoing, the
following are not Allowable Deductions, whether granted on
sales invoices or unilaterally imposed as discounts or as
post-invoice credits: cash discounts granted as terms of
payment; early payment discounts; allowances or discounts
relating to advertising; costs incurred in manufacturing,
importing, selling or advertising the Book; freight costs
incorporated in the selling price; uncollectible accounts;
mark down allowances, new store allowances, and defective
goods allowances or allowances taken by customers in lieu of
returning goods.
(vi) Licensee shall pay Royalties for sales of the Book based on
the royalty rates set forth in this Subparagraph 1.6.
(viii) No Royalties will be payable on copies of the Book that are
provided gratis for review, promotion, advertising, sample,
or similar purposes intended to promote the Book, which
copies are not intended for sale, up to a maximum of five
hundred (500) copies of each title of the Book. In addition,
no Royalties will be payable on free copies provided to
Licensor pursuant to Subparagraph 5.3 of this Agreement.
(ix) It is intended that the royalty on sales of the Book covered
by Subparagraphs 1.6 (ii), (iii), and (iv) above which
require the approval of Licensor shall be agreed in writing
when such sale is approved. If it is not so agreed in
writing, the royalty payable shall be the same as would be
payable if the Book had been sold through the distribution
channels authorized in Subparagraph 2.3 below. Licensee
shall submit all requests for approval for proposed sales of
the Book covered by Subparagraphs 1.6(ii), (iii), and (iv)
to the Vice-President of Disney Licensed Publishing (or his
or her designee) on the form attached hereto as Exhibit 5,
which form may change from time to time. Licensor shall
endeavor to indicate its approval or disapproval of such
requests in a timely manner, but such approvals should be
sought as early as possible.
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 4
(x) With respect to copies of the Book sold in Canada, the
foregoing Royalties shall be computed based on the
corresponding price of the Book as sold in the United
States.
(xi) Royalties reported on sales of the Book which have been
returned to Licensee for credit or refund and on which a
refund has been made or credit memo issued may be credited
against Royalties due. The credit shall be taken in the
Royalty Payment Period in which the refund is given or
credit memo issued. Unused credits may be carried forward,
but in no event shall Licensee be entitled to a refund of
Royalties.
1.7 "Royalty Payment Period" means each calendar monthly period during
the Term, and during the Sell-off Period, if any.
1.8 "Advance"[Intentionally omitted pursuant to a confidential treatment
request and separately filed with the Commission]
1.9 "Guarantee" [Intentionally omitted pursuant to a confidential
treatment request and separately filed with the Commission]
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 5
1.10 "Promotion Commitment" means the following promotional and marketing
support which Licensee agrees to provide for the Book:
(i) Licensee shall include the Book in its catalog, if any, in
accordance with the following: the catalogs shall have a
separate page or pages showing all new formats and titles.
The Book shall in addition to being included in the main
index of the catalog be separately indexed in an index
listing all formats and titles of the Book. All such catalog
pages are subject to Licensor's prior written approval.
(ii) Licensee shall make available point-of-purchase marketing
support materials for all new theatrical and video releases
and, as it deems appropriate, for Disney-animated television
programs and brand programs covered by the Book. All such
marketing support materials are subject to Licensor's prior
written approval.
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 6
(iii) Licensee shall endeavor to conduct two (2) major
Territory-wide in-store marketing promotions for any of the
character(s) included in the Licensed Property, at
Licensee's sole discretion, during each year of the Term,
and any extension thereof, and Licensor will contribute
without charge creative and marketing direction assistance
for such annual promotions. Notwithstanding the foregoing,
Licensee acknowledges the importance to Licensor of
supporting the Disney-animated feature releases. All such
promotions are subject to Licensor's prior written approval.
(iv) Twice each calendar year, Licensee agrees to provide
Licensor with a detailed sales, marketing, and creative
program (the "Program") specifying how Licensee intends to
support and promote each of the character classes in the
Licensed Property (i.e., the "A" , "B" and "C" Properties as
set forth in Schedule A hereto). Licensee shall use its best
efforts to implement the Program presented to Licensor, with
the goal of meeting Licensor's expectation and intention
that Licensee will actively and mutually support each of the
character classes in the Licensed Property in approximately
the following ratios: [Intentionally omitted pursuant to a
confidential treatment request and separately filed with the
Commission] License shall provide Licensor with complete
copies of all materials utilized in presenting the Program.
(v) All requests for approval required under this Subparagraph
1.10 shall be sought by Licensee as early as possible and
should include all information necessary to allow Licensor
to make an informed decision. Licensor shall endeavor to
indicate its approval or disapproval of such requests in a
timely manner.
1.11 "Affiliate" means, with regard to Licensee, any corporation or other
entity which directly or indirectly controls, is controlled by, or is
under common control with Licensee; with regard to Licensor,
"Affiliate" means any corporation or other entity which directly or
indirectly controls, or is controlled by, or is under common control
with, Disney Enterprises, Inc. "Control" of an entity shall mean
possession, directly or indirectly, of power to direct or cause the
direction of management or policies of such entity, whether through
ownership of voting securities, by contract or otherwise.
1.12 "Laws" means any and all applicable laws, rules, and regulations,
including but not limited to, local and national laws, rules and
regulations, treaties, voluntary industry standards, association
laws, codes or other obligations pertaining to any of Licensee's
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 7
activities under this Agreement, including but not limited to those
applicable to the manufacture, pricing, sales and/or distribution of
the Book.
1.13 "Suppliers" means any of Licensee's third-party manufacturers and
suppliers (and their sub- manufacturers and suppliers) which
reproduce or use the Licensed Property in the Book, or components of
the Book, and/or which assemble the Book.
1.14 [Intentionally omitted pursuant to a confidential treatment request
and separately filed with the Commission]
2. GRANT OF RIGHTS
2.1 Subject to the terms and conditions of this Agreement, and in
consideration for Licensee's promise to pay and Licensee's payment of
all Royalties, Fees, Advances, Guarantees, and Common Marketing Fund
payments required hereunder, Licensor hereby grants to Licensee,
during the Term, the non- exclusive right throughout the Territory,
to create, print, bind, market, advertise, publish, and sell the
English language version(s) of the Book. Licensee shall have the
right to publish Licensee's existing backlist of "Sturdy Shape"
titles of the Book, plus up to six (6) new "Sturdy Shape" versions of
the Book per each year of the Term; provided, however, that no
"Sturdy Shape" versions of the Book (including backlist titles) may
utilize the Licensed Property "WINNIE THE POOH". For purposes of the
preceding sentence, "backlist titles" shall include all "Sturdy
Shape" titles being published by Licensee as of the date of this
Agreement. The Licensed Property shall include Licensee's backlist of
titles to the Book; provided, however, that prior to such
publication, Licensor shall have the opportunity to review the
backlist and may require Licensee to update the artwork and/or any
other creative aspects of the Book (including, but not limited to,
the interior art and covers) so as to be fresh and current, to
conform to all new or updated publishing reference material
guidelines, to comply with any material changes in character art
styles or standards introduced by Licensor, to conform with all
material branding initiatives of Licensor, or to maintain all art
quality standards as required by Licensor, to be determined solely at
Licensor's discretion, so long as such creative aspect(s) of the Book
were not previously approved by Licensor within the preceding
twenty-four (24) months. During the first twelve (12) months of the
Term, the parties hereby agree to conduct a review of the backlist of
those titles of the Book which Licensee intends to seek approval for
publication pursuant to this Agreement. Licensor shall not
unreasonably withhold its approval of backlist titles submitted by
Licensee. Notwithstanding the foregoing, Licensee may continue to
publish those backlist titles or group of backlist titles which
Licensee is actively publishing as of the date of this Agreement
until such time as
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 8
Licensor notifies Licensee of its desire to exercise the approval
rights set forth hereinabove with respect to a title or group of
titles.
2.2 Licensee shall use its reasonable best efforts to maximize sales of
the Book in the Territory during the Term (or any renewal thereof),
and to support the Licensed Property and each of the properties
contained therein in a focused, substantive, and meaningful way and
Licensor agrees to accord due consideration to Licensee in connection
with Licensor's marketing and promotional planning and efforts and to
assess and consult with Licensee regarding the impact Licensor's
other licensed publishing plans may have on Licensee's activities
under this Agreement. [Intentionally omitted pursuant to a
confidential treatment request and separately filed with the
Commission].
Further, Licensor shall not be obligated to offer to Licensee, any
color and activity or storybook concepts or ideas to the extent such
disclosure violates any applicable Laws, professional obligations
customary in the publishing industry, and/or based on a reasonable
and good faith determination by Licensor, constitutes confidential
proprietary information or trade secrets of Licensor or a third
party.
2.3 The Book may be sold only to department stores, gift stores,
specialty retail stores, mass market stores, discount stores,
supermarkets, drug stores, convenience stores, toy stores, airport
stores, warehouse clubs, major and independent book stores and book
store chains, wholesalers and jobbers, and book wholesalers and
jobbers who may sell to schools, libraries and other educational
outlets. If there is a question as to whether a particular customer
falls within any of the categories specified above, Licensor's
determination shall be binding. Licensee may not sell the Book to
retailers that sell the Book on a duty-free basis, or to wholesalers
for resale to such retailers, unless such retailer or wholesaler has
a then-current license agreement with Licensor or an Affiliate of
Licensor permitting it to make such duty-free sales. In addition, the
Book may not be sold by direct marketing methods, which include, but
are not limited to, computer on-line selling, home shopping
television programs, direct mail and door-to-door solicitation.
Licensee shall make all solicitations, sales and collections solely
in its own name and in accordance with all applicable Laws. Licensee
agrees not to sell the Book, including any part or adaptation
thereof, otherwise than as herein provided without Licensor's prior
written approval.
2.4 The Book shall not be used or sold to others for use as a giveaway,
fundraiser, or to customers for inclusion in another product, or for
lotteries, premiums, promotions, sweepstakes, or advertising purposes
in connection with other publications or articles, or to sell other
products, without the prior written consent of Licensor.
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 9
2.5 The prohibition of computer on-line selling referenced in
Subparagraph 2.3 above includes, but is not limited to, the display,
promotion or offering of the Book in or on any on-line venues (e.g.
Websites), except as specifically permitted in the following two
sentences. With Licensor's prior written permission, the Book
approved by Licensor may be displayed and promoted on
Disney-controlled on- line venues, only within the Territory.
Licensee may sell the Book to retailers, within the channels of
distribution authorized pursuant to Subparagraph 2.3, who sell the
Book in or on such retailer's own Website. In the event any such
retailer is displaying and/or selling the Book in an unauthorized
manner, Licensee agrees to cooperate with Licensor in Licensor's
efforts to prohibit such unauthorized activity.
2.6 Licensee recognizes and acknowledges the vital importance to Licensor
of the characters and other proprietary material owned and created by
The Walt Disney Company and its Affiliates (collectively referred to
herein as "Disney") and the association of the Disney name with them.
In order to prevent the denigration of Disney's products and the
value of their association with the Disney name, and in order to
ensure the dedication of Licensee's best efforts to preserve and
maintain that value, Licensee agrees that, during the Term and any
extension thereof, Licensee will neither itself manufacture,
advertise, promote, merchandise, display, package, sell and/or
distribute (nor permit any sublicensee, distributor or other person
or entity to do so) (a) any non-Disney product, in such a manner as
to imply an association with Disney and/or its proprietary material,
(b) any published product which contains any artwork or other
representation not owned by Disney, but which Licensor determines, in
its reasonable discretion, is confusingly similar to Disney
characters or other Disney proprietary material, (c) any book which
contains any non-Disney owned images of a character for which there
is a Disney-owned image, or (d) any product containing material which
Licensor determines, in its sole discretion, is lewd, lascivious,
obscene, offensive, defamatory or otherwise injurious to Disney or
the Disney name, business, products, or proprietary material.
[Intentionally omitted pursuant to a confidential treatment request
and separately filed with the Commission].
2.7 Provided that all of the following conditions are met: (i) Licensee
has complied with all terms and conditions of this Agreement,
including without limitation Subparagraph 1.10(iv) above, and its
Guarantee obligation, as set forth in Subparagraph 1.9 above, for the
period commencing October 1, 1999, and ending September 30, 2000,
(ii) Licensee or Licensee's parent company has consummated a
pre-packaged plan of reorganization on terms acceptable to Licensor
on or before June 30, 1999 -- then this Agreement shall renew for an
additional twelve (12) month period commencing on October 1, 2000,
and ending September 30, 2001, unless
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 10
either party advises the other in writing before April 15, 2000, that
it determines not to renew.
2.8 Licensor may during the Term of this Agreement determine to license a
new category of educational workbooks. In the event Licensor agrees
to do so, prior to licensing the publication of such books, Licensor
shall provide Licensee with the opportunity to present proposals to
become a licensed publisher for this new product category . For
purposes of clarity, any educational workbooks licensed to Licensee
by Licensor under this Subparagraph shall be subject to a separate
written agreement to be mutually negotiated by the parties, and shall
not be included within the meaning of "Book" under this Agreement and
shall not apply towards meeting Licensee's Advance and Guarantee
obligations under this Agreement.
2.9 Nothing contained herein shall affect any of the rights and
obligations of the rates under that certain Warrant Agreement dated
September 26, 1997 (the "Warrant Agreement").
3. ADVANCE
3.1 Licensee agrees to pay to Licensor the Advance, which shall be on
account of Royalties accruing during the Term only, and only with
respect to sales in the Territory; provided, however, that if any
part of the Advance is specified in Subparagraph 1.8 above as
applying to any period less than the Term, such part shall be on
account of Royalties accruing during such lesser period only. If said
Royalties should be less than the Advance, no part of the Advance
shall be refundable.
3.2 Royalties accruing during the Sell-off Period, if any, or any
extension of the Term shall not be offset against the Advance, unless
otherwise agreed in writing. Subject to Subparagraph 1.9 above,
Royalties accruing during any extension of the Term or any other term
shall be offset only against an advance paid with respect to such
extended term.
3.3 Licensee shall pay the Fee on the date(s) set forth in Paragraph 1.14
hereof.
4. GUARANTEE
4.1 Licensee shall, with Licensee's statement of account for the last
Royalty Payment Period of each Guarantee period set forth in
Subparagraph 1.9 above, pay Licensor the amount, if any, by which
Royalties paid with respect to sales in the Territory during the
Guarantee period fall short of the amount of the Guarantee for that
period.
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 11
In addition, Licensee shall, with Licensee's statement of account for
the last Royalty Payment Period of the Term, or immediately upon
termination if the Agreement is terminated prior to the expiration of
the Term, pay Licensor the amount, if any, by which Royalties paid
with respect to sales in the Territory during the Term fall short of
the amount of the cumulative Guarantee.
4.2 Advances, if any, applicable to Royalties due on sales in the period
to which the Guarantee relates shall apply towards meeting the
respective Guarantees for those periods set forth in Subparagraph
1.9.
5. PUBLICATION, PRESS RUN & FREE COPIES
5.1 Licensee agrees to exercise actively the rights granted herein.
Licensee shall publish the Book and shall keep a sufficient quantity
and selection of titles of the Book in print and available for
purchase in the distribution channels authorized pursuant to
Subparagraph 2.3 above, during the Term of this Agreement, in order
to, at a minimum, comply with Licensee's obligations as set forth in
Subparagraphs 1.10 and 2.2 above. Licensee shall notify Licensor in
writing of the publication date(s) of the Book ninety (90) days prior
to such publication date(s).
5.2 Licensee agrees to print a minimum number of copies of the Book
during the Term sufficient to meet the requirements of the Program.
5.3 Licensee agrees to furnish to Licensor, free of charge, one hundred
(100) copies of each title of the Book from the first shipment of the
Book, and to sell to Licensor at fifty percent (50%) below the
published retail price any reasonable quantities of additional copies
which Licensor requires for purposes other than resale; provided,
however, that if Licensor desires to purchase more than five hundred
(500) copies of any title of the Book, Licensor shall advise Licensee
of the reasons for such purchase. Licensor agrees not to purchase
more than five hundred (500) copies of any title of the Book solely
for purposes of giving away such copies to the public for free,
without Licensee's prior written consent. Two (2) of the free copies
shall be delivered by Licensee directly to Licensor's legal
department for copyright registration purposes, attention Copyright
Paralegal, The Walt Disney Company, 500 South Buena Vista Street,
Burbank, California 91521-6365.
6. CONTENT
All creative costs for the Book shall be borne by Licensee. Notwithstanding the
foregoing, Licensor agrees to cooperate with Licensee in the preparation of the
artwork and text for the Book. To that
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 12
end, Licensor agrees to make a good faith attempt to provide Licensee such
pre-existing artwork, textual, reproduction materials, and reference materials
in Licensor's possession as may be available and which Licensor and Licensee
deem suitable for inclusion in the Book. Licensee acknowledges that Licensor may
charge Licensee for the cost of the foregoing materials or other costs incurred
in connection with the preparation of the Book. Licensor shall make reasonable,
good faith attempts to provide Licensee with prior notice of any such charges,
including the estimated amounts thereof. Estimates of the charges for such
materials are available upon request.
7. PRE-PRODUCTION APPROVALS
7.1 All aspects of the Book and its contents (the "Materials"), including
without limitation, concepts, format and size, quality of paper,
textual, artistic and photographic content, printing, cover, notices
(e.g., copyright, trademark, logos), dust jacket (if any), slip case
(if any), audio elements (if any), non- printed components (e.g.,
PVCs, toys) (if any), and title, shall be subject to Licensor's prior
review and written approval. Approval or disapproval of the Materials
shall lie in Licensor's sole discretion. Licensee shall endeavor to
submit the Materials and requests for approval or other action by
Licensor early enough to avoid unnecessary time pressure on Licensor.
Requests for approvals of the Materials must be accompanied by an
approval form provided by Licensor. Licensor shall indicate the
reasons for disapprovals and the changes needed to obtain approval.
Any approval Licensor may give will not constitute or imply a
representation or belief by Licensor that such materials comply with
any applicable Laws. Without limiting Licensor's right to approve the
Materials under this Subparagraph 7.1, Licensor hereby recognizes and
acknowledges that Licensor's timely processing of the Materials is
important to Licensee's ability to perform its obligations under this
Agreement. Licensee hereby recognizes and acknowledges that
Licensor's ability to process the Materials is often dependent on,
and subject to, extenuating factors, including, but not limited to,
when Licensee submits materials, the quality of the materials
submitted, the volume of materials submitted (including by other
licensees), and the need or requirement for Licensor to consult with
third parties to obtain certain approvals. In order to facilitate and
expedite the process of submitting and approving the Materials so as
to meet the concerns of both parties, Licensor and Licensee have
agreed upon, a set of detailed written artwork submission and
approval policies and guidelines (the "Policy"). Licensor and
Licensee shall periodically review and, as necessary, revise the
Policy to ensure it is properly functioning. Licensor and Licensee
shall also give priority to establishing computer links to facilitate
and improve upon the submission and approval of the Materials.
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 13
7.2 Subject to the provisions set forth in the Policy, as early as
possible, and in any case before commercial production of the Book,
Licensee shall submit to Licensor for Licensor's review and written
approval all aspects of the Book, at each stage of creation,
including, but not limited to, any concepts (covers and interiors),
story outlines, layouts, rough pencils, tight pencils, final art,
mechanicals, pre-press proofs (digital proof for mechanicals plus a
film proof), manuscript drafts, finished manuscripts and sample of
paper stock and sound/electronics (if any), and shall supply from the
first print run, and each subsequent print run, samples for
Licensor's written approval. Licensee shall ensure that each copy
thereafter printed shall conform in all respects to what has been
approved by Licensor and shall not ship or deliver copies of the Book
which do not so conform. If any nonconforming Book is sold by
Licensee, Licensor may, in addition to any other remedies available
to Licensor (including, but not limited to, termination of this
Agreement), by written notice require such Book to be immediately
withdrawn from the market. Licensee acknowledges that Licensor may
not approve concepts or artwork submitted near the end of the Term.
Licensee further acknowledges that the fact that artwork has been
created by an artist recommended by Licensor or by an artist who has
worked in the past on a Disney publication does not mean that any
such artwork will necessarily be approved in connection with the Book
licensed hereunder.
8. APPROVAL OF PRODUCTION SAMPLES
8.1 Before shipping the Book to any customer, Licensee agrees to furnish
to Licensor, from the first production run of each supplier of the
Book, for Licensor's approval of all aspects thereof, samples, with
packaging, if any, which shall conform to the approved pre-production
samples. Approval or disapproval of the artwork as it appears in the
Book, as well as of the quality of the Book, shall lie in Licensor's
sole discretion and may, among other things, be based on unacceptable
quality of the artwork or of any part of the Book as manufactured.
Any part not so approved shall be deemed unlicensed, shall not be
sold and, unless otherwise agreed by Licensor in writing, shall be
destroyed. Such destruction shall be attested to in a certificate
signed by one of Licensee's officers. Production samples of the Book
for which Licensor has approved a pre-production sample shall be
deemed approved, unless within twenty (20) days of Licensor's receipt
of such production sample Licensor notifies Licensee to the contrary.
Any approval of a production sample attributable to Licensor shall
not constitute or imply a representation or belief by Licensor that
such production sample complies with applicable Laws.
8.2 Licensee agrees to make available at no charge such additional
samples of the Book as Licensor may from time to time reasonably
request for the purpose of comparison
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 14
with earlier samples or for Licensor's anti-piracy efforts, or to
test for compliance with applicable Laws, and to permit Licensor to
inspect Licensee's manufacturing operations and testing records (and
those of Licensee's Suppliers) of the Book.
8.3 Licensee acknowledges that Licensor may disapprove any part of the
Book or a production run of the Book because the quality is
unacceptable to Licensor, and accordingly, Licensor recommends that
Licensee submit production samples to Licensor for approval before
committing to a large original production run or to purchase a large
shipment from a new supplier.
8.4 No modification of an approved production sample shall be made
without Licensor's further prior written approval. The Book must
conform in all respects to the approved production samples. It is
understood that if in Licensor's reasonable judgment the quality of
the Book as originally approved has deteriorated in later production
runs, or if the Book has otherwise been altered, Licensor may, in
addition to other remedies available to Licensor, by written notice
require such Books to be withdrawn immediately from the market.
8.5 Any part of the Book not meeting the standard of approved samples
shall be destroyed or all Licensed Property shall be removed or
obliterated therefrom.
8.6 Licensee is responsible for the consistent quality and safety of the
Book and its compliance with applicable Laws, Licensor will not
unreasonably object to any change in the design of the Book or in the
materials used in the manufacture of the Book or in the process of
manufacturing the Book which Licensee advises Licensor in writing is
intended to make the Book safer or more durable.
8.7 Licensor shall have the right, by written notice to Licensee, to
require modification of any part of the Book approved by Licensor
under this or any previous agreement between Licensee and Licensor
pertaining to the Licensed Property. Likewise, if the Term of this
Agreement is extended by mutual agreement, or pursuant to
Subparagraph 2.7, Licensor shall have the right, by written notice to
Licensee, to require modification of any part of the Book approved by
Licensor under this Agreement. It is understood that there is no
obligation upon either party to extend the Agreement, except as may
be provided in Subparagraph 2.7.
8.8 If Licensor notifies Licensee of a required modification under
Subparagraph 8.7 above, such notification shall advise Licensee of
the nature of the changes required. If the required modification is
material to the integrity of the Book, the Licensed Property in the
Book, and/or the Disney Property (as defined below), then Licensee
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 15
shall not accept any order for the Book until it has been resubmitted
to Licensor with such changes and Licensee has received Licensor's
written approval of the Book as modified. However, Licensee may
continue to distribute Licensee's inventory of the previously
approved Book until such inventory has been exhausted (unless the
Book is dangerously defective, as determined by Licensor,
8.9 Without limiting Licensor's approval rights under this Paragraph 8,
the Policy referenced in Subparagraph 7.1 shall include provisions
governing all submissions and approvals which are the subject of this
Paragraph 8.
9. THIRD PARTY APPROVALS
9.1 No material which is owned by a third party or in which a third party
has rights shall be embodied in the Book or used in conjunction with
the Book, unless Licensor has given knowing prior approval in
writing, such approval to be granted or withheld within Licensor's
sole discretion. In the event that Licensor does so approve, Licensee
shall obtain all necessary licenses (and all other licenses required
by Licensor) for the use of such material (including but not limited
to all audio elements, if any) in or in conjunction with the Book.
9.2 Except with respect to material supplied by Licensor, Licensee shall
pay and be solely responsible for the payment of all obligations to
third parties arising from the manufacture, distribution, advertising
and sale of the Book, including, but not limited to, payments to
designers, printers, recording artists, musicians and applicable
unions and guilds, and shall pay or cause to be paid to the copyright
proprietors of the material referenced in Subparagraph 9.1 above, or
to their duly authorized agents, all royalties and other sums
(including the full statutory mechanical royalty rate if required for
audio material) which may become due under and in accordance with
said licenses and all applicable Laws.
9.3 Licensee understands that Licensor's interim and final approvals or
disapprovals of the Book or any part of the contents of the Book may
depend on whether necessary permissions from third parties have been
obtained.
10. COMPLIANCE WITH APPLICABLE LAWS AND STANDARDS
10.1 Licensee covenants that the Book and any component thereof
distributed hereunder shall be of good quality and free of defects in
design, materials and workmanship, and shall comply with all
applicable Laws, and such specifications, if any, as may have been
specified in connection with this Agreement and shall conform to the
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 16
sample thereof approved by Licensor. Licensee covenants that it will
comply with all applicable Laws in performing this Agreement,
including but not limited to, those pertaining to the manufacture,
pricing, sale and distribution of the Book.
10.2 Without limiting the foregoing, Licensee covenants on behalf of
Licensee's own company, and agrees to require all Suppliers to
covenant by signing the Supplier's Agreement (referenced in Paragraph
11 below), as follows:
(i) Licensee and the Suppliers agree not to use child labor in
the manufacturing, packaging or distribution of the Book.
The term "child" refers to a person younger than the local
legal minimum age for employment or the age for completing
compulsory education, but in no case shall any child younger
than fifteen (15) years of age (or fourteen (14) years of
age where local law allows) be employed in the
manufacturing, packaging or distribution of the Book.
Licensee and the Suppliers employing young persons who do
not fall within the definition of "children" agree also to
comply with any Laws applicable to such persons.
(ii) Licensee and the Suppliers agree only to employ persons
whose presence is voluntary. Licensee and the Suppliers
agree not to use any forced or involuntary labor, whether
prison, bonded, indentured or otherwise.
(iii) Licensee and the Suppliers agree to treat each employee with
dignity and respect, and not to use corporal punishment,
threats of violence, or other forms of physical, sexual,
psychological or verbal harassment or abuse.
(iv) Licensee and the Suppliers agree not to discriminate in
hiring and employment practices, including salary, benefits,
advancement, discipline, termination, or retirement, on the
basis of race, religion, age, nationality, social or ethnic
origin, sexual orientation, gender, political opinion or
disability.
(v) Licensee and the Suppliers recognize that wages are
essential to meeting employees' basic needs. Licensee and
the Suppliers agree to comply, at a minimum, with all
applicable wage and hour Laws, including minimum wage,
overtime, maximum hours, piece rates and other elements of
compensation, and to provide legally mandated benefits. If
local Laws do not provide for overtime pay, Licensee and the
Suppliers agree to pay at least regular wages for overtime
work. Except in extraordinary business circumstances,
Licensee and the Suppliers will not require employees to
work
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 17
more than the lesser of (a) 48 hours per week and 12 hours
overtime or (b) the limits on regular and overtime hours
allowed by local law, or, where local law does not limit
the hours of work, the regular work week in such country
plus 12 hours overtime. In addition, except in
extraordinary business circumstances, employees will be
entitled to at least one day off in every seven-day period.
Licensee and the Suppliers agree that, where local industry
standards are higher than applicable legal requirements,
they will meet the higher standards.
(vi) Licensee and the Suppliers agree to provide employees with
a safe and healthy workplace in compliance with all
applicable Laws, ensuring, at a minimum, reasonable access
to potable water and sanitary facilities, fire safety and
adequate lighting and ventilation. Licensee and the
Suppliers also agree to ensure that the same standards of
health and safety are applied in any housing they provide
for employees. Licensee and the Suppliers agree to provide
Licensor with all information Licensor may request about
manufacturing, packaging and distribution facilities for
the Book.
(vii) Licensee and the Suppliers agree to respect the rights of
employees to associate, organize and bargain collectively in
a lawful and peaceful manner, without penalty or
interference, in accordance with applicable Laws.
(viii) Licensee and the Suppliers agree to comply with all
applicable environmental Laws.
(ix) Licensee and the Suppliers agree to comply with all
applicable Laws, including those pertaining to the
manufacture, pricing, sale and distribution of the Book.
(x) Licensee and the Suppliers agree that Licensor and its
designated agents (including third parties) may engage in
monitoring activities to confirm compliance with this
Paragraph 10, including unannounced on-site inspections of
manufacturing, packaging and distribution facilities, and
employer-provided housing, such inspections to include
reviews of books and records relating to employment matters
and private interviews with employees. Licensee and the
Suppliers agree to maintain on site all documentation
necessary to demonstrate compliance with this Paragraph 10.
Licensee agrees to promptly reimburse Disney for the actual
costs of inspections performed pursuant to this Paragraph 10
when any of Licensee's manufacturing facilities or any
Suppliers do not pass the inspection(s).
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 18
(xi) Licensee and the Suppliers agree to take appropriate steps
to ensure that the provisions of this code of conduct (the
"Code of Conduct") are communicated to employees, including
the prominent posting of a copy of the Code of Conduct for
Suppliers and Licensees, (copies of which are attached
hereto as Exhibits 3 and 4, respectively), as may be
applicable, in the local language and in a place readily
accessible to employees at all times.
10.3 Licensee agrees to take appropriate steps, in consultation with
Licensor, to develop, implement and maintain procedures to evaluate
and monitor the Suppliers it uses to manufacture the Book or any
components thereof, and to ensure compliance with this Paragraph 10,
including but not limited to, unannounced on-site inspections of
manufacturing, packaging and distribution facilities and
employer-provided housing, reviews of books and records relating to
employment matters and private interviews with employees.
10.4 Both before and after Licensee puts the Book on the market, Licensee
shall follow reasonable and proper procedures for testing that the
Book complies with all applicable product safety Laws, and shall
permit Licensor's designees to inspect testing, manufacturing and
quality control records and procedures and to test the Book for
compliance with product safety and other applicable Laws. Licensee
agrees to promptly reimburse Licensor for the actual costs of such
testing if the Book fails to comply with such Laws. Licensee shall
also give due consideration to any recommendations by Licensor that
the Book exceeds the requirements of applicable Laws. Books not
manufactured, packaged or distributed in accordance with applicable
Laws shall be deemed unapproved, even if previously approved by
Licensor, and shall not be shipped unless and until they have been
brought into full compliance therewith.
11. PRINTING AND/OR MANUFACTURING BY THIRD PARTIES
11.1 All film positives/negatives and other reproduction material used in
the manufacture of the Book shall be prepared only by Licensee, or by
a third party under Licensee's control and who has been approved by
Licensor and who has executed and delivered to Licensor the
Supplier's Agreement in the form attached hereto as Exhibit 1, and
the Book shall be printed only by Licensee or by a printer approved
by Licensor who has executed and delivered to Licensor the said
Supplier's Agreement. Licensor hereby approves the Suppliers and
printers identified on the list attached hereto as Exhibit 6.
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 19
11.2 Licensee shall, upon Licensor's request, deliver to Licensor, or to
publishers designated by Licensor, one or more duplicate sets of all
film positives, film negatives and other reproduction material used
in the manufacture of the Book, and Licensor or such publishers, as
the case may be, shall reimburse Licensee for the actual cost of
duplicating any such materials delivered as well as for the actual
cost of removing Licensee's trade dress from any such materials. In
no case shall the charge for such material exceed the lowest price
Licensee charges other publishers for similar material. Without
limiting the foregoing, Licensor shall not authorize any publisher
who is licensed by Licensor to publish in the United States or Canada
to repurpose any covers of the Book or to repurpose substantial
quantities of artwork or text from the Book without Licensee's prior
consent. The foregoing sentence shall apply only to books published
during the Term and in the Territory which are similar in format,
price point, and distribution channel to the Book.
11.3 Licensee agrees to supply Licensor with the names and addresses of
all of its own manufacturing facilities for the Book. If Licensee at
any time desires to have any non-printed components of the Book
containing Licensed Property manufactured by a third party, whether
the third party is located within or outside the United States,
Licensee must, as a condition to the continuation of this Agreement,
notify Licensor of the accurate name and complete address of such
Supplier and the Book or components involved and obtain Licensor's
prior written permission to do so. If Licensor is prepared to grant
permission, Licensor will do so if Licensee and each of Licensee's
Suppliers sign a Consent/Manufacturer's Agreement in a form which
Licensor will furnish to Licensee and Licensor receives all such
agreements properly signed.
11.4 Licensor shall use reasonable efforts not to disclose the names of
Licensee's Suppliers to third parties, including Affiliates of
Licensor, except as may be necessary to enforce Licensor's contract
rights or protect Licensor's trademarks, copyrights, and intellectual
property.
11.5 If any such Supplier utilizes the Licensed Property or trademarks for
any unauthorized purpose, Licensee shall cooperate fully in bringing
such utilization to an immediate halt. If, by reason of Licensee's
not having supplied the above-mentioned agreements to Licensor or not
having given Licensor the name of any Supplier, Licensor makes any
representation or takes any action and is thereby subjected to any
penalty or expense, Licensee will fully compensate Licensor for any
cost or loss Licensor sustains (in addition to any other legal or
equitable remedies available to Licensor).
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 20
12. ADVERTISING
12.1 Licensee may, subject to receiving Licensor's prior written approval
in each case, advertise the Book in newspapers, periodicals,
magazines and other publications and, in catalogs, on billboards,
radio, television or by other advertising or promotional techniques;
provided, however, that all photography, artwork, text, scripts and
storyboards for all advertising shall be submitted to Licensor for
its prior
review and written approval as to the content of such advertising.
Licensor's approval or lack thereof will be given in a timely
fashion. As a condition to the right of public distribution licensed
hereunder, appropriate and legally sufficient copyright notice in the
name of Disney Enterprises, Inc. (hereinafter referred in this
Agreement as "Disney Enterprises") shall be included in all
advertising for the Book in which any of Disney's characters or other
copyrighted materials appear.
12.2 Following the expiration or termination of this Agreement, and the
Sell-off Period, if any, Licensee will not advertise or promote the
Book in any manner or issue any offering literature or material with
respect thereto.
12.3 Licensee warrants that all advertising and promotions for the Book
shall comply with all applicable Laws and shall not infringe the
rights of any person or entity. Licensor's approval for the use or
manner of use of any proposed advertising or promotion hereunder
shall not constitute an opinion as to the legal appropriateness or
adequacy of such use or manner of use, and Licensee shall be solely
responsible for any liability or risk of liability arising out of, or
connected with, the use of any such proposed advertising or
promotion.
13. PROMOTION COMMITMENT
Licensee agrees to carry out the Promotion Commitment set forth in Subparagraph
1.10 above.
14. COMMON MARKETING FUND
14.1 Licensee shall pay to Licensor an amount equal to [Intentionally
omitted pursuant to a confidential treatment request and separately
filed with the Commission] (the "Common Marketing Fund Payment"),
which amount Licensee agrees to pay Licensor concurrently with
Royalties due each Royalty Payment Period as detailed in Paragraph 21
hereof. Licensee further agrees to pay Licensor the following sums as
a guarantee of such minimum payment (the "CMF Guarantee") on
Licensee's cumulative sales in the following periods and as
non-refundable installments of such
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 21
guarantee payments (the "CMF Advances"), due and payable on the dates
indicated below:
[Intentionally omitted pursuant to a confidential treatment request
and separately filed with the Commission].
14.2 The Common Marketing Fund Payment as defined hereinabove shall be
placed in a general fund for use in promoting the Licensed Property,
Disney characters, Disney's copyrights, and trademarks (which may
include the Licensed Property) and licensee activities generally, all
as Licensor deems appropriate in Licensor's sole discretion. Such
funds shall be expended by Licensor and/or Licensor's designees (but
not paid to Licensor's own employees for services they render) in the
amounts and in the manner Licensor deems most appropriate in order to
provide national, territorial, regional or local advertising,
marketing and promotion, and market research related thereto, of the
License Property licensed hereunder or other Disney properties in the
same property classification. [Intentionally omitted pursuant to a
confidential treatment request and separately filed with the
Commission].
14.3 Licensee agrees to pay in full the CMF Advances on account of the CMF
Guarantee to accrue during the Term only and only with respect to
sales in the Territory. In addition, with Licensee's statement for
each Royalty Payment Period ending on a date indicated hereinabove
with respect to the CMF Guarantee, Licensee shall pay Licensor the
amount, if any, by which cumulative payment made with respect to
sales in the Territory during any period or periods covered by such
provision fall short of the amount of the CMF Guarantee specified for
that period.
15. OWNERSHIP
15.1 Licensee acknowledges that the copyrights and all other proprietary
rights in and to the Licensed Property are exclusively owned by and
reserved to Disney Enterprises. Licensee shall neither acquire nor
assert any proprietary right, interest, or title to any character
used in the Book, to the title of the Book, or to any other material
prepared for or contained on or in the Book, or to any copy,
reproduction, translation, or derivative work thereof (collectively
referred to herein as "Disney Property") in any format or media, now
existing or hereafter developed, through the exercise of any rights
granted to Licensee hereunder. All copyrights and trademarks, service
marks, trade dress, and tradenames pertaining to the Book, as well as
all rights of every kind in and to the Disney Property, shall be
Disney Enterprises' exclusive property, except such trademarks,
tradenames or service marks as do not relate to any Disney material
and do relate to the business name of the Licensee or the name of any
line of books
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 22
heretofore published by Licensee. No part of the Book or excerpt
therefrom may be used by or under the authority of Licensee in any
way separate from the Book without Licensor's prior written consent.
Licensor acknowledges Licensee's exclusive rights in and to
Licensee's trademarks, tradenames, service marks, and trade dress
used in connection with Licensee's own publishing activities,
including, without limitation, Licensee's distinctive differentiated
book spine treatment (collectively, the "Golden Marks). Licensor
agrees that it will not use, or knowingly allow the use by a
publishing licensee (in connection with that licensee's publishing
activities authorized by Licensor), any such Golden Marks or any
marks that are confusingly similar in the reasonable judgment of
Licensee without Licensee's prior written consent. If Licensee
becomes aware of any such unauthorized use before Licensor does, then
Licensee shall promptly notify Licensor and provide Licensor with an
opportunity to take reasonable corrective action.
15.2 If Licensee creates or acquires material for use in the Book, whether
or not based on or using Disney Enterprises' characters, and whether
or not actually used in the Book or published, such material shall be
deemed a work-for-hire for Disney Enterprises and all ownership
rights (including but not limited to the copyright therein) shall
belong to Disney Enterprises. Licensee agrees that prior to the
creation of any such material by third parties, Licensee shall cause
the artists and/or writers who create such material, or the owners of
the rights thereto, to execute the work for hire/copyright assignment
agreement in the form attached hereto as Exhibit 2, agreeing that all
such material shall be considered a work-made-for-hire for Disney
Enterprises and fully releasing or assigning to Disney Enterprises
all rights in such material, including but not limited to all
copyrights, so that all such rights shall inure to Disney Enterprises
and become a part of Disney Enterprises' copyright and other rights
in and to the Book. Licensee shall provide Licensor with a copy of
every work for hire/copyright assignment agreement, and any other
agreement entered into with respect to the ownership of the Book.
Licensee agrees that it will not give, or agree to give, credit of
any kind to any such artists or writers without the prior written
approval of Licensor.
15.3 Subject to the rights granted hereunder, title (including copyright
and physical ownership) to all material objects incorporating the
Disney Property (including without limitation, original drawings and
illustrations used in the Book or in promotional or advertising
material which portray the Disney Property as well as all photographs
and reproductions of the originals), whether supplied by Licensor or
prepared by or for Licensee, shall be in Disney Enterprises, and in
no event shall Licensee sell or lease the use of any such material
objects or otherwise part with control thereof. Such material objects
shall be delivered to Licensor in good
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 23
condition (subject to normal wear and tear) upon request, at
Licensee's sole expense. If Licensee advises Licensor that any such
material objects requested to be returned are being utilized by
Licensee for the current development of any title to the Book, then
Licensor shall allow Licensee ninety (90) days to create films or
other reproduction material necessary for the manufacture of the
Book, after which the requested materials must be immediately
returned.
15.4 Licensee hereby assigns to Disney Enterprises all right, title and
interest (including but not limited to all copyright(s) and any
extensions and renewals thereof) throughout the universe in
perpetuity which Licensee may have acquired relating to any and all
material prepared or published hereunder or contemplated hereby, or
relating to the Disney Property or its use of the same hereunder.
Licensee hereby appoints Licensor to act as Licensee's
attorney-in-fact to execute any documents in Licensee's name and/or
on Licensee's behalf necessary to grant or assign such copyrights or
other rights to Disney Enterprises.
16. COPYRIGHT NOTICE
As a condition to the grant of rights hereunder, each copy of the Book, and any
other matter containing Licensed Property, shall bear a properly located
permanently affixed copyright notice comprised of c in a circle, plus a yeardate
of publication, plus "Disney Enterprises, Inc.", and for those versions of the
Book containing Disney-stylized Winnie The Pooh characters, "Based on the Pooh
stories by A.A. Milne (copyright the Pooh Properties Trust)" or such other
notices as Licensor specifies to Licensee in writing, together with such other
notice of copyright or trademark as may be prescribed or required by Laws
applicable to the Territory in order to establish, protect, and preserve Disney
Enterprises' copyrights and trademarks. If, through inadvertence or otherwise, a
copyright notice on the Book or other such matter should appear in Licensee's
name or the name of a third party, Licensee hereby agrees to assign to Disney
Enterprises the copyright represented by any such copyright notice in Licensee's
name and, upon request, cause the execution and delivery to Licensor of whatever
documents are necessary to convey to Disney Enterprises that copyright
represented by any such copyright notice. If, by inadvertence, a proper
copyright notice is omitted from the Book or any other matter containing
Licensed Property, Licensee agrees at Licensee's expense to use all reasonable
efforts to correct the omission on the Book or other matter in the process of
manufacture or in distribution. Licensee agrees to advise Licensor promptly and
in writing of the steps being taken to correct any such omission and to make the
corrections on existing copies of the Book which can be located. Licensee shall
also include such credit lines in the Book as Licensor may require by written
notice to Licensee, provided that Licensor shall not require such credit lines
to interfere with the Licensee's line look or to be obtrusive.
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 24
17. REGISTRATIONS
Except with Licensor's written consent, neither Licensee nor any Affiliate of
Licensee will register or attempt to register in any country copyright in the
Book and/or in any part of the Disney Property, and/or any trademark which is
identical with any mark used by Disney or which is so similar thereto as to
present, within the reasonable judgment of Licensor, a likelihood of confusion.
In the event of a breach of the foregoing, Licensee agrees, at Licensee's
expense and at Licensor's request, immediately to terminate the unauthorized
registration activity and promptly to execute and deliver, or cause to be
delivered, to Licensor such assignments and other documents as Licensor may
require to transfer to Disney Enterprises all rights to the registrations or
applications involved.
18. UNLICENSED USE OF LICENSED PROPERTY
18.1 Licensee agrees that Licensee will not use the Licensed Property, or
the trademarks, or any other material the copyright to which is owned
by Disney Enterprises in any way other than as herein authorized (or
as is authorized in any other written contract in effect between the
parties). In addition to any other remedy Licensor may have, Licensee
agrees that all revenues from any use thereof on products other than
the Book (unless authorized by Licensor in writing), and all revenues
from the use of any other copyrighted material of Disney Enterprises'
without written authorization, shall be immediately payable to
Licensor.
18.2 Licensee agrees to give Licensor prompt written notice of any
unlicensed use by third parties of the Licensed Property or
trademarks of which Licensee becomes aware, and that Licensee will
not, without Licensor's written consent, bring or cause to be brought
any criminal prosecution, lawsuit or administrative action for
infringement, interference with or violation of any rights to the
Book, its contents and/or the characters. Because of the need for and
the high costs of an effective anti-piracy enforcement program,
Licensee agrees to cooperate with Licensor and, if necessary, to be
named by Licensor as a sole complainant or co-complainant in any
action against an infringer of the Licensed Property and,
notwithstanding any right of Licensee to recover same, legal or
otherwise, Licensee agrees to pay to Licensor, and hereby waives all
claims to, all damages or other monetary relief recovered in such
action by reason of a judgment or settlement whether or not such
damages or other monetary relief, or any part thereof, represent or
are intended to represent injury sustained by Licensee as a licensee
hereunder; in any such action against an infringer, Licensor agrees
to reimburse Licensee for reasonable expenses incurred at Licensor's
request, including reasonable attorney's fees and disbursements if
Licensor has requested Licensee to retain separate counsel.
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 25
19. WARRANTIES AND INDEMNITIES
19.1 Licensee hereby represents and warrants that any material used in the
Book, other than material supplied by Licensor, shall not infringe
upon or interfere with any common law right, or any other right, of
any person or entity, and that the creation, manufacture, publishing,
marketing, pre-pricing, pricing, sale and distribution of the Book
shall be in compliance with all applicable Laws and shall not
infringe the rights of any person or entity. Without limiting the
foregoing, Licensee represents and warrants that no such material
shall infringe any copyright or defame or invade the rights of
privacy or publicity of any person or entity. Licensee further
represents and warrants that it will not use or allow the use of the
name "Walt Disney" or the name "Disney", or the name or likeness of
the fanciful characters of Disney or any name, mark, emblem, logo or
designation that suggests or implies an association with Disney, for
any purpose other than as specified in this Agreement, unless
explicitly authorized by Licensor in writing to do so.
19.2 Licensee hereby indemnifies and holds Disney harmless, during and
after the Term hereof, against all claims, demands, suits, judgments,
losses, liabilities (including settlements entered into in good faith
with Licensee's consent, not to be unreasonably withheld) and
expenses of any nature (including reasonable attorneys' fees and
disbursements) arising out of Licensee's activities under this
Agreement, including but not limited to, any actual or alleged: (1)
negligent acts or omissions on Licensee's part, (2) defect (whether
obvious or hidden and whether or not present in any sample approved
by Licensor) in the Book, (3) personal injury, (4) infringement of
any rights of any other person by the manufacture, sale, possession
or use of the Book, (5) breach on Licensee's part of any covenant,
representation or warranty contained in this Agreement or (6) failure
of the Book, or by Licensee, to comply with applicable Laws. The
parties indemnified hereunder shall include Licensor, and its parent,
successors and subsidiaries, and their officers, directors, employees
and agents. The indemnity shall not apply to any claim or liability
relating to any infringement of the copyright of a third party caused
by Licensee's utilization of the Licensed Property in accordance with
the provisions hereof, unless such claim or liability arises out of
Licensee's failure to obtain the full assignment of rights referenced
in Paragraph 15 above.
19.3 Licensor hereby represents and warrants that the Disney Property
supplied by Licensor hereunder shall not infringe the copyright of
any third party or any right granted by Licensor to such third party.
Licensor hereby indemnifies and holds Licensee harmless during and
after the Term hereof against all claims, demands, suits, judgments,
losses, liabilities, (including settlements entered into in good
faith
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 26
with Licensor's consent, not to be unreasonably withheld), and
expenses of any nature (including reasonable attorney's fees and
disbursements) arising out of any claim that Licensee's use of any
representation of the Licensed Property approved in accordance with
the provisions of this Agreement infringes the copyright of any third
party or infringes any right granted by Licensor to such third party,
except for claims arising out of Licensee's failure to obtain the
full assignment of rights referenced in Paragraph 15 above. In no
event shall Licensor be liable for lost profits. Without limiting the
generality of this Subparagraph 19.3, if during the term of this
Agreement Licensor enters into another licensed publishing agreement
for the Territory in which Licensor agrees to provide representations
and warranties which exceed the scope of this Subparagraph 19.3, then
such additional representations and warranties shall be included in
the representations and warranties provided by Licensor herein.
19.4 If by reason of any claims referred to in Subparagraph 19.3 above,
Licensee is precluded from selling any stock of the Book or utilizing
any materials in Licensee's possession or which come into Licensee's
possession by reason of any required recall, Licensor shall be
obligated to purchase such Books and materials from Licensee at the
out-of-pocket cost to Licensee, excluding overhead, but Licensor
shall have no other responsibility or liability with respect to such
Books or materials, except that the Advance and Guarantee shall be
adjusted to correspond to the time remaining in the Term at the date
of the purchase by Licensor.
19.5 Licensor gives no warranty or indemnity with respect to any liability
or expense arising from any claim that use of the Licensed Property
or the trademarks on or in connection with the Book hereunder or any
packaging, advertising or promotional material infringes on any
trademark right of any third party or otherwise constitutes unfair
competition by reason of any prior rights acquired by such third
party, other than rights acquired from Disney Enterprises. It is
expressly agreed that it is Licensee's responsibility to carry out
such investigations as Licensee may deem appropriate to establish
that the Book, packaging, and promotional and advertising material
which are manufactured or created hereunder, including any use made
of the Licensed Property and the trademarks therewith, do not
infringe such right of any third party, and Licensor shall not be
liable to Licensee if such infringement occurs.
19.6 Licensee and Licensor agree to give each other prompt written notice
of any claim or suit which may arise under the indemnity provisions
set forth above. Without limiting the foregoing, Licensee agrees to
give Licensor written notice of any product liability claim made or
suit filed with respect to the Book, any investigations or directives
regarding the Book issued by the Consumer Product Safety Commission
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 27
("CPSC") or other federal, state or local consumer safety agency, and
any notices sent by Licensee to, or received by Licensee from, the
CPSC or other consumer safety agency regarding
the Book within seven (7) days of Licensee's receipt or promulgation
of the claim, suit, investigation, directive, or notice.
20. INSURANCE
Licensee shall maintain in full force and effect at all times while this
Agreement is in effect, and for three (3) years thereafter, commercial general
liability insurance on a per occurrence form, including broad form coverage for
contractual liability, property damage, products liability and personal injury
liability (including bodily injury and death), waiving subrogation, with minimum
limits of no less than two million United States Dollars (U.S. $2,000,000.00)
per occurrence, and naming as additional insureds those indemnified in
Subparagraph 19 hereof. Licensee also agrees to maintain in full force and
effect at all times while this Agreement is in effect such Worker's Compensation
Insurance as is required by applicable law and Employer's Liability Insurance
with minimum limits of one million United States Dollars (U.S. $1,000,000.00)
per occurrence. All insurance shall be primary and not contributory. Licensee
shall deliver to Licensor a certificate(s) of insurance evidencing satisfactory
coverage and indicating that Licensor shall receive thirty (30) days
unrestricted prior written notice of cancellation, non-renewal, or material
change in coverage. Licensee's insurance shall be carried by an insurer with a
Best Guide rating of B + VII or better. Compliance herewith in no way limits
Licensee's indemnity obligations, except to the extent that Licensee's insurance
company actually pays Licensor amounts which Licensee would otherwise pay
Licensor.
21. STATEMENTS AND PAYMENT OF ROYALTIES
21.1 Licensee agrees to pay and shall pay to Licensor all Royalties
required under this Agreement. Licensee shall submit to Licensor
statements of account so as to be received by Licensor no later than
twenty-five (25) days after the end of each Royalty Payment Period
during the Term. Licensee shall submit such statements of account
regardless of whether any sales have taken place and/or any Royalties
are payable to Licensor. Licensee's statements shall be on forms
substantially similar to those designated by Licensor for Licensee's
use (a sample copy of the current form is attached hereto as Exhibit
7), showing all information requested by such forms (subject to
Subparagraph 21.8 below), including but not limited to the following:
If Licensee's Royalty calculation is based on a percentage of the
suggested retail price ("SRP") of the Book:
(i) Licensee's product number, ISBN, and title;
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 28
(ii) the Royalty rate code as provided by Licensor;
(iii) the applicable SRP Royalty rate;
(iv) the applicable Net Invoiced Billings ("NIB") Royalty rate;
(v) the gross quantities by title of the Book sold (a sale of
the Book shall be deemed to have occurred on the date the
Book is shipped to the customer);
(vi) the SRP(s) on which the Royalty is calculated;
(vii) the sum of the units sold multiplied by the applicable SRP
("Gross SRP Dollars)
(viii) Net Invoiced Billings ("NIB Dollars");
(ix) the applicable SRP Royalty rate multiplied by Gross SRP
Dollars;
(x) the applicable NIB Royalty rate multiplied by NIB Dollars;
(xi) the Royalty payment due; and
(xii) a separate report for each item number (i) through (xi)
above as they apply to returns.
If Licensee's Royalty calculation is based on Net Invoiced Billings:
(i) Licensee's product number, ISBN, and title;
(ii) the Royalty rate code as provided by Licensor;
(iii) the applicable NIB Royalty rate;
(iv) the gross quantities by title of the Book sold (a sale of
the Book shall be deemed to have occurred on the date the
Book is shipped to the customer);
(v) NIB Dollars;
(vi) the Royalty payment due; and
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 29
(vii) a separate report for each item number (i) through (vi)
above as they apply to returns.
Sales to countries other than the United States, if any such
are permitted, shall be reported separately by country.
Royalty payments shown as due shall be delivered to Licensor
with such statements; provided, however, that Licensee shall
deliver directly to Licensor's Canadian office, at the
address listed below in Subparagraph 21.4, Royalties payable
on sales of the Book in Canada and a separate statement of
account for such sales. GST applicable to Royalties or to
any other payments due to Licensor shall be indicated on
Licensee's statements of account for Canada and paid to
Licensor along with the Royalty or other payment. Royalties
are also payable, and due with such statements, on inventory
shrinkage that exceeds [Intentionally omitted pursuant to a
confidential treatment request and separately filed with the
Commission] (excluding free copies authorized pursuant to
Subparagraph 1.6(viii) above). Inventory shrinkage means the
reduction in Licensee's inventory of the Book not caused by
sales or damaged copies. To the extent that Royalties are
not paid, Licensor may offset Royalties due hereunder
against any sums which Licensor or any of its Affiliates may
owe to Licensee or any of its Affiliates. No deduction or
withholding from Royalties payable to Licensor shall be made
by reason of any tax. Any applicable tax on the manufacture,
distribution and sale of the Book shall be borne by
Licensee.
21.2 The statement forms Licensor designates for Licensee's use may be
changed from time to time, and Licensee agrees to use the most
current form Licensor provides to Licensee. Licensee shall fully
comply with all of Licensor's instructions for completing such forms.
Licensee shall submit,
concurrently with Licensee's written statement of account for each
Royalty Payment Period, an electronic version (e.g., computer
diskette or electronic transmission) of such statement of account.
Licensee shall continue to submit, in electronic or written form, the
"Supplemental Schedule" which Licensee has heretofore been submitting
to Licensor in conjunction with Licensee's statements of account,
identifying the new titles being sold for each Royalty Payment
Period.
21.3 Sales of books licensed under contracts with Licensor other than this
Agreement shall not be reported on the same statement as sales of the
Book under this Agreement.
21.4 Licensee's payments, including all Royalties (excluding Royalties
payable to Canada), shall be delivered to the attention of the Disney
Publishing Group, P.O. Box 101947, Atlanta, Georgia 30392. A copy of
each statement and payment must be
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 30
sent to The Disney Publishing Group, 500 South Buena Vista Street,
Burbank, California 91521-6311, to the attention of Disney Licensed
Publishing. If Licensee wishes to send statements and payments by
overnight courier, please use the following address: The Disney
Publishing Group, 3800 West Alameda Avenue, 17th Floor, Burbank,
California 91505-6311, Attention Disney Licensed Publishing. Any
Advances should be mailed directly to The Disney Publishing Group,
3800 West Alameda Avenue, 16th Floor, Burbank, California 91505-6292,
to the attention of the Contract Administrator. Statements and
Royalties payable to Canada shall be delivered to Disney Worldwide
Services, Inc. - T6071, P.O. Box 6100, Postal Station "F", Toronto,
Ontario M4Y 2Z2.
21.5 Licensee shall indicate on Licensee's statement of account the amount
of any reserve for returns maintained. Licensee shall not maintain an
unreasonable reserve for returns. In no event shall Licensee's
reserve for returns exceed [Intentionally omitted pursuant to a
confidential treatment request and separately filed with the
Commission] of the Royalties due in the Royalty Payment Period being
reported, unless Licensee has obtained the prior written consent of
Licensor. In the event that actual returns exceed the reserve for
returns and cannot be recouped out of Royalties otherwise due in the
relevant Royalty Payment Period, or any subsequent Royalty Payment
Period, Licensor shall refund at the end of the Term unearned
Royalties previously paid in excess of any Advances, and subject to
payment by Licensee when due of any guarantee obligation. Such refund
may be applied by Licensor against any late charges that may be due
by Licensee hereunder. In the event that reserves exceed actual
returns, Licensee shall pay Royalties on the difference with
Licensee's final statement of account for the Term. Licensee may
report returns during the Term of the Agreement only. In no event may
Licensee report returns which occur during the Sell-off Period, if
granted. For purposes of clarity, in no event shall Licensee be
entitled to offset any returns against Licensee's Guarantee
obligations. Without limiting the generality of the foregoing, once
Licensee has attained the capability to report actual returns on a
consistent basis and can demonstrate to Licensor the need to increase
the allowable reserve for returns percentage, Licensor shall in good
faith consider permitting a reasonable increase.
21.6 Within thirty (30) days prior to the beginning of each Royalty
Payment Period and within ninety (90) days prior to the beginning of
each Guarantee period, Licensee shall submit to Licensor a forecast
of the expected Net Invoiced Billings, projected unit volumes to be
sold, unit volumes to be returned, reserve percentages, suggested
retail prices, and Royalties for each title of the Book for each
respective time period.
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 31
21.7 Licensee shall take all necessary steps to ensure that its
information systems, including without limitation, all its
proprietary and all third party hardware and software, process dates
correctly prior to, during and after the calendar year 2000 ("Year
2000 Compliance"). Year 2000 Compliance shall include, without
limitation, correct century recognition, calculations that properly
accommodate same century and multi-century formulas and date values,
and interface values that reflect the appropriate century. Necessary
steps to ensure Year 2000 Compliance shall include, without
limitation, analysis of all components of Licensee's information
systems and, as necessary, development, installation and testing of
software fixes, patches and/or updates. In a timely manner, but no
later than December 31, 1998, Licensee shall advise Licensor in
writing whether or not its information systems are Year 2000
Compliant. If Licensee advises Licensor that Licensee's information
systems are not Year 2000 Compliant, Licensee shall endeavor to
ensure that its information systems are substantially Year 2000
Compliant on or before June 30, 1999.
21.8 Without limiting the generality of this Paragraph 21, Licensor
recognizes and acknowledges that Licensee's current automated
accounting system may not have the capability to report all of the
information required by Licensor, including the information required
under Subparagraphs 21.1 and 21.6 above. Licensee represents that it
is currently working to improve its automated accounting system so as
to be in a position to provide Licensor with all of the information
requested by Licensor for reporting purposes under those
Subparagraphs by January 1, 2000. Until such time, Licensee shall not
be deemed to be in breach of Subparagraphs 21.1 or 21.6 if Licensee
(a) uses its best efforts to report to Licensor the maximum amount of
information required under Subparagraphs 21.1 and 21.6 which Licensee
is reasonably capable of reporting and (b) Licensee provides Licensor
any such additional information required, if reasonably available and
whether or not contained in Licensee's automated accounting system,
on an as-needed basis when requested by Licensor, including, but not
limited to, in connection with Licensor's audit rights under
Paragraph 23 below.
22. INTEREST
Royalties, audit findings or any other payments due to Licensor hereunder which
are received after the due date shall bear interest at the rate of
[Intentionally omitted pursuant to a confidential treatment request and
separately filed with the Commission] per annum from the due date, or at the
maximum rate permissible by law if less than [Intentionally omitted pursuant to
a confidential treatment request and separately filed with the Commission].
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 32
23. AUDITS AND MAINTAINING RECORDS
23.1 Licensee agrees to keep and preserve accurate records, during the
Term hereof and for two (2) years after the expiration or termination
of this Agreement, of all transactions relating to this Agreement and
any prior agreement with Licensor regarding the Licensed Property,
including, without limitation, print runs, shipments to Licensee of
the Book and any components thereof, inventory records, records of
sales and shipments by Licensee, and records of returns. Licensor,
and/or a representative of Licensor, shall have the right at any
time, during the Term hereof and for two (2) years after the
expiration or termination of this Agreement, during reasonable
business hours upon a prior request made by Licensor, to examine and
make extracts from all such records, including the general ledger,
invoices, and any other records which Licensor reasonably deems
appropriate to verify the accuracy of Licensee's statements of
account or Licensee's performance under this Agreement. Licensee
acknowledges that Licensor may furnish Licensee with an audit
questionnaire, and Licensee agrees to fully and accurately complete
such questionnaire, and return it to Licensor within the designated
time. Licensor's use of an audit questionnaire shall not limit
Licensor's ability to conduct any on-site audit(s) as provided above.
Licensee acknowledges that an audit conducted by Licensor or its
representatives, may involve one or more license agreements at a
time.
23.2 If in any audit of Licensee's records it is determined that there is
a shortfall of five percent (5%) or more in Royalties reported for
any Royalty Payment Period, Licensee shall, upon request from
Licensor, reimburse Licensor for the full out-of-pocket costs of the
audit, including the costs of employee auditors calculated at their
then current hourly rate per person for travel time during normal
working hours and actual working time.
23.3 If Licensee has failed to keep accurate records for one or more
Royalty Payment Periods, Licensor will assume that the Royalties owed
to Licensor for such Royalty Payment Period(s) are equal to a
reasonable amount, determined in Licensor's absolute discretion,
which may be up to, but will not exceed, the highest Royalties owed
to Licensor in a Royalty Payment Period for which Licensee has kept
accurate records. If Licensee has failed to keep adequate records for
any Royalty Payment Period, Licensor will assume a reasonable amount
of Royalties which Licensee will owe to Licensor, based on the
records Licensee has kept and other reasonable assumptions Licensor
deems appropriate.
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 33
24. WITHDRAWAL OF LICENSED MATERIAL
Licensor may require Licensee to withhold and/or withdraw the Licensed Property,
or any part thereof, the use or sale of which under this Agreement would
infringe or reasonably be claimed to infringe the rights of a third party, other
than rights granted by Disney Enterprises, in which case Licensor's obligations
to Licensee shall be limited to the purchase at cost of the Books and other
materials utilizing such withdrawn Licensed Property which cannot be used or
sold. In the case of any withdrawal under the preceding sentence, the Advance
and Guarantee shall be adjusted to correspond to the time remaining in the Term
at the date of withdrawal.
25. TERMINATION
Without prejudice to any other right or remedy available to it, Licensor shall
have the right at any time to terminate this Agreement, by giving written notice
thereof, in the event of the occurrence of one (1) or more of the following:
25.1 If Licensee delivers to any customer without Licensor's written
authorization anything containing representations of the Licensed
Property or other material the copyright or other proprietary rights
to which are owned by Disney Enterprises, other than the Book
described herein and approved in accordance with the provisions
hereof and such breach is not cured within thirty (30) days after
notification by Licensor of the breach (or, in the event of a breach
which cannot be corrected within thirty (30) days, if Licensee fails
to commence such correction within such thirty (30) day period and
thereafter diligently prosecute it to completion); or
25.2 If Licensee delivers the Book outside the Territory (unless the Book
is destined for ultimate delivery in the Territory) or sells the Book
to a third party if Licensee knows, or in the exercise of prudent
business judgment should know, that such sale will result in delivery
of the Book outside the Territory and such breach is not cured within
thirty (30) days after notification by Licensor of the breach (or, in
the event of a breach which cannot be corrected within thirty (30)
days, if Licensee fails to commence such correction within such
thirty (30) day period and thereafter diligently prosecute it to
completion); or
25.3 If Licensee fails to make any payment and/or furnish any statement as
herein provided, and if such failure is not corrected within thirty
(30) days following the date said statement or payment was due; or
25.4 If Licensee shall breach any other terms of this Agreement and if any
such breach is not corrected within thirty (30) days after
notification by Licensor of the breach (or,
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 34
in the event of a breach which cannot be corrected within thirty (30)
days, if Licensee fails to commence such correction within such 30
day period and thereafter diligently prosecute it to completion); or
25.5 If Licensee breaches any material term of any other agreement between
the parties to this Agreement, and Licensor terminates such other
agreement for cause; or
25.6 If Licensee shall make any assignment for the benefit of creditors,
or file a petition in bankruptcy, or be adjudged bankrupt, or become
insolvent, or be placed in the hands of a receiver. The equivalent of
any of the proceedings or acts referred to in this Subparagraph,
though known and/or designated by some other name or term in any part
of the Territory shall likewise constitute a ground for termination
of this Agreement by Licensor; or
25.7 If Licensee is not permitted or is unable to operate its business in
the usual manner, or is not permitted or is unable to provide
Licensor with assurances satisfactory to Licensor that Licensee will
so operate Licensee's business, as debtor in possession or its
equivalent, or is not permitted, unable to otherwise meet Licensee's
obligations under this Agreement or to provide Licensor with
assurance satisfactory to Licensor that Licensee will meet such
obligations; or
25.8 If [Intentionally omitted pursuant to a confidential treatment
request and separately filed with the Commission] during the Term of
this Agreement (and any extension thereof) Licensee breaches any
material provision of this Agreement which is of the same nature, and
which violates the same provision of this Agreement, as a breach of
which Licensor has previously given Licensee written notice; or
25.9 If Licensee transfers or attempts to transfer this Agreement in
contravention of Paragraph 27 below; or
25.10 If [Intentionally omitted pursuant to a confidential treatment
request and separately filed with the Commission] during the Term of
this Agreement (and any extension thereof) Licensee breaches any
covenant set forth in Paragraph 10 of this Agreement after Licensor
has previously given Licensee written notice of a breach of any
covenant set forth in such Paragraph 10; or
25.11 If [Intentionally omitted pursuant to a confidential treatment
request and separately filed with the Commission]
Consent/Manufacturer's Agreements or Supplier's Agreements, either
combined or separately, are terminated in any twelve-month
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 35
period by Licensor for the Suppliers' failure to pass compliance
inspections as referenced in Paragraphs 10 and 11 above; and/or
25.12 If Licensee materially breaches any provision of the Warrant, and
such breach is not cured within thirty (30) days after notification
by Licensor of the breach (or, in the event of a breach which cannot
be corrected within thirty (30) days, if Licensee fails to commence
such correction within such thirty (30) day period and thereafter
diligently prosecute it to completion).
26. RIGHTS AND OBLIGATIONS UPON EXPIRATION OR TERMINATION
26.1 Upon the expiration or termination of this Agreement, all rights
granted herein to Licensee shall revert to Licensor, any unpaid
portion of the Guarantee shall be due and payable in accordance with
the
provisions set forth in Subparagraph 4.1 below, and Licensor shall be
entitled to retain any and all consideration paid to Licensor and
other things of value paid or delivered to Licensor.
26.2 Licensee agrees that the Book shall be manufactured during the Term
in quantities consistent with anticipated demand therefor so as not
to result in an excessive inventory build-up immediately prior to the
end of the Term. Licensee agrees that from the expiration or
termination of this Agreement, Licensee shall neither manufacture nor
have manufactured for Licensee the Book, and that except as
hereinafter may be provided, Licensee will cease selling the Book.
Any unauthorized distribution of the Book after the expiration or
termination of this Agreement shall constitute copyright
infringement.
26.3 If Licensee has any unsold copies of the Book in inventory on the
expiration or termination date, Licensee shall provide Licensor with
a full itemized statement, certified by an authorized accredited
officer of Licensee, of all unsold copies of the Book remaining in
stock. If such statement has been provided to Licensor and if
Licensee has complied with the material terms of this Agreement,
including the payment of all Royalties due and the Guarantee, upon
notice from Licensor, Licensee shall have the right to fill orders,
as authorized under Paragraph 2 above, from its then remaining stocks
of the Book for a limited period of twelve (12) calendar months
following the expiration of the Term by the passage of time (the
"Sell-off Period"). Licensee shall consult with Licensor regarding
its sell-off plan and sell off remaining stocks of the Book only
pursuant to such plan and in such distribution channels as are
mutually acceptable to the parties. Licensee shall furnish Licensor
with statements of account covering such sales and pay Licensor
Royalties upon such sales.
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 36
Such Royalties shall not be applied against the Advance or towards
meetingthe Guarantee. All rights and remedies available to Licensor
during the Term shall be equally available to Licensor during the
Sell- off Period.
26.4 Following the expiration of the Sell-off Period, Licensee shall
provide Licensor with an itemized statement of all unsold copies of
the Book remaining in stock. All unsold copies of the Book shall, at
the end of the Sell-off Period (or, if there is no Sell-off Period,
upon the expiration or earlier termination of the Term), at
Licensor's option, be sold to Licensor at Licensee's actual cost of
manufacture, excluding overhead, or shall be destroyed, and Licensee
shall furnish Licensor with an affidavit of such destruction signed
by a principal officer of Licensee.
26.5 Licensee agrees that all pre-pricing and pricing of the Book shall be
in compliance with any and all Laws applicable thereto. In
recognition of Licensor's interest in maintaining a stable and viable
market for the Book during and after the Term and any Sell-off
Period, Licensee agrees to refrain from "dumping" the Book in the
market during the Term and any Sell-off Period granted to Licensee.
[Intentionally omitted pursuant to a confidential treatment request
and separately filed with the Commission].
26.6 Except as otherwise agreed by Licensor in writing, any inventory of
the Book in Licensee's possession or control after the expiration or
termination of this Agreement, and any Sell-off Period granted
hereunder, shall be destroyed, or all Licensed Property removed or
obliterated therefrom.
26.7 At the expiration or earlier termination of this Agreement, Licensee
agrees to deliver to Licensor, without charge to Licensor, any and
all artwork, including without limitation, reference materials,
mechanicals, digital files, original manuscripts and paintings, film
and film positives/negatives, four- color separations, photographs,
transparencies, film proofs, and any other reproduction material used
in the creation, development, and manufacture of the Book, whether
furnished by Licensor, created by Licensee or otherwise acquired by
Licensee (the property rights in all of which such materials shall
remain vested in Disney Enterprises at all times). If Licensee should
for any reason fail to deliver such materials, or any part thereof,
and Licensor thereafter must recreate such material, Licensee agrees
to reimburse Licensor for the reasonable costs incurred by Licensor
in so doing.
26.8 Notwithstanding any provision to the contrary, in the case of
termination under Subparagraphs 25.6 or 25.7 above, in order to
protect the value of the Book and to avoid any disparagement of the
Book which would occur as a result of the circumstances of
termination, Licensor shall have the option, in Licensor's absolute
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 37
discretion, to purchase any or all unsold copies of the Book in
Licensee's inventory on the termination date at [Intentionally
omitted pursuant to a confidential treatment request and separately
filed with the Commission].
27. NON-ASSIGNABILITY
27.1 This license and the rights granted and obligations undertaken
hereunder are personal to Licensee. Licensee shall not voluntarily or
by operation of law assign, sub-license, transfer, encumber or
otherwise dispose of all or any part of Licensee's interest in this
Agreement (including, but not limited to, any encumbrance of the
Book) without Licensor's prior written consent, to be granted or
withheld in Licensor's absolute discretion. Any attempted assignment,
sub-license, transfer, encumbrance or other disposal without such
consent shall be void and shall constitute a material default and
breach of this Agreement. "Transfer" within the meaning of this
Paragraph 27 shall include (1) any merger or consolidation involving
Licensee or Golden Books Family Entertainment, Inc. ("GBFE"); (2) any
sale or transfer of all or substantially all of Licensee's or GBFE's
assets; (3) any transfer of Licensee's rights or duties hereunder to
a division, business segment or other entity different from the one
specifically referenced on page 1 hereof (or any sale or attempted
sale of the Book under a trademark or trade name of such division,
business segment or other entity); (4) any public offering, or series
of public offerings, whereby a cumulative total of thirty-three and
one-third percent (33 1/3%) or more of the voting stock (or any other
capital stock cumulatively convertible into the right to vote such
percentage) of Licensee or GBFE is offered for purchase; and (5) any
acquisition, or series of acquisitions, by any person or entity, or
group of related persons or entities, of a cumulative total of
thirty-three and one-third percent (33-1/3%) or more of the voting
stock (or any other capital stock cumulatively convertible into the
right to vote such percentage) or the Beneficial Ownership (as
defined in Rule 13d-3 of the Securities Exchange Act of 1934, as
amended) of Licensee or GBFE.
27.2 Licensee hereby represents that, as of the date of this Agreement,
Golden Press Holdings, L.L.C. ("GPH") holds all Series "B" Preferred
Shares in GBFE (the "Series B Shareholder"). For purposes of
clarification, "transfer" within the meaning of this Paragraph 27
shall not include (i) any conversion of Series "B" Preferred Shares
into Common Shares by the Series B Shareholder or (ii) any actions
described in the definition of "transfer" in Subparagraph 27.1 if
such actions occur between or among E.M. Warburg Pincus & Company and
its Affiliates. Licensee further represents that, as of the date of
this Agreement, E.M. Warburg Pincus & Company, Warburg, Pincus & Co.,
Warburg Pincus Ventures, L.P., and their respective Affiliates are
the Beneficial Owners (as defined above) of thirty-three and
one-third percent (33-1/3%)
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 38
or more of the voting stock (or other capital stock cumulatively
convertible into the right to vote such percentage) of GBFE (the
"Warburg Pincus Shares"). The following shall apply with respect to
any transfer of the Warburg Pincus Shares which requires the consent
of Licensor pursuant to Subparagraph 27.1 above:
(1) Licensor hereby consents to the transfer by a widely-distributed
public offering of the Warburg Pincus Shares to individual
investors [Intentionally omitted pursuant to a confidential
treatment request and separately filed with the Commission].
(2) [Intentionally omitted pursuant to a confidential treatment
request and separately filed with the Commission].
(3) [Intentionally omitted pursuant to a confidential treatment
request and separately filed with the Commission].
27.3 Licensee agrees to provide Licensor with at least thirty (30) days
prior written notice of any desired assignment of this Agreement or
other transfer as defined in this Paragraph 27. At the time Licensee
gives such notice, Licensee shall provide Licensor with the
information and documentation necessary to evaluate the contemplated
transaction. Except as otherwise provided in Subparagraph 27.2 above,
Licensor's consent (if given) to any assignment of this Agreement or
other transfer as defined in this Paragraph 27 shall be subject to
such terms and conditions as Licensor deems appropriate, including
but not limited to, payment of a transfer fee, provided however that
no such transfer fee shall be applicable to a desired assignment of
this Agreement or other transfer as defined in this Paragraph 27
effectuated in connection with a pre-packaged plan of reorganization
consummated on or before June 30, 1999. The amount of the transfer
fee shall be determined by Licensor based upon the circumstances of
the particular assignment or transfer, taking into account such
factors as the estimated value of the license being assigned or
otherwise transferred; the risk of business interruption or loss of
quality, production or control Licensor may suffer as a result of the
assignment or other transfer; the identity, reputation,
creditworthiness, financial condition and business capabilities of
the proposed assignee or other entity involved in the transfer; and
Licensor's internal costs related to the assignment or other
transfer; provided, however, in no event shall the transfer fee be
less than [Intentionally omitted pursuant to a confidential treatment
request and separately filed with the Commission] for any license
between Licensor and Licensee involved in an assignment or other
transfer. The foregoing transfer fee shall not apply if this
Agreement is assigned to one or more of Licensee's Affiliates as part
of a corporate
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 39
reorganization exclusively among some or all of the entities existing
in Licensee's corporate structure when this Agreement is signed;
provided, however, that Licensee must give Licensor written notice of
such assignment and a description of the reorganization. The
provisions of this Subparagraph 27 shall supersede any conflicting
provisions on this subject in any publishing license agreements
previously entered into between Licensee and Licensor for this
Territory.
27.4 Notwithstanding Subparagraphs 27.1 and 27.3 above, Licensee may, upon
Licensor's prior written consent sublicense Licensee's rights and/or
obligations hereunder to any of Licensee's Affiliates, provided that
each such Affiliate agrees to be bound by all of the terms and
conditions of this Agreement, and provided that each such Affiliate
agrees to guarantee Licensee's full performance of this Agreement
(including, but not limited to, Paragraph 19) and to indemnify
Licensor for any failure of such performance, and further provided
that Licensee and each such Affiliate agree to provide Licensor with
satisfactory documentation of such agreement(s), guarantee(s), and
indemnification upon Licensor's request therefor. Licensee hereby
irrevocably and unconditionally guarantees that any and all
Affiliates sublicensed hereunder will observe and perform all of
Licensee's obligations under this Agreement, including, but not
limited to, the provisions governing approvals, and compliance with
approved samples, applicable Laws, and all other provisions hereof,
and that such companies will otherwise adhere strictly to all of the
terms hereof and act in accordance with Licensee's obligations
hereunder. Any involvement of an Affiliate in the activities which
are the subject of this Agreement shall be deemed carried on pursuant
to such a sublicense and thus covered by such guarantee; however,
unless Licensee has obtained Licensor's consent to sublicense an
Affiliate in each instance, such Affiliate shall be deemed to be
included in the term "Licensee" for all purposes under this
Agreement, and Licensor may treat such unapproved involvement of the
Affiliate as a breach of the Agreement. In the event of any
sublicense to an Affiliate hereunder, the reference in Subparagraph
27.1 to Licensee shall include such Affiliate sublicensee.
27.5 Licensor's rights and obligations hereunder may be assigned,
delegated or otherwise transferred by Licensor.
28. NOTICES
All notices which either party is required or may desire to serve upon the other
party hereunder shall be in writing and addressed to the party to be served at
the address set forth below, or to such other address as either party may
hereafter designate:
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 40
To Licensor: Disney Licensed Publishing
500 S. Buena Vista Street
Burbank, California 91521
Attention: Vice-President
With a copy to: The Walt Disney Company
500 Park Avenue
New York, NY 100221
Attention: Kenneth E. Newman
Senior Vice President - Eastern Regional Counsel
To Licensee: Golden Books Publishing Company, Inc.
888 Seventh Avenue
New York, NY 10019
Attention: Richard Snyder
With a copy to: Golden Books Publishing Company, Inc.
888 Seventh Avenue
New York, NY 10019
Attention: Philip Galanes, Esq.
Any notice, served by either party, may be served personally or by depositing
the same addressed as herein provided (unless and until otherwise notified),
postage prepaid, in the official mail of the country in which deposited, or by
documented overnight delivery service. Such notice shall be deemed to have been
served upon personal delivery or upon the date of mailing. However, Licensor
shall be deemed to have been served with a notice of a request for approval of
materials under this Agreement only upon Licensor's actual receipt of the
request and of any required accompanying materials.
29. MUSIC
Music is not licensed hereunder. Any charges, fees or royalties payable for
music rights or any other rights not covered by this Agreement shall be
additional to the Royalties and covered by separate agreement.
30. GOODWILL
Licensee hereby acknowledges that the rights and powers retained by Licensor
hereunder are necessary to protect Disney Enterprises' copyrights and property
rights, and, specifically, to conserve the goodwill and good name of Licensor's
products and Licensor's Affiliates, the Disney Property
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 41
and the name "Disney", and therefore Licensee agrees that Licensee will not
allow the same to become involved in matters which will, or could, detract from
or impugn the public acceptance and popularity thereof, or impair their legal
status.
31. RELATIONSHIP
This Agreement does not provide for a joint venture, partnership, franchise,
agency or employment relationship between the parties, or any other relationship
than that of licensor and licensee.
32. CONSTRUCTION
The language of all parts of this Agreement shall in all cases be construed as a
whole, according to its fair meaning and not strictly for or against any of the
parties. Headings of paragraphs herein are for convenience of reference only and
are without substantive significance.
33. MODIFICATIONS OR EXTENSIONS OF THIS AGREEMENT
Except as otherwise provided herein, this Agreement can only be extended or
modified by a writing signed by both parties executed after the effective date
hereof; provided, however, that certain modifications shall be effective if
signed by the party to be charged and communicated to the other party. The
parties agree to execute such further documents as may be necessary to implement
or make effective the terms of this Agreement.
34. RESERVATION OF RIGHTS
All rights not specifically granted and licensed to Licensee hereunder are
reserved to Licensor.
35. WAIVERS
A waiver by either party at any time of a breach of any provision of this
Agreement shall not apply to any breach of any other provision of this
Agreement, or imply that a breach of the same provision at any other time has
been or will be waived, or that this Agreement has been in any way amended, nor
shall any failure by either party to object to conduct of the other be deemed to
waive such party's right to claim that a repetition of such conduct is a breach
hereof.
36. SEVERABILITY
In the event any provision contained herein is held to be unlawful or
unenforceable, such provision shall be severable from the remaining provisions
of this Agreement, which shall remain in full force and effect.
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 42
37. CHOICE OF LAW AND FORUM
This Agreement shall be deemed to be entered into in California and shall be
governed and interpreted according to the laws of the State of California
applicable to contracts made and to be fully performed in California. Any legal
actions pertaining to this Agreement shall be commenced within the State of
California and within either Los Angeles or Orange Counties, and Licensee hereby
consents to the jurisdiction of the courts located in Los Angeles or Orange
Counties.
38. EQUITABLE RELIEF
Licensee acknowledges that Licensor will have no adequate remedy at law if
Licensee continues to manufacture, sell, advertise, promote or distribute the
Book upon the expiration or termination of this Agreement. Licensee acknowledges
and agrees that, in addition to any and all other remedies available to
Licensor, Licensor shall have the right to have any such activity by Licensee
restrained by equitable relief, including, but not limited to, a temporary
restraining order, a preliminary injunction, a permanent injunction, or such
other alternative relief as may be appropriate, without the necessity of
Licensor posting any bond.
39. POWER TO SIGN
The parties warrant and represent that their respective representatives signing
this Agreement have full power and proper authority to sign this Agreement and
to bind the parties.
40. CONFIDENTIALITY
40.1 Licensee represents and warrants that Licensee did not trade on the
prospect of a license from Licensor, prior to full execution of this
Agreement. Licensee agrees to keep the terms and conditions of this
Agreement confidential, and Licensee shall not disclose such terms
and conditions to any third party without obtaining Licensor's prior
written consent; provided, however, that the terms and conditions of
this Agreement may be disclosed on a need-to-know basis to Licensee's
outside attorneys and accountants who agree to be bound by this
confidentiality provision. In addition, Licensee may have access to
information concerning Licensor's and/or its Affiliates' business and
operations, and/or information concerning works in progress, artwork,
plots, characters or other matters relating to Licensor's and/or its
Affiliates' artistic creations, which information may not be
accessible or known to the general public. Licensee agrees not to use
or disclose such information to any third party without obtaining
Licensor's prior written consent.
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 43
40.2 Licensor agrees to use reasonable care to keep confidential those
terms and conditions of this Agreement which are not standard terms
and conditions contained in Licensor's licensed publishing agreements
with other licensees, and Licensor shall not disclose such terms and
conditions to any third party without obtaining Licensee's prior
written consent; provided, however, that the terms and conditions of
this Agreement may be disclosed on a need-to-know basis to Licensor's
outside attorneys and accountants who agree to be bound by this
confidentiality provision. In addition, Licensor may have access to
information concerning Licensee's and/or its Affiliates' business and
operations which information may not be accessible or known to the
general public. Licensor agrees not to use or disclose such
information to any third party without obtaining Licensee's prior
written consent.
40.3 In the event either party is required to disclose the information
deemed confidential in Subparagraphs 40.1 and 40.2 above, pursuant to
any law, court order or process, the rules and regulations of any
governmental department, agency or authority (including, but not
limited to, the Securities and Exchange Commission) or any generally
accepted accounting rules mandating disclosure in the disclosing
party's financial statements, the disclosing party agrees to give the
non-disclosing party prior written notice and the disclosing party
shall use its best efforts to obtain confidential treatment of the
information required to be disclosed. Upon the non-disclosing party's
request, the disclosing party agrees to incorporate, to the extent
reasonably possible, the non-disclosing party's comments into the
disclosing party's request for confidential treatment, provided such
request and comments are received by the disclosing party within five
(5) business days after receipt the notice referred to in the
preceding sentence.
40.4 Licensor and Licensee shall consult with each other before issuing
any press release or making any public statement with respect to the
execution, termination, expiration or terms and conditions of this
Agreement. and, except as may be required by law, shall not issue any
such press release or make any public statement unless the text of
such statement shall first have been agreed upon by the parties.
<PAGE>
Golden Books Publishing Company, Inc.
Agreement dated December 12, 1998
Page 44
41. PREVIOUS AGREEMENTS
Effective as of December 11, 1998, the Licensed Book Publishing Agreement dated
September 26, 1997 has been terminated. This Agreement, and any confidentiality
agreement Licensee may have signed pertaining to any of the Licensed Property,
contains the entire agreement between the parties concerning the subject matter
hereof and supersedes any pre-existing or contemporaneous agreement and any oral
or written communications between the parties.
42. SURVIVAL OF OBLIGATIONS
The respective obligations of the parties under this Agreement, which by their
nature would continue beyond the termination, cancellation or expiration of this
Agreement, including but not limited to indemnification, insurance, payment of
Royalties, and Paragraph 26 above, shall survive termination, cancellation or
expiration of this Agreement.
ACCEPTED AND AGREED:
GOLDEN BOOKS PUBLISHING BUENA VISTA BOOKS, INC. COMPANY,
INC. DBA DISNEY LICENSED PUBLISHING
By: /s/ By: /s/
--------------------------- ---------------------------
Title:___________________________ Title:__________________________
Date:____________________________ Date:___________________________
<PAGE>
GOLDEN BOOKS PUBLISHING COMPANY, INC.
AGREEMENT DATED DECEMBER 12, 1998
SCHEDULE A
"A" PROPERTIES
[Intentionally omitted pursuant to a confidential treatment request and
separately filed with the Commission]
(18) Characters from each new major children-oriented Disney-branded feature
animation film, animation video, and Disney-branded live action film released or
re-released during the Term;
(19) Children-oriented television properties which Licensor has previously
licensed to Licensee as well as new properties which are derived from the
non-television Properties listed above and are developed by Disney for a
children- oriented television series; and
(20) New children-oriented television properties originally developed by Disney
or acquired by Disney, but only if Licensor and Licensee mutually agree to a
program whereby Licensee shall provide sufficient publishing support for such
new television property.
*Tentative title
Licensor shall determine the classification of any given property into "A", "B"
or "C" Properties, in good faith, in Licensor's absolute discretion, and
consistent with existing property classifications.
<PAGE>
GOLDEN BOOKS PUBLISHING COMPANY, INC.
GOLDEN BOOKS PUBLISHING COMPANY, INC.
AGREEMENT DATED DECEMBER 12, 1998
SCHEDULE A
"B" PROPERTIES
[Intentionally omitted pursuant to a confidential treatment request and
separately filed with the Commission]
(24) Children-oriented television properties which Licensor has previously
licensed to Licensee as well as new properties which are derived from the
non-television Properties listed above and which are developed by Disney for a
children-oriented television series; and
(25) New children-oriented television properties originally developed by Disney
or acquired by Disney, but only if Licensor and Licensee mutually agree to a
program whereby Licensee shall provide sufficient publishing support for such
new television property.
*Tentative title
<PAGE>
GOLDEN BOOKS PUBLISHING COMPANY, INC.
AGREEMENT DATED DECEMBER 12, 1998
SCHEDULE A
"C" PROPERTIES
[Intentionally omitted pursuant to a confidential treatment request and
separately filed with the Commission]
(19) Children-oriented television properties which Licensor has previously
licensed to Licensee as well as new properties which are derived from the
non-television Properties listed above and which are developed by Disney for a
children-oriented television series; and
(20) New children-oriented television properties originally developed by Disney
or acquired by Disney, but only if Licensor and Licensee mutually agree to a
program whereby Licensee shall provide sufficient publishing support for such
new television property.
<PAGE>
GOLDEN BOOKS PUBLISHING COMPANY, INC.
AGREEMENT DATED DECEMBER 12, 1998
SCHEDULE B
FORMATS [Intentionally omitted pursuant to a confidential
treatment request and separately filed with the Commission]
Color & Activity
Activity pads [Intentionally omitted pursuant to a
Color-by-Number confidential treatment request and separately
Color Surprise (magic) filed with the Commission]
Easy Peel Sticker books "
Foil sticker books "
Magic slates* "
Mark & See Magic "
Match & Color "
My Coloring book "
My First Activity book "
Paint with water "
Paint box books "
Paint 'N' Marker "
Paper doll book "
Posters to color "
Press-out activity book "
Scented sticker book "
Shaped coloring book "
Special edition coloring book "
Sticker by Number "
Sticker fun "
Super coloring book "
Super paint with water "
Tell-a-Story sticker book "
Trace & Color "
For purposes of this Agreement, the term "Book," as it applies to the color and
activity format, shall include, in addition to those color and activity formats
listed hereinabove, the following:
(a) Licensee's color and activity books, in which the Licensed Property is used,
existing as of the date of this Agreement in the format specifications (e.g.,
trim size and page count) previously approved by Licensor under any prior
license agreements between Licensor and Licensee (or their predecessors);
(b) New color and activity formats developed by Licensee which meet each of the
following criteria:
(i) Derivative of any color and activity formats approved by Licensor under this
Agreement or under any prior license agreement between Licensor and Licensee (or
their predecessors);
(ii) Similar in price point to any color and activity formats approved by
Licensor under this Agreement or under any prior license agreement between
Licensor and Licensee (or its predecessors); and
<PAGE>
(iii) Subject to the same distribution channels authorized in Subparagraph 2.3
of this Agreement.
For purposes of this Agreement, the term "Book," as it applies to the color and
activity format, shall not include the following:
(a) Any product which is or could be reasonably construed as an entirely new
category of product (e.g., educational workbooks or foreign language teaching
products);
(b) Any product which includes any new or substantially new technology, or a key
component of which, was not contemplated by the scope of the authorized color
and activity formats licensed hereunder (e.g., a talking coloring book or a
color and activity book with a toy or audiocassette);
(c) Any product which has been licensed by Licensor to another licensee as of
the date of this Agreement, but only for the duration of the term of such
license(s); and
(d) Any product which, in whole or in part, falls outside of Licensor's
customary licensed publishing business or which is published, manufactured or
licensed or being published, manufactured or licensed by Licensor's Affiliates.
<PAGE>
GOLDEN BOOKS PUBLISHING COMPANY, INC.
AGREEMENT DATED DECEMBER 12, 1998
SCHEDULE B
FORMAT [Intentionally omitted pursuant to a confidential
treatment request and separately filed with the Commission]
Storybook
Deluxe Super Shape book [Intentionally omitted pursuant to a
Little Golden book confidential treatment request and separately
Look Look book filed with the Commission]
Super Shape book "
First Little Golden book "
Sturdy Shape book** "
Little Look Look book "
Little Little Golden book (2-pack) "
Little Super Shape "
Little Golden Storybook "
*Books are to be of a type and quality designed to sell for the suggested retail
prices, provided, however, that Licensee has the absolute discretion to price
the books as Licensee deems appropriate.
**Subject to Subparagraph 2.1 of this Agreement.
For purposes of this Agreement, the term "Book" as it applies to the storybook
format shall include, in addition to those storybook formats listed above,
storybooks developed by Licensee which contain minor modifications (e.g., trim
size and page count) to the specifications of the storybook formats listed
hereinabove and which are subject to the same distribution channels authorized
in Subparagraph 2.3 of this Agreement. Nothing in this Agreement shall preclude
Licensee from submitting for Licensor's consideration new storybook
opportunities.
<PAGE>
GOLDEN BOOKS PUBLISHING COMPANY, INC.
AGREEMENT DATED SEPTEMBER 26, 1997
SCHEDULE C
[Intentionally omitted pursuant to a confidential treatment request and
separately filed with the Commission].
<PAGE>
SUPPLIER'S AGREEMENT
EXHIBIT 1
________________________________________________________________________________
SUPPLIER: _____________
_____________
_____________
Reference is made to the license agreement dated ________ between Disney
Licensed Publishing ("Licensor") and ___________ ("Licensee") in which Licensor
has licensed the publication by Licensee of ________________________________
(the "publication"). Licensor hereby authorizes you to prepare, from material
supplied to you by Licensee and/or Licensor, reproduction material, including as
applicable film positives, four color separations, photographs, transparencies,
film negatives, black separations, black keyplate proofs and other reproduction
material used in the manufacture of the publication, upon the condition that the
Supplier shall sign and fully comply in all respects with this agreement.
Failure of said condition shall entitle Licensor to terminate this agreement
forthwith. The property rights (including but not limited to copyright and
physical ownership) in all such materials shall remain vested in Disney
Enterprises, Inc., at all times. Said reproduction material will be delivered by
you to no one other than Licensee, or as Licensor may otherwise direct. Licensor
shall be under no obligation to you with respect to such charges as may be
incurred in connection with reproduction material prepared at the request of
Licensee.
The Supplier signing below agrees that (except as may be authorized under a
separate agreement with Licensor):
1. The Supplier will not manufacture the publication or components
thereof to the order of anyone but the Licensee, will invoice only the Licensee,
will not ship to anyone other than the Licensee or Licensee's designees and will
not ship after the expiration date of the License Agreement.
2. The Supplier will not subcontract production of the publication or
components thereof without Licensor's written consent.
3. The Supplier will not (without Licensor's written consent)
manufacture the publication or components thereof listed above, other than in
accordance with this agreement.
4. From time to time, the Supplier will permit Licensor's authorized
representatives to inspect its activities and premises, accounting books and
invoices relevant to its manufacture and supply of the publication.
<PAGE>
5. The Supplier will not publish or cause the publication of pictures
from the publication in any other publication or promotional material, nor
advertise the fact that it is permitted to manufacture the publication or
components thereof, nor use the name "Disney" or any variant thereof without
Licensor's prior written consent.
6. In manufacturing the publication, the Supplier will comply with
all applicable laws, regulations, voluntary industry standards, codes, or other
obligations (collectively "Laws"), including but not limited to, applicable
health and safety standards and labor laws for manufacturing operations.
Specifically, the Supplier covenants that:
(a) The Supplier agrees not to use child labor in the manufacturing
or packaging of the publication or components thereof. The term "child" refers
to a person younger than the age for completing compulsory education, but in no
case shall any child younger than fourteen (14) years of age be employed in the
manufacturing or packaging of the publication or components thereof.
(b) The Supplier agrees to provide employees with a safe and healthy
workplace in compliance with all applicable Laws. The Supplier agrees to provide
Licensor with all information Licensor may request about manufacturing or
packaging facilities for the publication or components thereof.
(c) The Supplier agrees only to employ persons whose presence is
voluntary. The Supplier agrees not to use prison labor, or to use corporal
punishment or other forms of mental or physical coercion as a form of discipline
of employees.
(d) The Supplier agrees to comply with all applicable wage and hour
Laws, including minimum wage, overtime, and maximum hours. The Supplier agrees
to utilize fair employment practices as defined by applicable Laws.
(e) The Supplier agrees not to discriminate in hiring and employment
practices on grounds of race, religion, national origin, political affiliation,
sexual preference, or gender.
(f) The Supplier agrees to comply with all applicable environmental
Laws.
(g) The Supplier agrees that Licensor may engage in activities such
as unannounced on-site inspections of manufacturing or packaging facilities in
order to monitor compliance with applicable Laws.
7. Upon expiration or termination of the License Agreement, or upon
notification by Licensor or Licensee, you will immediately cease manufacturing
the publication and deliver to Licensor or its authorized representative such
reproduction materials as are necessary for printing, and shall deliver to
Licensee, or to Licensor if Licensor so requests, all artwork, textual and
reproduction materials for the publication which Licensor or Licensee may have
caused to be furnished to you, and all original and reproduction material
prepared by you hereunder, unless Licensee has engaged you to do the printing,
in which case you will deliver such original and reproduction material at such
other time as Licensor may direct, or in the absence of such direction,
<PAGE>
upon
completion of your use of such original and reproduction materials for the
printing of the publication. Said materials shall be so delivered without charge
other than the expense of delivery, and shall be complete and in reproduction
condition. You agree to provide Licensor upon request, a statement and/or a
duplicate invoice as to all materials provided to Licensee hereunder.
DISNEY LICENSED PUBLISHING ACCEPTED AND AGREED BY:
By: ______________________________ By: __________________________
(to be signed by Supplier)
Title: ____________________________ Title: _________________________
Company:___________________________
<PAGE>
EXHIBIT 2
WORK FOR HIRE AGREEMENT/COPYRIGHT ASSIGNMENT
The undersigned agrees that for valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, all literary and/or artistic Work
(collectively the "Work") written or otherwise created by the undersigned in
connection with the publication tentatively entitled
___________________________________ (the "Publication") was written and/or
otherwise created by the undersigned as a work made for hire for Disney
Enterprises, Inc. ("Disney") pursuant to an agreement between the undersigned
and _________________ ("Publisher") dated ________________________. The
undersigned acknowledges that the Work was specially ordered or commissioned for
use as a contribution to the Publication, that Disney owns throughout the
universe in perpetuity all right, title and interest in the Work and the results
and proceeds of the undersigned's services, that Disney shall be deemed the
author of the Work for purposes of copyright and that Disney is entitled to the
copyright(s) therein (and all renewals and extensions thereof), with the right
to make such changes in the Work and uses thereof as Disney may from time to
time determine within its sole discretion. The undersigned also assigns to
Disney all now known and hereafter existing rights of every kind (including the
copyright and all renewals and extensions thereof), throughout the universe in
perpetuity and in all languages, pertaining to the Work for all now known and
hereafter existing uses, media, and forms. The undersigned hereby waives any
claims that the undersigned may now or hereafter have in any jurisdiction to
so-called "moral rights" or rights of "droit moral" with respect to the Work.
The undersigned represents and warrants that, except as to any material provided
to the undersigned by Publisher and/or Disney and incorporated in the Work, the
Work is wholly original with the undersigned who is the sole creator thereof,
the Work does not violate the rights of any third party, the Work is not the
subject of any litigation or claim that might give rise to litigation, and that
the undersigned has all rights necessary to convey the rights granted to Disney
herein. The undersigned agrees to indemnify and hold harmless Publisher and
Disney, their respective parent and affiliated companies, successors, licensees,
and assigns against any breach of any of the foregoing representations and
warranties. The undersigned agrees to execute such further documents and do such
other acts as may be required by Disney to evidence or effectuate Disney's
rights hereunder. Failure to do so shall automatically empower Disney as the
undersigned's attorney-in-fact to execute such documents and do such acts in the
place and stead of the undersigned. Disney's rights in the Work may be assigned,
licensed, or otherwise transferred by Disney, and this Agreement shall inure to
the benefit of Publisher's and Disney's respective successors, licensees, and
assignees.
Print Name:_____________________________
Signature:______________________________
Address:________________________________
________________________________________
Date:___________________________________
<PAGE>
EXHIBIT 3
Code of Conduct for Suppliers
At The Walt Disney Company, we are committed to:
- - a standard of excellence in every aspect of our business and in every
corner of the world;
- - ethical and responsible conduct in all of our operations;
- - respect for the rights of all individuals; and
- - respect for the environment.
We expect these same commitments to be shared by all suppliers of Disney
publications. At a minimum, we require that all suppliers of Disney publications
meet the following standards:
Child Labor Suppliers will not use child labor.
The term "child" refers to a person younger than 15 (or 14 where local law
allows) or, if higher, the local legal minimum age for employment or the age for
completing compulsory education.
Suppliers employing young persons who do not fall within the definition of
"children" will also comply with any laws and regulations applicable to such
persons.
Involuntary Labor Suppliers will not use any forced or involuntary labor,
whether prison, bonded, indentured or otherwise.
Coercion and
Harassment Suppliers will treat each employee with dignity and respect,
and will not use corporal punishment, threats of violence or
other forms of physical, sexual, psychological or verbal
harassment or abuse.
Nondiscrimination Suppliers will not discriminate in hiring and employment
practices, including salary, benefits, advancement,
discipline, termination or retirement, on the basis of race,
religion, age, nationality, social or ethnic origin, sexual
orientation, gender, political opinion or disability.
Association Suppliers will respect the rights of employees to associate,
organize and bargain collectively in a lawful and peaceful
manner, without penalty or interference.
Health and Safety Suppliers will provide employees with a safe and healthy
workplace in compliance with all applicable laws and
regulations, ensuring at a minimum, reasonable access to
potable water and sanitary facilities, fire safety, and
adequate lighting and ventilation.
<PAGE>
Suppliers will also ensure that the same standards of health and safety are
applied in any housing that they provide for employees.
Compensation We expect suppliers to recognize that wages are essential to
meeting employees' basic needs. Suppliers will, at a
minimum, comply with all applicable wage and hour laws and
regulations, including those relating to minimum wages,
overtime, maximum hours, piece rates and other elements of
compensation, and provide legally mandated benefits. If
local laws do not provide for overtime pay, suppliers will
pay at least regular wages for overtime work. Except in
extraordinary business circumstances, suppliers will not
require employees to work more than the lesser of (a) 48
hours per week and 12 hours overtime or (b) the limits on
regular and overtime hours allowed by local law or, where
local law does not limit the hours of work, the regular work
week in such country plus 12 hours overtime. In addition,
except in extraordinary business circumstances, employees
will be entitled to at least one day off in every seven-day
period.
Where local industry standards are higher than applicable
legal requirements, we expect suppliers to meet the higher
standards.
Protection of the
Environment Suppliers will comply with all applicable environmental laws
and regulations.
Other Laws Suppliers will comply with all applicable laws and
regulations, including those pertaining to the manufacture,
pricing, sale and distribution of publications.
All references to "applicable laws and regulations" in this
Code of Conduct include local and national codes, rules and
regulations as well as applicable treaties and voluntary
industry standards.
Subcontracting Suppliers will not use subcontractors for the manufacture of
Disney publications or components thereof without Disney's
express written consent, and only after the subcontractor
has entered into a written commitment with Disney to comply
with this Code of Conduct.
Monitoring and
Compliance Suppliers will authorize Disney and its designated agents
(including third parties) to engage in monitoring activities
to confirm compliance with this Code of Conduct, including
unannounced on- site inspections of manufacturing facilities
and employer-provided housing; reviews of books and records
relating to employment matters; and private interviews with
employees. Suppliers will maintain on site all documentation
that may be needed to demonstrate compliance with this Code
of Conduct.
<PAGE>
Publication Suppliers will take appropriate steps to ensure that the
provisions of this Code of Conduct are communicated to
employees, including the prominent posting of a copy of this
Code of Conduct, in the local language and in a place
readily accessible to employees, at all times.
<PAGE>
EXHIBIT 4
Code of Conduct for Licensees
At The Walt Disney Company, we are committed to:
- - a standard of excellence in every aspect of our business and in every
corner of the world;
- - ethical and responsible conduct in all of our operations;
- - respect for the rights of all individuals; and
- - respect for the environment.
We expect these same commitments to be shared by all Disney licensees and the
suppliers with which they work in the production of Disney publications. At a
minimum, we require that all Disney licensees meet the following standards:
Conduct of
Manufacturing Licensees that engage directly in the manufacturing of
Disney publications will comply with all of the standards
set forth in Disney's Code of Conduct for Suppliers, a copy
of which is attached.
Licensees will ensure that each manufacturer other than the
licensee also enters into a written commitment with Disney
to comply with the standards set forth in Disney's Code of
Conduct for Suppliers.
Licensees will prohibit suppliers from subcontracting the
manufacture of Disney publications or components thereof
without Disney's express written consent, and only after the
subcontractor has entered into a written commitment with
Disney to comply with Disney's Code of Conduct for
Suppliers.
Monitoring and
Compliance Licensees will take appropriate steps, in consultation with
Disney, to develop, implement and maintain procedures to
evaluate and monitor suppliers of Disney publications and
ensure compliance with Disney's Code of Conduct for
Suppliers, including unannounced on-site inspections of
manufacturing facilities and employer-provided housing;
review of books and records relating to employment matters;
and private interviews with employees.
Licensees will authorize Disney and its designated agents
(including third parties) to engage in similar monitoring
activities to confirm Licensees' compliance with this Code
of Conduct. Licensees will maintain on site all
documentation that may be needed to demonstrate such
compliance.
<PAGE>
EXHIBIT 5
[To Be Supplied]
<PAGE>
EXHIBIT 6
[To Be Supplied]
<PAGE>
EXHIBIT 7
[To Be Supplied]
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 26, 1998 AND DECEMBER 27, 1997 AND THE ELEVEN MONTHS ENDED
DECEMBER 28, 1996
- --------------------------------------------------------------------------------
Exhibit 21.1
List of Subsidiaries
o Golden Books Publishing Company, Inc. (Delaware)
o LRM Acquisition Corp. (Delaware)
o Western Publishing Limited (Hong Kong)
o Golden Books Publishing (Canada), Inc.
o Golden Showcase Stores, Inc. (Delaware)
o Shari Lewis Enterprises, Inc. (California)
o Golden Books Home Video, Inc. (Delaware)
o McSpadden-Smith, Inc. (Tennessee)
o McSpadden-Smith Music, LLC (Tennessee)
o McSpadden Music LLC (Tennessee)
o Chunky Monkey Music LLC (Tennessee)
o Magnolia Hill Music LLC (Tennessee
o Summerdawn Music LLC (Tennessee)
o McSpadden-Smith Publishing LLC (Tennessee)
o SLE Productions, Inc. (California)
S-5
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 Nos. 33-18430, 33-18692, 33- 18693 and 33-28019) and in the
Registration Statement (Form S-3 No. 333-34051) of Golden Books Family
Entertainment, Inc. and Subsidiaries of our report dated April 7, 1999 with
respect to the consolidated financial statements and schedules of Golden Books
Family Entertainment, Inc. included in this Annual Report (Form 10-K) for the
year ended December 26, 1998.
ERNST & YOUNG LLP
New York, New York
April 7, 1999
