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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
May 13, 1999 0-14399
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Date of Report (Date of earliest event reported) Commission File Number
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)
Delaware 06-1104930
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
888 Seventh Avenue, 40th Floor
New York, New York 10106
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(Address of Principal Executive Offices) (Zip Code)
(212) 547-6700
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(Registrant's telephone number, including area code)
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<PAGE>
Item 5. Other Events
On May 13, 1999, the United States Bankruptcy Court for the Southern
District of New York (the "Court") approved the Amended Disclosure Statement
respecting Golden Books Family Entertainment, Inc. and its subsidiaries' Amended
Joint Plan of Reorganization (the "Plan"). The Court set July 13, 1999 as the
hearing date for the confirmation of the Plan.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(c) Exhibits. The following exhibits are filed herewith and
incorporated herein by reference:
Exhibit No. Description
----------- -----------
2.1 Amended Joint Plan of Reorganization under Chapter 11 of
the Bankruptcy Code, dated May 13, 1999
2.2 Amended Disclosure Statement pursuant to Section 1125 of
the Bankruptcy Code for the Amended Joint Plan of
Reorganization of the Debtors, dated May 13, 1999
2.3 Restructuring Agreement, dated March 11, 1999
99.1 Press release of GBFE, dated May 19, 1999
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
Date: May 20, 1999 By: /s/ Philip Galanes
----------------------------------
Name: Philip Galanes
Title: Chief Administrative Officer,
Executive Vice President,
General Counsel & Secretary
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<PAGE>
Exhibit Index
2.1 Amended Joint Plan of Reorganization under Chapter 11 of the
Bankruptcy Code, dated May 13, 1999
2.2 Amended Disclosure Statement pursuant to Section 1125 of the
Bankruptcy Code for the Amended Joint Plan of Reorganization of
the Debtors, dated May 13, 1999
2.3 Restructuring Agreement, dated March 11, 1999
99.1 Press release of GBFE, dated May 19, 1999
4
PROSKAUER ROSE LLP
Counsel for Debtors and Debtors-in-Possession
1585 Broadway
New York, New York 10036
(212) 969-3000
Alan B. Hyman (AH-6655)
Scott K. Rutsky (SR-0712)
Glenn S. Walter (GW-0133)
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
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:
In re: : (Chapter 11)
:
GOLDEN BOOKS FAMILY :
ENTERTAINMENT, INC., et al., : Case Nos. 99-10030
: Through 99-10032 (TLB)
:
Debtors. : (Jointly Administered)
:
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AMENDED JOINT PLAN OF REORGANIZATION
UNDER CHAPTER 11 OF THE BANKRUPTCY CODE
---------------------------------------
Dated: May 13, 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
AMENDED 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, sub-Section 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.
<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. Section 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. Section 157, the unit of such
District Court under 28 U.S.C. Section 151.
1.6 "Bankruptcy Rules" shall mean the Federal Rules of Bankruptcy Procedure
as promulgated under 28 U.S.C. Section 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 attached as an
Exhibit to the Disclosure Statement, 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 $.01 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 $46.05 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 "Other Professionals" shall have the meaning ascribed to such term in
Section 2.2(b) of this Plan.
8
<PAGE>
1.64 "Parent" shall mean Golden Books Family Entertainment, Inc., a
Delaware corporation.
1.65 "Person" shall mean any individual, corporation, partnership, joint
venture, association, joint-stock company, trust, unincorporated association or
organization, governmental agency or political subdivision thereof.
1.66 "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.
1.67 "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.
1.68 "Plan Documents" shall mean 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.
1.69 "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.
1.70 "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.
1.71 "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.
1.72 "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.
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<PAGE>
1.73 "Priority Tax Claim" shall mean any Claim of a governmental unit
entitled to priority under Section 507(a)(8) of the Bankruptcy Code.
1.74 "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.
1.75 "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.
1.76 "Publishing" shall mean Golden Books Publishing Company, Inc., a
Delaware corporation.
1.77 "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.
1.78 "Recission or Damage Claims" shall mean, collectively Debt Securities
Recission or Damage Claims and Equity Interest Recission or Damage Claims.
1.79 "Registration Rights Agreement" shall have the meaning set forth in
Section 5.20 of the Plan.
1.80 "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.
1.81 "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.
1.82 "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 attached as an Exhibit to the Disclosure Statement.
10
<PAGE>
1.83 "Reorganized Parent" shall mean Parent, or any successor thereto by
merger, consolidation or otherwise, on and after the Effective Date.
1.84 "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.
1.85 "Reorganized Publishing" shall mean Publishing, or any successor
thereto by merger, consolidation or otherwise, on and after the Effective Date.
1.86 "Reorganized Video" shall mean Video, or any successor thereto by
merger, consolidation or otherwise, on and after the Effective Date.
1.87 "Restructuring Agreement" shall mean that certain restructuring
agreement, dated as of March 11, 1999, a copy of which is attached as an Exhibit
to the Disclosure Statement.
1.88 "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.
1.89 "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.
1.90 "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.
1.91 "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.
1.92 "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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1.93 "Substantive Consolidation Order" shall mean the order, or provisions
of the Confirmation Order, substantively consolidating the Debtors' Estates as
provided in Article 8 hereof.
1.94 "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.
1.95 "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.
1.96 "TOPrS Trust" shall mean that certain amended and restated declaration
of trust dated August 20, 1996 respecting the issuance of the TOPrS
Certificates.
1.97 "TOPrS Trustee" shall mean, collectively, the trustee with respect to
the TOPrS Trust and the indenture trustee under the Convertible Debenture
Indenture.
1.98 "Video" shall mean Golden Books Home Video, Inc., a Delaware
corporation.
1.99 "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. Section 1930. GPH, the Informal
Senior Note Committee, the Old Senior Note Indenture Trustee, the Informal TOPrS
Committee, and the TOPrS Trustee (including the respective counsel and financial
advisors to the foregoing (collectively, all such parties are referred to herein
as the "Other Professionals")) have rendered a substantial contribution in the
Chapter 11 Cases within the meaning of Section 503(b) of the Bankruptcy Code,
and, accordingly, the reasonable fees and expenses of the Other Professionals
incurred on or before the Effective Date incurred in connection with the Chapter
11 Cases or the Plan shall be paid by the Reorganized Debtors as Administrative
Expense Claims following (i) the submission of a request for payment pursuant to
Section 503(a) of the Bankruptcy Code and (ii) entry of an order of the
Bankruptcy Court allowing same.
(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 agreed to between the Debtors and any holder of an Allowed Priority Tax
Claim; provided, however,
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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
14
<PAGE>
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)
2,125,000 shares of New Parent Common Stock. The New Parent Common Stock issued
to holders of Allowed Old Senior Note Claims pursuant to 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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<PAGE>
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.
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Public Trading: The New Senior Notes shall not be listed for
trading on a recognized securities exchange prior
to 75 days from the date of issuance.
(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 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) 250,000
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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<PAGE>
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 2,500,000 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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<PAGE>
which payment shall include post-petition interest for the period from the
Petition Date through the Effective Date calculated as follows: (i) to the
extent holders of Allowed General Unsecured Claim are contractually entitled to
receive interest, such holders shall receive post-petition interest at the
contract rate, and (ii) all other holders of Allowed General Unsecured Claims
shall receive post-petition interest at the rate applicable to federal
judgements pursuant to 28 U.S.C. ss.ss. 1961, which on the Petition Date was
4.584%.
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.
(c) Reservation of Rights. In accordance with Section 12.4 hereof, the
Debtors reserve the right to amend the Plan to provide that Class 7 shall not
receive or retain any property under the Plan. In such case, Class 7 would be
deemed to reject the Plan and the Debtors would seek to confirm the Plan under
Section 1129(b) of the Bankruptcy Code without re-soliciting votes to accept or
reject the 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.
(c) Reservation of Rights. In accordance with Section 12.4 hereof, the
Debtors reserve the right to amend the Plan to provide that Class 8 shall not
receive or retain any property under the Plan, i.e. to provide that the holder
of the Old Preferred Stock Interests would not receive the New Warrants. In such
case, Class 8 would be deemed to reject the Plan and the Debtors would seek to
confirm the Plan under Section 1129(b) of the Bankruptcy Code without
re-soliciting votes to accept or reject the Plan.
20
<PAGE>
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.
(c) Reservation of Rights. In accordance with Section 12.4 hereof, the
Debtors reserve the right to amend the Plan to provide that Class 9 shall not
receive or retain any property under the Plan, i.e. to provide that the holders
of Old Common Stock Interests would not receive the New Warrants. In such case,
Class 9 would be deemed to reject the Plan and the Debtors would seek to confirm
the Plan under Section 1129(b) of the Bankruptcy Code without re-soliciting
votes to accept or reject 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.
(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.
(c) Reservation of Rights. In accordance with Section 12.4 hereof, the
Debtors reserve the right to amend the Plan to provide that Class 10 shall not
receive or retain any property under the Plan. In such case, Class 10 would be
deemed to reject the Plan and the Debtors would seek to confirm the Plan under
Section 1129(b) of the Bankruptcy Code without re-soliciting votes to accept or
reject the Plan.
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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 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.
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5.4 Issuance of New Securities; Listing on National Securities Exchange.
The Reorganized Debtors shall issue, in accordance with the terms of the Plan,
5,000,000 shares of New Parent Common Stock, the New Senior Notes and 263,000
New Warrants. On the Effective Date, the Debtor will transmit written
instructions regarding the surrender of Old Senior Notes, Old Preferred Stock
Interests, and Old Common Stock Interests, and the distribution of shares of New
Parent Common Stock and New Warrants to those parties 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.
(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
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employment contract which shall become automatically effective on the Effective
Date. The form of such new employment contract is annexed as an Exhibit to the
Restructuring Agreement.
5.7 Management Stock Option Plan. On or prior to the Effective Date, the
Management Stock Option Plan shall be adopted by Parent, and by voting to accept
the Plan, all holders of Senior Notes, GPH Claims, and TOPrS Claims shall be
deemed to have ratified and approved the Management Stock Option Plan. Following
the Effective Date, the Management Stock Option Plan may be modified by the
Board of Directors of Reorganized Parent in accordance with the terms thereof
and any such modification or amendment shall not require an amendment of the
Plan. 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). Notwithstanding the foregoing, nothing in this Section
5.10 shall impact, discharge or extinguish any restriction contained in any
license agreements (or rights thereunder) to which the Debtors are a party.
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.
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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 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. 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.
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 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, and (iv) the consolidation of non-debtor affiliates
pursuant to Section 5.22 hereof.
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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 or as soon
thereafter as practicable, 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.
5.22 Corporate Consolidation. The Debtors may, on or prior to the Effective
Date, merge or otherwise consolidate certain non-debtor subsidiaries into
Publishing or other non-debtor affiliates, and to dissolve certain other
obsolete non-debtor affiliates, each pursuant to applicable state law.
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)(i) 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.
(ii)Fractional New Senior Notes. No fractional New Senior Notes shall
be distributed under the Plan. Whenever any payment of a fraction of a dollar of
principal amount of New Senior Notes would otherwise be called for, the actual
New Senior Note distributed shall reflect a rounding of such fraction to the
nearest whole dollar of principal amount (rounding down in the case of .50 or
less and rounding up in the case of more than .50).
(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
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(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.
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,
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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.
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
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<PAGE>
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) 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
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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.
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. Notwithstanding anything in this Plan to the
contrary, nothing in this Plan shall discharge, release or exculpate any
non-Debtor from any liability to the United States of America and/or its
agencies.
(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
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<PAGE>
nature, including, without limitation, any interest accrued thereon from and
after the Petition Date, whether or not (i) a proof of Claim or Equity Interest
based on such debt, obligation or equity interest is filed or deemed filed under
Section 501 of the Bankruptcy Code, (ii) such Claim or Equity Interest is
Allowed under Section 502 of the Bankruptcy Code or (iii) the holder of such
Claim or Equity Interest has accepted the Plan; provided, however, that the
foregoing discharge shall not apply to rights of holders of 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
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<PAGE>
of an Allowed Claim or Equity Interest receiving distributions pursuant to the
Plan is hereby deemed to have specifically consented to the releases and
injunctions set forth in this Plan.
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.
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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.
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;
35
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(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.
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
36
<PAGE>
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 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. Without limiting the foregoing, in the event that any
Class of Claims or Equity Interest Holders ranking in priority below Class 6
(General Unsecured Claims) votes to reject the Plan (and the Bankruptcy Court
determines that, as a result thereof, the Plan is unconfirmable), the Debtors
reserve the right to amend the Plan to provide that all Classes ranking in
priority below Class 6 (i.e., Classes 7, 8, 9 and 10) shall not receive or
retain any property under the Plan. In such case, Classes 7, 8, 9 and 10 would
be deemed to reject the Plan, in which event, the Debtors would then seek to
confirm the Plan under Section 1129(b) of the Bankruptcy Code without
re-soliciting votes to accept or reject the Plan. 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.
37
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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.
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
Attorneys for the Debtors Committee:
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.
38
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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, 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.
39
<PAGE>
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.
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
May 13, 1999
GOLDEN BOOKS FAMILY ENTERTAINMENT,
INC., (for itself and on behalf of
each of the above captioned Debtors
and Debtors-in-Possession)
By: /s/ Richard E. Snyder
--------------------------
Richard E. Snyder,
Chairman of the Board and
Chief Executive Officer
PROSKAUER ROSE LLP
Counsel to the Debtors and
Debtors-in-Possession
By: /s/ Alan B. Hyman
--------------------------
Alan B. Hyman (AH-6655)
A Member of the Firm
1585 Broadway
New York, New York 10036
(212) 969-3000
40
<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
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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
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1.38 "General Unsecured Claim".......................................6
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 "Other Professionals"...........................................8
1.64 "Parent"........................................................9
1.65 "Person"........................................................9
1.66 "Petition Date".................................................9
1.67 "Plan"..........................................................9
1.68 "Plan Documents"................................................9
1.69 "Plan Supplement"...............................................9
1.70 "Post-Effective Date Financing Facility"........................9
1.71 "Post-Effective Date Financing Facility Documents"..............9
1.72 "Priority Claims"...............................................9
1.73 "Priority Tax Claim"...........................................10
1.74 "Professionals"................................................10
1.75 "Pro Rata Share"...............................................10
1.76 "Publishing"...................................................10
1.77 "Publishing Notes".............................................10
1.78 "Recission or Damage Claims"...................................10
1.79 "Registration Rights Agreement"................................10
1.80 "Released Parties".............................................10
ii
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1.81 "Reorganized Debtors"..........................................10
1.82 "Reorganized Debtors' Charters"................................10
1.83 "Reorganized Parent"...........................................11
1.84 "Reorganized Parent Charter"...................................11
1.85 "Reorganized Publishing".......................................11
1.86 "Reorganized Video"............................................11
1.87 "Restructuring Agreement"......................................11
1.88 "Retiree Benefits".............................................11
1.89 "Schedules"....................................................11
1.90 "Secured Claim"................................................11
1.91 "Subsidiary"...................................................11
1.92 "Subsidiary Equity Interest"...................................11
1.93 "Substantive Consolidation Order"..............................12
1.94 "TOPrS Certificates"...........................................12
1.95 "TOPrS Claims".................................................12
1.96 "TOPrS Trust"..................................................12
1.97 "TOPrS Trustee"................................................12
1.98 "Video"........................................................12
1.99 "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
iii
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(e) Cancellation of Old Senior Notes and
Related Instruments.....................................18
4.4 CLASS 4-- GPH CLAIMS...........................................18
(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
(c) Reservation of Rights...................................20
4.8 CLASS 8-- OLD PREFERRED STOCK INTERESTS........................20
(a) Impairment and Voting...................................20
(b) Distributions...........................................20
(c) Reservation of Rights...................................20
4.9 CLASS 9-- OLD COMMON STOCK INTERESTS...........................21
(a) Impairment and Voting...................................21
(b) Distributions...........................................21
(c) Reservation of Rights...................................21
4.10 CLASS 10 -- EQUITY INTEREST RECISSION OR DAMAGE
CLAIMS.........................................................21
(a) Impairment and Voting...................................21
(b) Distributions...........................................21
(c) Reservation of Rights...................................21
4.11 CLASS 11-- SUBSIDIARY EQUITY INTERESTS.........................22
(a) Impairment and Voting...................................22
(b) Distributions...........................................22
ARTICLE 5 IMPLEMENTATION AND EFFECT OF CONFIRMATION OF
PLAN...........................................................22
5.1 Plan Funding...................................................22
5.2 Post-Effective Date Financing Facility.........................22
5.3 Reorganized Debtors' Charter...................................22
5.4 Issuance of New Securities.....................................23
5.5 Management of Reorganized Debtors..............................23
iv
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5.6 Directors and Officers of Reorganized Debtors..................23
(a) Boards of Directors of Reorganized Debtors..............23
(b) Officers of Reorganized Debtors.........................23
(c) Employment Contracts....................................23
5.7 Management Stock Option Plan...................................24
5.8 Cancellation and Surrender of Existing Securities
and Agreements.................................................24
5.9 Continuation of Bankruptcy Injunction or Stays.................25
5.10 Revesting of Assets............................................25
5.11 General Release of Liens.......................................25
5.12 Full and Final Satisfaction....................................25
5.13 Causes of Action...............................................25
(a) In General..............................................25
(b) Avoiding Powers.........................................25
5.14 Indenture Trustee Charging Liens...............................26
5.15 Termination of Subordination Rights............................26
5.16 Administration Pending Effective Date..........................26
5.17 Setoffs........................................................26
5.18 Corporate Action...............................................26
5.19 Post-Confirmation Fees, Final Decree...........................27
5.20 Registration Rights............................................27
5.21 Section 1145 Exemption.........................................27
5.22 Corporate Consolidation........................................27
ARTICLE 6 PROVISIONS REGARDING VOTING AND DISTRIBUTIONS
UNDER THE PLAN AND TREATMENT OF DISPUTED,
CONTINGENT AND UNLIQUIDATED CLAIMS AND EQUITY
INTERESTS......................................................27
6.1 Voting of Claims...............................................27
6.2 Nonconsensual Confirmation.....................................27
6.3 Method of Distributions Under the Plan.........................28
(a) In General..............................................28
(b) Distributions of Cash...................................28
(c) Timing of Distributions.................................28
(d) Fractional Cents........................................28
(e)(i) Fractional Shares.......................................28
(e)(ii)Fractional New Senior Notes.............................28
(f) Unclaimed Distributions.................................28
(g) Distributions to Holders as of the
Distribution Record Date................................29
6.4 Objections to and Resolution of Administrative Expense Claims,
Claims and Equity Interests....................................29
6.5 Disputed Claims................................................29
6.6 Disputed Payments..............................................30
v
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ARTICLE 7 EXECUTORY CONTRACTS AND UNEXPIRED LEASES;
INDEMNIFICATION CLAIMS; RETIREE BENEFITS; POST -
CONFIRMATION FEES AND FINAL DECREE.............................30
7.1 Executory Contracts and Unexpired Leases.......................30
7.2 Bar Date for Filing Proofs of Claims Relating to
Executory Contracts and Unexpired Leases Rejected
Pursuant to the Plan...........................................30
7.3 Indemnification Claims.........................................30
7.4 Compensation and Benefit Programs..............................31
7.5 Retiree Benefits...............................................31
ARTICLE 8 SUBSTANTIVE CONSOLIDATION......................................31
8.1 Substantive Consolidation......................................31
ARTICLE 9 PROVISIONS REGARDING RELEASES,
INJUNCTIONS, AND DISCHARGE.....................................32
9.1 Releases.......................................................32
(a) Release of Released Parties.............................32
(b) Mutual Releases by Released Parties.....................32
9.2 Discharge......................................................33
9.3 Injunctions....................................................33
(a) Injunction Related to Claims Released by
Released Parties and All Other Persons..................33
(b) Injunction Relating to the Plan.........................33
(c) Consent by Holders of Claims and Interests to
Entry of Injunctive Relief..............................34
ARTICLE 10 EFFECTIVENESS OF THE PLAN......................................34
10.1 Conditions Precedent to Effectiveness..........................34
10.2 Effect of Failure of Conditions................................34
10.3 Waiver of Conditions...........................................35
ARTICLE 11 RETENTION OF JURISDICTION......................................35
11.1 Retention of Jurisdiction......................................35
ARTICLE 12 MISCELLANEOUS PROVISIONS.......................................36
12.1 Effectuating Documents and Further Transactions................36
12.2 Exemption from Transfer Taxes..................................36
12.3 Exculpation....................................................36
12.4 Amendment or Modification of the Plan..........................37
12.5 Severability...................................................37
12.6 Revocation or Withdrawal of the Plan...........................38
12.7 Binding Effect.................................................38
12.8 Notices........................................................38
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12.9 Termination of Committees......................................39
12.10 Governing Law..................................................39
12.11 Withholding and Reporting Requirements.........................39
12.12 Plan Supplement................................................39
12.13 Allocation of Plan Distributions Between Principal
and Interest...................................................40
12.14 Headings.......................................................40
12.15 Filing of Additional Documents.................................40
12.16 Inconsistency..................................................40
vii
PROSKAUER ROSE LLP
Counsel for Debtors and Debtors-in-Possession
1585 Broadway
New York, New York 10036
(212) 969-3000
Alan B. Hyman (AH-6655)
Scott K. Rutsky (SR-0712)
Glenn S. Walter (GW-0133)
UNITED STATES BANKRUPTCY COURT
SOUTHERN DISTRICT OF NEW YORK
- ---------------------------------------x
:
In re: : (Chapter 11)
:
GOLDEN BOOKS FAMILY :
ENTERTAINMENT, INC., et al., : Case Nos. 99-10030
: Through 99-10032 (TLB)
:
Debtors. : (Jointly Administered)
:
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AMENDED DISCLOSURE STATEMENT PURSUANT TO SECTION
1125 OF THE BANKRUPTCY CODE FOR THE AMENDED JOINT
PLAN OF REORGANIZATION OF THE DEBTORS
-------------------------------------
THIS IS NOT A SOLICITATION OF ACCEPTANCES OR REJECTIONS OF THE PLAN. ACCEPTANCES
OR REJECTIONS MAY NOT BE SOLICITED UNTIL A DISCLOSURE STATEMENT HAS BEEN
APPROVED BY THE BANKRUPTCY COURT. THIS DISCLOSURE STATEMENT IS BEING SUBMITTED
FOR APPROVAL BUT HAS NOT BEEN APPROVED BY THE COURT.
Dated: May 13, 1999
New York, New York
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I.
INTRODUCTION AND SUMMARY
A. Overview
Golden Books Family Entertainment, Inc. ("Parent"), Golden Books Publishing
Company, Inc. ("Publishing") and Golden Books Home Video, Inc. ("Video" and
together with Parent and Publishing, the "Debtors" or "Golden Books") transmit
this Disclosure Statement pursuant to Section 1125(b) of Title 11, United States
Code, 11 U.S.C. Sections 101 et seq. (the "Bankruptcy Code") and Rule 3017 of
the Federal Rules of Bankruptcy Procedure ("Bankruptcy Rules"), in connection
with their Amended Joint Plan o Reorganization dated May 13, 1999 (the "Plan")
in order to provide adequate information to enable holders of Claims and Equity
Interests that are impaired under the Plan to make an informed judgment in
exercising their right to vote for acceptance or rejection of the Plan. A copy
of the Plan is attached hereto as Exhibit "A". All capitalized terms used but
not defined in this Disclosure Statement shall have the respective meanings
ascribed to them in the Plan unless otherwise noted. Copies of all documents
filed in these Chapter 11 Cases are available on the Court's website at
www.nysb.uscourts.gov.
THE DEBTORS STRONGLY URGE ACCEPTANCE OF THE PLAN. THE DEBTORS HAVE
NEGOTIATED THE TERMS OF THE PLAN WITH AN INFORMAL COMMITTEE OF HOLDERS OF OLD
SENIOR NOTES (THE "INFORMAL SENIOR NOTE COMMITTEE") AND AN INFORMAL COMMITTEE OF
HOLDERS OF TOPrS CERTIFICATES (THE "INFORMAL TOPrS COMMITTEE"). THE INFORMAL
SENIOR NOTE COMMITTEE AND THE
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INFORMAL TOPrS COMMITTEE ALSO STRONGLY RECOMMEND THAT ALL HOLDERS OF OLD SENIOR
NOTES AND TOPrS CERTIFICATES VOTE TO ACCEPT THE PLAN.
B. Summary of Classification and Treatment Under the Plan
In general, and as more fully described herein, the Plan effectuates a
restructuring of the Debtors' pre-petition indebtedness and operations. Among
other things, the Plan provides for the exchange of Old Senior Notes for a
combination of New Senior Notes and New Parent Common Stock. The Plan also
provides for the exchange of TOPrS Certificates for shares of New Parent Common
Stock. Holders of General Unsecured Claims, to the extent not previously
satisfied, will either be reinstated, paid in full in accordance with their
respective terms or otherwise rendered unimpaired. Holders of Old Preferred
Stock Interests and Old Common Stock Interests will receive New Warrants to
purchase New Parent Common Stock. Set forth in the following section is a
summary of the classification and treatment of Claims and Equity Interests under
the Plan.
The Plan (i) divides Claims and Equity Interests into eleven classes,
(ii) sets forth the treatment afforded to each class, and (iii) provides the
means by which the Debtors will be reorganized under Chapter 11 of the
Bankruptcy Code. The following table sets forth a summary of the treatment of
each type of Claim and Equity Interest under the Plan (a more detailed
description of the Plan is set forth later in this Disclosure Statement in
Section IV entitled "Overview of The Plan").1
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1 This summary contains only a brief and simplified description of the
classification and treatment of Claims and Equity Interests under the Plan.
It does not describe every
(continued...)
2
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Class Type of Claim/Interest Treatment
- ---------------- ------------------------- ---------------------------------
Not Applicable Allowed Administrative To be paid in full, in Cash, in
Expense Claims such amounts as (1) are incurred
in the ordinary course of
business by the Debtors, (2) are
Allowed by the Bankruptcy Court
upon the later of the Effective
Date, the date of a Final Order
allowing such Administrative
Expense Claims, or any other date
specified in such order, or (3)
may be agreed upon between the
holders of such Administrative
Expense Claims and the Debtors.
Not Applicable Allowed Priority Tax To be paid in full, in Cash, upon
Claims the later (1) the Effective Date,
(2) the date upon which there is
a Final Order allowing such Claim
as an Allowed Priority Tax Claim,
(3) the date that such Allowed
Priority Tax Claim would have
been due if the Reorganization
Cases had not been commenced, or
(4) upon such other terms as may
be agreed to between the Debtors
and the holder of any Allowed
Priority Tax Claim; provided,
however, that the Debtors may, at
their option, in lieu of payment
in full of Allowed Priority Tax
Claims on the Effective Date,
make Cash payments respecting
Allowed Priority Tax Claims
deferred in accordance with
Section 1129(a)(9) of the
Bankruptcy Code.
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(...continued)
provision of the Plan. Accordingly, reference should be made to the entire
Disclosure Statement (including exhibits), the Plan, and the Plan
Supplement for a complete description of the classification and treatment
of Claims and Equity Interests.
3
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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
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Class Type of Claim/Interest Treatment
- ---------------- ------------------------- ---------------------------------
3 Old Senior Note Claims Impaired. On the Effective Date,
each holder of an Allowed Old
Senior Note Claim shall receive,
in full and final satisfaction of
such Allowed Claim (including any
unsecured deficiency Claim in
respect of the Old Senior Notes),
its Pro Rata Share of (i) the New
Senior Notes and (ii) 2,125,000
shares of New Parent Common
Stock. The New Parent Common
Stock issued to holders of
Allowed Old Senior Note Claims
pursuant to the Plan will
represent, in the aggregate,
42.5% of the authorized and
outstanding shares of New Parent
Common Stock on the Effective
Date; provided, however, that the
foregoing percentage is subject
to dilution by (i) shares of New
Parent Common Stock issued as a
result of the exercise of the New
Warrants, (ii) shares of New
Parent Common Stock issued in
accordance with the Management
Stock Option Plan, and (iii) such
other shares as may be authorized
and issued pursuant to the
Reorganized Parent Charter.
5
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Class Type of Claim/Interest Treatment
- ---------------- ------------------------- ---------------------------------
4 GPH Claims Impaired. On the Effective Date,
the holder of the Allowed GPH
Claim shall receive, in full and
final satisfaction of such
Allowed Claim (including any
unsecured deficiency Claim in
respect of the GPH Notes),
250,000 shares of New Parent
Common Stock. The New Parent
Common Stock issued to the holder
of the Allowed GPH Claim pursuant
to the Plan, will represent, in
the aggregate, 5% of the
authorized and outstanding shares
of New Parent Common Stock on the
Effective Date; provided,
however, that the foregoing
percentage is subject to dilution
by (i) shares of New Parent
Common Stock issued as a result
of the exercise of the New
Warrants, (ii) shares of New
Parent Common Stock issued in
accordance with the Management
Stock Option Plan, and (iii) such
other shares as may be authorized
and issued pursuant to the
Reorganized Parent Charter.
5 TOPrS Claims Impaired. On the Effective Date,
each holder of an Allowed TOPrS
Claim shall receive, in full and
final satisfaction of such
Allowed Claim, its Pro Rata Share
of 2,500,000 shares of New Parent
Common Stock. The New Parent
Common Stock issued to holders of
Allowed TOPrS Claims pursuant to
the Plan, will represent, in the
aggregate, 50.0% of the
outstanding shares of New Parent
Common Stock on the Effective
Date; provided, however, that the
foregoing percentage is subject
to dilution by (i) shares of New
Parent Common Stock issued as a
result of the exercise of the New
Warrants, (ii) shares of New
Parent Common Stock issued in
accordance with the Management
Stock Option Plan, and (iii) such
other shares as may be authorized
and issued pursuant to the
Reorganized Parent Charter.
6
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Class Type of Claim/Interest Treatment
- ---------------- ------------------------- ---------------------------------
6 General Unsecured Unimpaired. To the extent not
Claims satisfied by the Debtors in the
ordinary course of busines prior
to the Effective Date, in full
and final satisfaction of such
claim, the legal, equitable, and
contractual rights to which an
Allowed General Unsecured Claim
entitles the holder thereof shall
be left unimpaired and,
accordingly, shall be satisfied
on the latest of (a) the
Effective Date, (b) the date a
General Unsecured Claim becomes
an Allowed Claim, (c) the date an
Allowed General Unsecured Claim
becomes due and payable in the
ordinary course of the Debtors'
business consistent with the
Debtors' ordinary payment
practices, and (d) the date on
which the Debtors and the holder
of such Allowed General Unsecured
Claim otherwise agree in writing.
At the option of the Debtors, the
treatment provided in the Plan
will result in the payment of any
Allowed General Unsecured Claim,
in Cash, in an amount equal to
such Allowed General Unsecured
Claim (which payment shall
include post-petition interest
for the period from the Petition
Date through the Effective Date
calculated as follows: (i) to the
extent holders of Allowed General
Unsecured Claim are contractually
entitled to receive interest,
such holders shall receive
post-petition interest at the
contract rate, and (ii) all other
holders of Allowed General
Unsecured Claims shall receive
post-petition interest at the
rate applicable to federal
judgements pursuant to 28 U.S.C.
ss.ss. 1961, which on the
Petition Date was 4.584%).
7
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Class Type of Claim/Interest Treatment
- ---------------- ------------------------- ---------------------------------
7 Debt Securities Impaired. Subject to the releases
Rescission or Damage contained in Section 9.1 of the
Claims Plan, each holder of an Allowed
Debt Securities Rescission or
Damage Claim shall retain all
proceeds derived from or relating
to any litigation instituted by
or against any such holder or on
his behalf which are payable by
any entity other than the Debtors
or Reorganized Debtors (but not
any proceeds from any of the
property or assets of the Debtors
except proceeds of insurance
policies maintained by the
Debtors) but shall receive no
other distribution under the
Plan.
8 Old Preferred Stock Impaired. On the Effective Date,
Interests all Old Preferred Stock Interests
shall be canceled, annulled, and
extinguished, and the holder of
the Allowed Old Preferred Stock
Interests shall receive
two-thirds (2/3) of the New
9 Old Common Stock Impaired. On the Effective Date,
Interests all Old Common Stock Interests
(including any such Equity
Interests consisting of accrued
and unpaid dividends on the Old
Preferred Stock Interest) shall
be canceled, annulled, and
extinguished, and each holder of
an Allowed Old Common Stock
Interest shall receive its Pro
Rata Share of one-third (1/3) of
the New Warrants.
8
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Class Type of Claim/Interest Treatment
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10 Equity Interests Impaired. Subject to the releases
Rescission or Damage contained in Section 9.1 of the
Claims Plan, each holder of an Allowed
Equity Interests Rescission or
Damage Claim shall retain all
proceeds derived from or relating
to any litigation instituted by
or against any such holder or on
his behalf which are payable by
any entity other than the Debtors
or Reorganized Debtors (but not
any proceeds from any of the
property or assets of the Debtors
except proceeds of insurance
policies maintained by the
Debtors) but shall receive no
other distribution under the
Plan.
11 Subsidiary Equity Unimpaired. On the Effective
Interests Date, record holders of Allowed
Subsidiary Equity Interests shall
continue to hold such equity
interests, which equity interests
shall continue to be evidenced by
the capital stock held by such
record holders in the Subsidiary
or Subsidiaries as of the
Effective Date. All Subsidiaries
are wholly owned, directly or
indirectly, by Parent.
AS SET FORTH MORE FULLY IN SECTION IV.F.12 HEREOF, IN THE EVENT THAT
ANY CLASS OF CLAIMS OR EQUITY INTEREST HOLDERS RANKING IN PRIORITY BELOW CLASS 6
(GENERAL UNSECURED CLAIMS) VOTES TO REJECT THE PLAN (AND THE BANKRUPTCY COURT
DETERMINES THAT, AS A RESULT THEREOF, THE PLAN IS UNCONFIRMABLE), THE DEBTORS
RESERVE THE RIGHT TO AMEND THE PLAN TO PROVIDE THAT ALL CLASSES RANKING IN
PRIORITY BELOW CLASS 6 (I.E., CLASSES 7, 8, 9 AND 10) SHALL NOT RECEIVE OR
RETAIN ANY PROPERTY UNDER THE PLAN,
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INCLUDING, WITHOUT LIMITATION, THAT CLASSES 8 AND 9 WOULD NOT RECEIVE THE NEW
WARRANTS CURRENTLY CONTEMPLATED TO BE DISTRIBUTED UNDER THE PLAN. IN SUCH CASE,
CLASSES 7, 8, 9 AND 10 WOULD BE DEEMED TO REJECT THE PLAN, IN WHICH EVENT, THE
DEBTORS WOULD THEN SEEK TO CONFIRM THE PLAN UNDER SECTION 1129(B) OF THE
BANKRUPTCY CODE WITHOUT RE-SOLICITING VOTES TO ACCEPT OR REJECT THE PLAN AND
BALLOTS CAST RESPECTING SUCH CLASSES WOULD BE DISREGARDED.2
THIS DISCLOSURE STATEMENT HAS BEEN APPROVED BY ORDER OF THE BANKRUPTCY
COURT AS CONTAINING INFORMATION OF A KIND, AND IN SUFFICIENT DETAIL, TO ENABLE
HOLDERS OF CLAIMS AND EQUITY INTERESTS TO MAKE AN INFORMED JUDGMENT IN VOTING TO
ACCEPT OR REJECT THE PLAN. APPROVAL OF THIS DISCLOSURE STATEMENT DOES NOT,
HOWEVER, CONSTITUTE A DETERMINATION OR RECOMMENDATION BY THE BANKRUPTCY COURT AS
TO THE FAIRNESS OR THE MERITS OF THE PLAN.
THIS DISCLOSURE STATEMENT CONTAINS A SUMMARY OF CERTAIN PROVISIONS OF
THE PLAN, THE PLAN DOCUMENTS, AND CERTAIN FINANCIAL INFORMATION. WHILE THE
DEBTORS BELIEVE THAT THESE SUMMARIES ARE FAIR AND ACCURATE AND PROVIDE ADEQUATE
- ----------------------
2 GPH has reserved the right not to support the Plan or to invoke its other
rights under the Restructuring Agreement in the event that the Debtors
amend the Plan to provide that Classes 7,8,9 and 10 do not receive or
retain any property under the Plan.
10
<PAGE>
INFORMATION WITH RESPECT TO THE DOCUMENTS SUMMARIZED, SUCH SUMMARIES ARE
QUALIFIED TO THE EXTENT THAT THEY DO NOT SET FORTH THE ENTIRE TEXT OF SUCH
DOCUMENTS. FURTHERMORE, ALTHOUGH THE DEBTORS HAVE MADE EVERY EFFORT TO BE
ACCURATE, THE FINANCIAL INFORMATION CONTAINED HEREIN (WITH THE EXCEPTION OF
CERTAIN INFORMATION CONTAINED IN THE DEBTORS' ANNUAL REPORT ON FORM 10K FOR THE
FISCAL YEAR ENDED 1998 WHICH IS ATTACHED HERETO AS EXHIBIT "B") HAS NOT BEEN THE
SUBJECT OF AN AUDIT BY AN OUTSIDE ACCOUNTING FIRM. IN THE EVENT OF ANY CONFLICT,
INCONSISTENCY, OR DISCREPANCY BETWEEN THE TERMS AND PROVISIONS IN THIS
DISCLOSURE STATEMENT AND THE TERMS AND PROVISIONS IN THE PLAN, THE PLAN
DOCUMENTS, OR THE FINANCIAL INFORMATION INCORPORATED THEREIN BY REFERENCE, THE
PLAN SHALL GOVERN FOR ALL PURPOSES. ALL HOLDERS OF CLAIMS AND EQUITY INTERESTS
SHOULD READ THIS DISCLOSURE STATEMENT, THE PLAN, THE EXHIBITS TO THIS DISCLOSURE
STATEMENT, AND THE PLAN DOCUMENTS IN THEIR ENTIRETY BEFORE VOTING ON THE PLAN.
THE STATEMENTS AND FINANCIAL INFORMATION CONTAINED HEREIN HAVE BEEN
MADE AS OF THE DATE HEREOF UNLESS OTHERWISE SPECIFIED. HOLDERS OF CLAIMS AND
EQUITY INTERESTS REVIEWING THIS DISCLOSURE STATEMENT SHOULD NOT INFER AT THE
TIME OF SUCH
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REVIEW THAT THERE HAVE BEEN NO CHANGES IN THE FACTS SET FORTH HEREIN UNLESS SO
SPECIFIED. WHILE THE DEBTORS HAVE MADE EVERY EFFORT TO DISCLOSE WHERE CHANGES IN
PRESENT CIRCUMSTANCES COULD REASONABLY BE EXPECTED TO AFFECT MATERIALLY THE VOTE
ON THE PLAN, THIS DISCLOSURE STATEMENT IS QUALIFIED TO THE EXTENT THAT CERTAIN
EVENTS, SUCH AS THOSE MATTERS DISCUSSED IN SECTION VIII BELOW ENTITLED "RISK
FACTORS," DO OCCUR.
THIS DISCLOSURE STATEMENT HAS BEEN PREPARED IN ACCORDANCE WITH SECTION
1125 OF THE BANKRUPTCY CODE AND NOT IN ACCORDANCE WITH FEDERAL OR STATE
SECURITIES LAW OR OTHER APPLICABLE NONBANKRUPTCY LAW. PERSONS OR ENTITIES
HOLDING OR TRADING IN OR OTHERWISE PURCHASING, SELLING OR TRANSFERRING CLAIMS
AGAINST, OR SECURITIES OF, THE DEBTORS SHOULD EVALUATE THIS DISCLOSURE STATEMENT
IN LIGHT OF THE PURPOSE FOR WHICH IT WAS PREPARED.
IN ACCORDANCE WITH THE BANKRUPTCY CODE, THIS DISCLOSURE STATEMENT HAS
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, NOR
HAS SUCH COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS
CONTAINED HEREIN.
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WITH RESPECT TO CONTESTED MATTERS, ADVERSARY PROCEEDINGS AND OTHER
PENDING OR THREATENED ACTIONS, THIS DISCLOSURE STATEMENT AND THE INFORMATION
CONTAINED HEREIN SHALL NOT BE CONSTRUED AS AN ADMISSION OR STIPULATION, BUT
RATHER AS STATEMENTS MADE IN SETTLEMENT NEGOTIATIONS.
C. Voting and Confirmation Procedures
Accompanying this Disclosure Statement are copies of the following
documents: (i) the Plan, which is attached hereto as Exhibit "A", (ii) an Order
from the Bankruptcy Court (the "Disclosure Statement Approval Order") (a)
approving this Disclosure Statement as containing adequate information pursuant
to Section 1125 of the Bankruptcy Code; (b) approving the forms of Ballots to be
executed by holders of impaired Claims and Equity Interests for voting on the
Plan; and (c) approving the notice of and fixing the time for (1) submitting
acceptances or rejections to the Plan, (2) the hearing to consider confirmation
of the Plan, and (3) filing objections to confirmation of the Plan; and (iii)
forms of Ballots to be executed by holders of impaired Claims and Equity
Interests for voting to accept or reject the Plan.
The forms of Ballots, and the related materials delivered together
herewith, are being furnished, for purposes of soliciting votes on the Plan, to
holders of (i) Old Senior Notes whose respective names (or the names of whose
nominees) appear as of the Voting Record Date (defined below) on the security
holder lists maintained by the Old Senior Note Indenture Trustee, (ii) TOPrS
Certificates whose respective names (or the names of whose nominees)
13
<PAGE>
appear as of the Voting Record Date on the security holder lists maintained by
the TOPrS Trustee, (iii) GPH Claims, (iv) Debt Securities Rescission or Damage
Claims, (v) Old Preferred Stock Interests, (vi) Old Common Stock Interests and
(vii) Equity Interest Rescission or Damage Claims. With regard specifically to
the Senior Notes and the TOPrS Certificates held by banks and/or brokers (the
"Record Holders") for the beneficial ownership of other entities or individuals
(the "Beneficial Holders"), the Debtors or their balloting agent will provide a
sufficient number of copies of this Disclosure Statement, the Plan and the
Ballots to the Record Holders for transmission to each of the Beneficial
Holders. The Debtors shall ask the Record Holders to send copies of the
Disclosure Statement, the Plan and the Ballots to the respective Beneficial
Holders, and to collect completed Ballots from such Beneficial Holders on the
Debtors' behalf. The Record Holders shall be asked to summarize the results of
the votes received from the Beneficial Holders on a summary form, i.e., a master
ballot, which will be provided to each Record Holder by the Debtors. The
Disclosure Statement is also being provided to holders of claims in Classes 1,
2, 6 and 11 (who are deemed to have accepted the Plan), and other entities,
solely for informational purposes.
1. Who May Vote
------------
Under the Bankruptcy Code, impaired classes of Claims or Equity
Interests are entitled to vote to accept or reject a plan of reorganization. A
class which is not "impaired" is deemed to have accepted a Plan and does not
vote. A class is "impaired" under the Bankruptcy Code unless the legal,
equitable, and contractual rights of the holders of Claims or Equity Interests
in such class are not modified or altered. For purposes of the Plan, holders of
Old
14
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Senior Note Claims in Class 3, holders of GPH Claims in Class 4, holders of
TOPrS Claims in Class 5, holders of Debt Securities Rescission or Damage Claims
in Class 7, holders of Old Preferred Stock Interests in Class 8, holders of Old
Common Stock Interests in Class 9, and holders of Equity Interest Rescission or
Damage Claims in Class 10 are impaired and are entitled to vote on the Plan.
2. Voting Instructions
-------------------
All votes to accept or reject the Plan must be cast by using the form
of Ballot, or, in the case of a brokerage firm holding Old Senior Notes, TOPrS
Certificates, or Old Common Stock Interests in its own name on behalf of a
beneficial owner, the Ballot entitled "Master Ballot" enclosed with this
Disclosure Statement. No votes other than ones using such Ballots will be
counted except to the extent the Bankruptcy Court orders otherwise. The
Bankruptcy Court has fixed a time and date (the "Voting Record Date"), as set
forth in the Disclosure Statement Approval Order, for the determination of
holders of record of Claims who are entitled to (a) receive a copy of this
Disclosure Statement and all of the related materials, and (b) vote to accept or
reject the Plan. After carefully reviewing the Plan and this Disclosure
Statement, including the attached exhibits and the Plan Documents, please
indicate your acceptance or rejection of the Plan on the appropriate Ballot and
return such Ballot in the enclosed envelope to:
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Golden Books Plan of Reorganization
c/o Bankruptcy Services, LLC
70 East 55th Street
6th Floor
New York, New York 10022
(212) 376-8494
Attn: Ms. Kathy Gerber
BALLOTS MUST BE RECEIVED ON OR BEFORE 4:00 P.M. (NEW YORK CITY TIME) ON
_________, 1999 (THE "VOTING DEADLINE"). ANY BALLOT WHICH IS NOT EXECUTED BY A
DULY AUTHORIZED PERSON SHALL NOT BE COUNTED. ANY BALLOT WHICH IS EXECUTED BY THE
HOLDER OF AN ALLOWED CLAIM BUT WHICH DOES NOT INDICATE AN ACCEPTANCE OR
REJECTION OF THE PLAN SHALL BE DEEMED TO BE AN ACCEPTANCE.
IF YOU ARE A BENEFICIAL HOLDER OF A SECURITY HELD BY A NOMINEE PLEASE NOTE THAT
BALLOTS MUST BE RETURNED BY HAND, MAIL, OR OVERNIGHT TRANSMISSION TO YOUR
NOMINEE IN SUFFICIENT TIME FOR IT TO BE FORWARDED BY YOUR NOMINEE TO THE
DEBTORS' BALLOTING AGENT BY THE VOTING DEADLINE.
If you have any questions regarding the procedures for voting on the
Plan, please contact the Debtors' balloting agent, Bankruptcy Services, LLC, at
the above address and telephone number.
16
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3. Acceptance or Rejection of the Plan
-----------------------------------
Under the Bankruptcy Code, a voting Class of Claims is deemed to have
accepted the Plan if it is accepted by creditors in such Class who, of those
voting on the Plan, hold at least two-thirds in amount and more than one-half in
number of the Allowed Claims of such Class. A voting Class of Equity Interests
is deemed to have accepted the Plan if it is accepted by holders of Equity
Interests who hold at least two-thirds in amount of the Equity Interests of such
Class that have actually voted on the Plan.
If the Plan is not accepted by all impaired Classes of Allowed Claims,
the Plan may still be confirmed by the Bankruptcy Court pursuant to Section
1129(b) of the Bankruptcy Code if (a) the Plan has been accepted by at least one
impaired Class of Claims, and (b) the Bankruptcy Court determines, among other
things, that the Plan "does not discriminate unfairly" and is "fair and
equitable" with respect to each non-accepting impaired Class. If the Plan is not
accepted by all impaired Classes of Allowed Claims or Equity Interests, the
Debtors reserve the right to ask the Bankruptcy Court to find that the Plan does
not discriminate unfairly and is fair and equitable with respect to each
impaired Class that has not accepted the Plan.
4. Confirmation Hearing
--------------------
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court,
after notice, to hold a Confirmation Hearing. Section 1128(b) of the Bankruptcy
Code provides that any party-in-interest may object to Confirmation of the Plan.
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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.
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II.
BACKGROUND AND EVENTS PRECIPITATING
CHAPTER 11 FILING AND SOLICITATION
A. Overview of the Debtors and their Business Operations
Golden Books publishes, produces, licenses and markets an extensive
range of children's and family-related media and entertainment products. On the
Petition Date, the Debtors employed over 1,100 individuals, owned or leased
properties in five states, and had operations in Canada (through a non-debtor
affiliate) and in the United Kingdom. The Debtors' products and productions are
distributed throughout the United States, and worldwide in over 60 countries.
On May 8, 1996, Golden Press Holding, L.L.C. ("GPH"), an investment
vehicle formed by Warburg, Pincus Ventures, L.P., Richard E. Snyder and Barry
Diller, invested $65 million in Golden Books through the purchase of Parent's
Old Preferred Stock Interests.3 At that time, the name of the Debtors' parent
corporation was changed from Western Publishing Company, Inc. to Golden Books
Family Entertainment, Inc.
- ----------------
3 GPH also purchased $10 million in principal amount of GPH Notes on or about
September 8, 1998. Class 4 under the Plan is made up of the holders of GPH
Notes.
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On the Petition Date, the Debtors operated through the following four
business segments: (i) Children's Publishing Division, (ii) Adult Publishing
Division, (iii) Golden Books Entertainment Group and (iv) Commercial Printing
Division.4
1. Children's Publishing Division
------------------------------
Golden Books, through its Children's Publishing Division, is the
largest publisher of children's books in the North American retail market, and
has published its flagship product line, "Little Golden Books", for over 50
years. The Children's Publishing Division produces storybooks, coloring/activity
books, electronic storybooks, puzzles, educational workbooks, reference books,
novelty books, chapter books and fiction. The products of the Children's
Publishing Division utilize both owned (in whole or in part) characters, such as
the Poky Little Puppy and Lassie, and characters licensed from third parties,
such as Barney and the Muppets. The products of the Children's Publishing
Division have traditionally been designed for children up to age seven and have
been distributed through mass market channels (which include national discount
store chains, such as Wal-mart, K-Mart, Target and Toys "R" Us). Golden Books
has also distributed children's products through bookstores and other retailers,
specialty markets and international channels.
- -------------------
4 For a detailed description of Golden Books and its operations, see Golden
Books' Annual Report on Form 10-K for the fiscal year ended 1998, a copy of
which is annexed hereto as Exhibit "B." The aforementioned financial
information is provided to permit holders of Claims and Equity Interests to
better understand Golden Books' historical business performance.
20
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2. Adult Publishing Division
-------------------------
On the Petition Date, the Debtors' Adult Publishing Division published
trade books focusing primarily on hobbies, parenting and the family. As of the
Petition Date, the Adult Publishing Division consisted of certain intellectual
property rights (e.g., copyrights and "author agreements") and the personal
property related thereto (e.g, inventory and accounts) associated with
approximately 170 titles aimed at the adult audience. The products of the Adult
Publishing Division were distributed primarily through bookstores, although the
line included books published in formats suitable for mass market distribution.
On the Petition Date, the products of the Adult Publishing Division were
distributed throughout the United States and Canada by St. Martin's Press,
Incorporated ("St. Martin's Press") pursuant to an exclusive distribution
agreement. As discussed later in this Disclosure Statement, on or about April
16, 1999, pursuant to an order of the Bankruptcy Court, the assets of the Adult
Publishing Division were sold to St. Martin's Press.
3. Entertainment Group Division
----------------------------
The Golden Books Entertainment Group Division (the "Entertainment
Division") was established in August 1996 when Golden Books acquired an
extensive library of character- based family entertainment properties from
Broadway Video Entertainment, L.P. The Entertainment Division's library is
comprised of copyrights, distribution rights, trademarks and licenses relating
to characters, television programs and motion pictures, both animation and live
action, and includes individual specials and multiple episode series. Properties
from this library
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are licensed to third parties, both domestically and internationally, for use in
television, home video and other electronic media. Included in the assets of the
Entertainment Division are the intellectual property rights relating to a number
of well-known television programs, motion pictures and characters including,
among others, Christmas Classics, Lassie, Underdog, Lone Ranger and Felix the
Cat.
4. Commercial Printing Division
----------------------------
The Debtors' Commercial Printing Division allows the company, as a
leading publisher, to market surplus manufacturing capabilities to third
parties. Customers of the Commercial Printing Division include educational
publishers, religious publishers, brand marketers targeting children and
families, and other juvenile publishers and entertainment companies. The
Commercial Printing Division also engages in commodity printing such as tax
instruction booklets and tax forms.
B. Pre-Petition Debt Structure of the Debtors
Prior to the Petition Date, the Debtors' debt structure included a
secured working capital facility, long-term debt consisting primarily of the
Senior Notes and the TOPrS Certificates, and short-term debt consisting
primarily of the GPH Notes.
22
<PAGE>
1. Pre-Petition Working Capital Facility
-------------------------------------
The Debtors' day-to-day operations were primarily financed by a
secured, revolving working capital facility with NationsCredit Commercial
Funding, a division of NationsCredit Commercial Corp. ("NationsCredit"),
pursuant to a Loan and Security Agreement dated as of June 3, 1998 (the
"NationsCredit Agreement"), by and between NationsCredit, as lender, and
Publishing, as borrower. Publishing's obligations under the NationsCredit
Agreement were secured by a first lien and security interest in (i) all
Accounts, Chattel Paper, Documents and Inventory (each as defined in the
NationsCredit Agreement) relating solely to Publishing's Children's Publishing
Division excluding all of the foregoing assets relating to Publishing's
Christmas Classics, Lone Ranger and Underdog properties (as such terms are
defined in the NationsCredit Agreement), (ii) any and all proceeds and products
of the foregoing, and (iii) all books and records relating to any of the
foregoing (collectively, the "NationsCredit Collateral").
The NationsCredit Agreement had an initial maximum borrowing capacity
of $30 million. Prior to the Petition Date, NationsCredit notified the Debtors
of the occurrence of certain alleged events of default. As a result, the Debtors
and NationsCredit entered into a series of letter agreements, wherefore in
consideration for certain payments and other undertakings by the Debtors,
NationsCredit agreed to refrain, through February 26, 1999, from exercising its
rights under the NationsCredit Agreement with respect to the alleged events of
default. Additionally, pursuant to such agreements, the Debtors' maximum
borrowing capacity was reduced from time to time. On the Petition Date, the
Debtors' maximum borrowing capacity
23
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under the NationsCredit Agreement was approximately $16 million and the
outstanding balance owed to NationsCredit was approximately $10 million.5
2. The Old Senior Notes
--------------------
Pursuant to the Old Senior Note Indenture, dated September 15, 1992,
$150 million of Old Senior Notes due 2002 were issued by Parent's
predecessor-in-interest. As part of the series of transactions related to the
1996 investment by GPH (see subsection II.A. above), Parent assigned its
obligations in respect of the Old Senior Notes to Publishing. Interest on the
Old Senior Notes accrues at the rate of 7.65% per annum and is payable on each
March 15 and September 15. As part of the incurrence of the secured working
capital facility with NationsCredit, in June 1998, the holders of Old Senior
Notes directed the Old Senior Note Indenture Trustee to amend the covenant
prohibiting secured indebtedness and certain other provisions contained in the
Old Senior Note Indenture. Parent guaranteed Publishing's obligations under the
Old Senior Notes and Publishing provided the Old Senior Note Indenture with
certain collateral described below. As of the Petition Date, the aggregate
amount owed under the Old Senior Notes (including accrued and unpaid interest)
was approximately $160 million. As discussed below, Publishing did not make the
interest payment due on September 15, 1998. (See Section II.D.)
- --------------------
5 On March 1, 1999, the Bankruptcy Court entered an Interim Order authorizing
the Debtors to enter into a debtor-in-possession financing facility of up
to $55 million with The CIT Group/Business Credit, Inc. (and allowing for
interim borrowing thereunder of up to $30 million), and authorizing the use
of a portion of the proceeds of such facility to satisfy fully the Debtors'
obligations to NationsCredit.
24
<PAGE>
The Old Senior Notes are secured obligations of the Debtors pursuant
to a security agreement dated as of June 2, 1998 (the "Security Agreement"). In
particular, the Debtors believe that the Senior Note Trustee (for the benefit of
all holders) holds valid, perfected and unavoidable (i) first priority liens and
security interests (subject to certain permitted liens) in and upon (a)
inventory, accounts receivable, chattel paper, documents and proceeds of the
foregoing relating solely to Publishing's Christmas Classics, Lone Ranger and
Underdog properties (as such terms are defined in the Security Agreement), and
the copyrights, copyright licenses, trademarks and trademark licenses associated
therewith, and (b) certain personal property and fixtures owned by Publishing
and located at the Debtors' distribution center in Crawfordsville, Indiana,
their manufacturing facility in Racine, Wisconsin, and their corporate
headquarters in New York, New York; (ii) junior liens and security interests in
and upon the NationsCredit Collateral (subject to the terms and conditions set
forth therein); and (iii) a mortgage lien upon Publishing's real property
located in Crawfordsville, Indiana. In addition, the Old Senior Note Indenture
Trustee and the Informal Senior Note Committee believe that the Senior Notes are
entitled to be secured by a first priority lien on and security interest in a
certain distribution agreement between Video and Sony Music and a related
license agreement between Publishing and Video (collectively, the "Distribution
Agreement"), and all rights to receive moneys due and to become due thereunder,
and all proceeds thereof.
3. GPH Claims
----------
Pursuant to the GPH Note Purchase Agreement, dated as of September 8,
1998, among GPH, Parent, Publishing and Video, Video issued senior secured
promissory notes in the
25
<PAGE>
original principal amount of $10 million to GPH in consideration for a $10
million loan by GPH. The GPH Notes provide for the payment of interest at the
rate of (i) 5% per annum until and including March 8, 1999, (ii) 7% per annum
after March 8, 1999 and (iii) 11% per annum respecting overdue payments of
principal or interest. The proceeds from the Note Purchase Agreement were loaned
to Publishing in return for senior notes of Publishing in the original principal
amount of $10 million (the "Publishing Notes"). The Publishing Notes were
pledged to GPH as collateral for the GPH Notes.
As additional collateral for the GPH Notes, the Debtors believe that
the GPH Notes are secured by first priority liens and security interests
(subject in certain instances to permitted liens) in and upon all of Video's
assets (including Video's rights under the Distribution Agreement and all rights
of Video to receive moneys due and to become due thereunder, and all proceeds
thereof). Video's obligations under the Note Purchase Agreement were guaranteed
by both Parent and Publishing. In connection therewith, Parent pledged to GPH
all of the issued and outstanding capital stock of Publishing and Video, and all
dividends, cash and other rights in respect thereof, and all proceeds of any of
the foregoing. As of the Petition Date, the aggregate amount owed to GPH under
the Note Purchase Agreement (including accrued and unpaid interest) was
approximately $10.2 million.
4. TOPrS Certificates
------------------
Prior to the Petition Date, Parent and Publishing issued $118 million
in original principal amount of 8.75% Convertible Debentures due 2016 (the
"Convertible Debentures") to
26
<PAGE>
the Golden Books Financing Trust (the "TOPrS Trust"), a Delaware Statutory
Business Trust. In turn, the TOPrS Trust issued $118 million of 8.75%
Convertible Trust Originated Preferred Securities due 2016 (the "TOPrS
Certificates"), which represent undivided beneficial ownership interests in the
assets of the TOPrS Trust (i.e., the Convertible Debentures). Pursuant to the
terms of the TOPrS Trust, a bankruptcy filing by Publishing or Parent causes a
dissolution of the TOPrS Trust, whereupon the Convertible Debentures are to be
distributed to the holders of the TOPrS Certificates on a pro rata basis.6 The
Convertible Debentures are joint and several unsecured obligations of Parent and
Publishing.
The TOPrS Certificates are convertible at the option of the holder
into shares of Old Common Stock of Parent at a conversion rate of approximately
$13 per share of Common Stock. Interest payments on both the Convertible
Debentures and TOPrS Certificates are payable in arrears quarterly except that
Parent and Publishing have the option to defer the payment of interest for
successive periods not exceeding 20 consecutive periods. In November 1998 and
February 1999, Golden Books exercised its option to defer interest payments due
with respect to the TOPrS Certificates.
C. Pre-Petition Capital Structure
As of the Petition Date, Parent had approximately 27,899,047 shares of
common stock, $.01 par value per share, issued and outstanding. Parent's Old
Common Stock is listed for
- -----------------
6 Given the direct interrelationship between the Convertible Debentures and
the TOPrS Certificates, they are treated collectively as a single Class of
"TOPrS Claims" for purposes of the Plan.
27
<PAGE>
inclusion on the NASDAQ National Market System ("NASDAQ"). In February, 1999,
trading of Parent's Old Common Stock was suspended by NASDAQ.
As of the Petition Date, Parent also had 13,000 shares of its Series B
Preferred Stock, no par value (the "Old Preferred Stock"), issued and
outstanding. These shares are held by GPH, whose aggregate investment for such
shares was approximately $65 million. The Old Preferred Stock is convertible
into 6,500,000 shares of Old Common Stock at a conversion price of $10 a share.
The Old Preferred Stock is entitled to receive quarterly dividends in the form
of 195,000 shares of Old Common Stock (together with certain amounts of cash if
the market value of the Old Common Stock falls below certain thresholds
specified in the certificate of designation relating to the Old Preferred Stock)
through May 8, 2000. However, the Debtors have not paid 195,000 shares of Old
Common Stock and certain cash amounts due as unpaid dividends on the Old
Preferred Stock.
D. Events Precipitating Chapter 11 Filing
The Debtors' Chapter 11 proceedings were preceded by liquidity
difficulties which they experienced after incurring operating losses for the
past several years, including restructuring costs related to the implementation
of a long-term financial strategic plan centered on the Debtors' core publishing
operations. Such difficulties hampered the Debtors' ability to fund day-to-day
operations and maintain future business prospects.
As a result of the Debtors' insufficient liquidity, Publishing
determined that it was in the best interests of its creditors and stockholders
for it not to make a September 15, 1998
28
<PAGE>
interest payment in respect of the Old Senior Notes, but rather to attempt to
pursue long-term strategic financial and capital restructuring options.
Publishing's failure to make the September 15, 1998 interest payment resulted in
the reactivation of an unrestricted informal committee of holders of Old Senior
Notes, which had originally been formed in connection with the series of
transactions related to the incurrence of the pre-petition working capital
facility with NationsCredit in June, 1998. Members of this informal committee
held, as of September 15, 1998, in the aggregate, approximately 60% of the
principal amount of Old Senior Notes. Members of the informal committee
included, at that time, the following: AEGON; U.S.A. Investment Management,
Inc.; Avenue Advisors, LLC; Ohio National Life Insurance Company; Principal Life
Insurance Company; Provident Mutual Life Insurance Company; Security Benefit
Life Insurance Company; Alliance Capital Management Corporation; and Bennett
Management Corporation.
During the negotiations leading up to the agreed Plan, the first five
members of the informal committee listed in the foregoing sentence agreed to
become "restricted" in order to receive material non-public information to
assist them, in their capacity as members of the Informal Senior Note Committee,
in making recommendations regarding the proposed restructuring to all holders of
Senior Notes. The Informal Senior Note Committee has retained the law firm of
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038, as
counsel, and the financial advisory firm of Houlihan Lokey Howard & Zukin, 685
Third Avenue, New York, New York 10017, as financial advisors.
29
<PAGE>
In November 1998, due to continued liquidity problems, the Debtors
deferred a scheduled interest payment due with respect to the TOPrS Certificates
pursuant to the terms of such certificates. Thereafter, the Debtors began
discussions with a second ad hoc committee, the Informal TOPrS Committee, that
had formed earlier. The members of the Informal TOPrS Committee include
Deephaven Capital Management; David Matlin; Stephen J. Devoe, III; Oleg Lagetko;
Anil Suri; Chris Pechock; Stacy Herman; Mark Patterson; Greyhound Lines, Inc.;
Amalgamated CNCL Retirement and Disability Trust, P.R. Co.; Forest Global
Convertible Fund Series B-1; Forest Global Convertible Fund Series A-5; Forest
Performance Fund; Forest Alternative Strategies Fund II, LP Series B-3; Forest
Strategies Fund III, LP Series A-5M; Forest Alternative Strategies Fund II, LP
Series A-5-2; Forest Fulcrum Fund LP; SoundShore Holdings Ltd.; SoundShore
Opportunity Holding Fund Ltd.; and Krista Cowley. These members of the Informal
TOPrS Committee hold, upon information and belief, an aggregate of approximately
32% of the outstanding TOPrS Certificates. The Informal TOPrS Committee is
represented by the law firm of Cleary, Gottlieb, Steen & Hamilton, One Liberty
Plaza, New York, New York 10006-1470, as counsel, and Jefferies & Company, Inc.,
650 Fifth Avenue, New York, New York 10019, as financial advisors. In February,
1999, the Debtors again exercised their right to defer a scheduled interest
payment on the TOPrS Certificates.
After failing to make the September 15, 1998 interest payment on the
Old Senior Notes, the Debtors were notified of certain alleged events of default
under the NationsCredit Agreement. As previously noted, NationsCredit and the
Debtors entered into letter agreements pursuant to which, among other things,
NationsCredit agreed to refrain from exercising remedies
30
<PAGE>
under the NationsCredit Agreement based on such events of default and the
Debtors' maximum borrowing capacity was reduced from $30 million to
approximately $16 million immediately prior to the Petition Date. Such reduced
liquidity further hampered the Debtors' pre-petition business operations and
their ability to implement their pre-petition operational restructuring plan.
Accordingly, in October and November 1998, the Debtors explored the possibility
of obtaining a new working capital facility to provide them with greater
liquidity to stabilize operations and allow the continued implementation of
their operational restructuring plan while they continued to pursue a long-term
resolution of their financial difficulties.
In particular, the Debtors undertook extensive negotiations with the
Informal Senior Note Committee and potential lenders with respect to a
replacement working capital facility. Such negotiations were required because
any working capital facility which provided rights or borrowing capacity greater
than those contained in the NationsCredit Agreement also required an amendment
to the Old Senior Note Indenture. In November, 1998, the Debtors believed that
they were close to entering into a replacement working capital and term loan
facility with The CIT Group/Business Credit, Inc. which would have provided them
with greater borrowing capacity. However, despite extensive efforts by all
parties, it was determined that a replacement facility could not be implemented
at that time, primarily due to complex intercreditor issues and disputes, and
efforts to pursue such a transaction ceased. Nonetheless, the parties continued
discussions concerning a long-term restructuring of Golden Books' indebtedness.
31
<PAGE>
During discussions with its creditor constituencies, Golden Books
emphasized the benefits of a consensual transaction, and the potential harm the
uncertainties of a protracted, contentious restructuring process could cause to
Golden Books' relationships with its suppliers and customers. Ultimately,
following months of negotiations with the Informal Senior Note Committee, the
Informal TOPrS Committee, GPH, Mr. Richard E. Snyder (the Debtors' Chairman and
Chief Executive Officer) and others, the parties reached an agreement in
principle on the terms of a restructuring of Golden Books' indebtedness, which
the parties determined would be best accomplished through a pre-arranged Chapter
11 proceeding.
To memorialize the agreement, the parties negotiated and entered into
a "Restructuring Agreement," a copy of which is annexed hereto as Exhibit "C",
outlining the terms and provisions by which the Debtors, members of the Informal
Senior Note Committee, members of the Informal TOPrS Committee and certain other
signatory holders of such securities, Mr. Richard E. Snyder and GPH, would
support a restructuring of the Debtors through a Chapter 11 plan of
reorganization. The Plan, which is described in this Disclosure Statement,
embodies the terms and arrangements set forth in the Restructuring Agreement. In
general, the Plan provides for, among other things, an exchange of the Old
Senior Notes for new senior secured notes and equity interests in Reorganized
Parent, and an exchange of TOPrS Certificates and GPH Notes for equity interests
in Reorganized Parent. The Debtors' general unsecured trade creditors shall be
paid in full under the Plan. The Plan also provides a distribution of New
Warrants to holders of Old Preferred Stock Interests and Old Common
32
<PAGE>
Stock Interests. (For a more detailed description of the treatment of Claims and
Equity Interests under the Plan see Section IV.C. of this Disclosure Statement).
Additionally, pursuant to the Restructuring Agreement, the parties
thereto agreed, inter alia, to: (i) support confirmation of the Plan; (ii) not
vote against, object to or support an objection to the Plan; (iii) not vote for,
consent to, support or participate in any modification of the Plan or the
severance of any provision thereof that is determined to be invalid, void or
unenforceable (unless such modification or the severance of such provision has
been agreed to in writing by each of the parties thereto); and (iv) not vote
for, consent to, support or participate in the formulation of, and shall vote
against, any other plan of reorganization for any or all of the Debtors.
Furthermore, under the Restructuring Agreement, the Informal Senior Note
Committee, the Informal TOPrS Committee, and each of the respective members
thereof, Mr. Snyder and GPH each agreed that the distributions under the Plan in
respect of such person's claims against, or interests in, the Debtors is fair
and equitable under Section 1129(b) of the Bankruptcy Code.
Pursuant to its terms, the Restructuring Agreement may terminate upon
the occurrence of any of the following events, unless waived in writing by all
of the parties thereto:
(i) the Plan and the DIP Order are not filed within twenty-one
(21) days after the effective date of the Restructuring
Agreement;
(ii) projections supporting the Plan are not filed within
twenty-five (25) days after the filing of the Plan;
(iii) the Plan is not confirmed within one hundred and fifty (150
days after the effective date of the Restructuring Agreement
(or an order is entered
33
<PAGE>
which has the practical effect of preventing confirmation of
the Plan within one hundred and fifty (150) days after the
effective date of the Restructuring Agreement);
(iv) the Plan shall not become effective within two hundred (200)
days after the effective date of the Restructuring
Agreement;
(v) any party fails to perform, in any material respect, any of
their obligations under the Restructuring Agreement or to
support the terms set forth in the exhibits thereto;
(vi) holders of more than 20% in the aggregate principal amount,
on a per issue basis, of Old Senior Notes that are not
members of the Informal Senior Note Committee or of TOPrS
Certificates that are not members of the Informal TOPrS
Committee shall take actions which are materially adverse
to, and in contravention of, the obligations under the
Restructuring Agreement of the respective members of the
Informal Senior Note Committee or Informal TOPrS Committee;
or
(vii) there shall be any material modification to, or severance of
any provision of, the Plan which is materially inconsistent
with the terms and conditions set forth in the exhibits to
the Restructuring Agreement (including, without limitation,
a material modification to, or severance of, the release and
indemnification provisions set forth in the exhibits to the
Restructuring Agreement).
E. Pre-Petition Asset Disposition and Expense Reduction Efforts
Throughout the entire pre-petition negotiation process, Golden Books
continued to implement its pre-petition operational restructuring plan,
centering on a rehabilitation around the Debtors' core children's publishing and
distribution businesses. In that regard, prior to the Petition Date, the Debtors
undertook extensive efforts to reduce overhead and other operating expenses
through, among other things, the termination of nonessential employees, the
disposition of certain nonessential assets and facilities, and the consolidation
of business and administration functions. Among other actions, in 1998, Golden
Books sold its distribution
34
<PAGE>
center in Coffeyville, Kansas, and a manufacturing and distribution facility in
Fayetteville, North Carolina. In addition, the Debtors consolidated their office
space in New York City. Such efforts resulted in several million dollars in
expense reductions. The Debtors' cost reduction and business consolidation
efforts are ongoing.
III.
SIGNIFICANT POST-PETITION EVENTS
A. Commencement Of Chapter 11 Cases
On February 26, 1999 (the "Petition Date"), in furtherance of their
restructuring efforts, the Debtors filed their Chapter 11 cases in the
Bankruptcy Court. The Debtors' cases were assigned to the Honorable Tina L.
Brozman, Chief United States Bankruptcy Judge for the Southern District of New
York. The Debtors continue to operate their businesses and manage their
properties as debtors-in-possession pursuant to Sections 1107 and 1108 of the
Bankruptcy Code. As of the date hereof, no trustee or official committee of
unsecured creditors has been appointed in the Debtors' cases. The following
sections present a brief description of some of the major events which have
occurred since the Petition Date.
B. First Day Orders
On the Petition Date or shortly thereafter, the Bankruptcy Court
entered several orders authorizing the Debtors to pay various pre-petition
claims and granting other relief necessary to help the Debtors stabilize their
day-to-day business operations. These orders were
35
<PAGE>
designed to allow the Debtors to continue business operations with minimum
disruption and dislocation, and to ease the strain on the Debtors' relationships
with their employees and other parties. Included among the orders entered by the
Bankruptcy Court were orders authorizing the Debtors to: (i) pay pre-petition
payroll, business expenses and other employee-related obligations; (ii) pay
pre-petition royalties in the ordinary course of business; (iii) continue the
Debtors' return policy; and (iv) continue, maintain and use their consolidated
cash management system, existing bank accounts, and existing business forms.
C. Professional Retentions
On the Petition Date, the Bankruptcy Court entered orders authorizing
the Debtors to retain, among others, (i) the law firm of Proskauer Rose LLP,
1585 Broadway, New York, New York 10036, as bankruptcy and reorganization
counsel, and (ii) the firm of Conway, Del Genio, Gries & Co., Olympic Tower, 645
Fifth Avenue, New York, New York 10022, as financial advisors.
D. Post-Petition Financing
As noted above, prior to the Petition Date, the Debtors' operations
were hampered by, among other things, significant reductions in their borrowing
capacity under their pre-petition working capital facility with NationsCredit.
Accordingly, on the Petition Date, one of the most important issues addressed by
the Debtors was obtaining access to an adequate post-petition working capital
facility to enable them to operate their businesses on a competitive basis and,
thus, to successfully reorganize. After due deliberation and consideration of
viable
36
<PAGE>
alternatives, the Debtors determined that it was in the best interests of their
creditors and estates to seek authorization and approval of a $55 million
post-petition financing facility from The CIT Group/Business Credit, Inc.
("CITBC"). Accordingly, on the Petition Date, the Debtors filed an application
to authorize and approve of such facility pursuant to a Revolving Credit and
Term Loan Agreement with CITBC dated as of March 1, 1999 (the "Loan Agreement").
On March 1, 1999, the Bankruptcy Court entered an interim order (the
"Interim Order") preliminarily approving of the Loan Agreement and authorizing
the Debtors to borrow up to $30 million thereunder on an interim basis pending a
final hearing. On March 29, 1999, the Court entered a final order (the "Final
Order" and together with the Interim Order, the "Financing Order") authorizing
the Debtors to obtain post-petition financing in the form of a $45 million
revolving credit facility and $10 million term loan from CITBC pursuant to the
Loan Agreement on a permanent basis; provided, however, that the Debtors are
limited to aggregate borrowings of $45 million pending approval of the Informal
Senior Note Committee to borrow up to the total $55 million facility (i.e., the
$45 million revolving credit facility plus the $10 million term loan), which
permission may not be unreasonably withheld. Pursuant to the Financing Order, as
security for the borrowings under the Loan Agreement, CITBC was granted senior
and junior liens on specified assets of the Debtors, and a superpriority
administrative expense claim (subject to a carve out for fees of the United
States Trustee and specified professional fees).
In addition, pursuant to the Financing Order, the Debtors were
authorized to use collateral (including cash collateral) in which liens and
security interests were held by the Old
37
<PAGE>
Senior Note Indenture Trustee and by GPH. Pursuant to the Financing Order,
replacement and additional senior and junior liens on specified assets were
provided to the Old Senior Note Indenture Trustee, and replacement liens on its
pre-petition collateral and a specified superpriority administrative expense
claim were provided to GPH.
E. Sale of Assets of the Adult Publishing Division
As noted above, the Debtors have been implementing a long-term
strategic business plan centered on their core children's publishing and
distribution operations through, among other things, the divestment of non-core
assets. In that regard, on or about March 8, 1999, the Debtors filed a motion
seeking authorization to sell the assets comprising their Adult Publishing
Division, which had been extensively marketed since the Fall of 1998, to St.
Martin's Press for approximately $11 million, subject to higher and better
offers. Pursuant to an Order of the Bankruptcy Court, dated March 25, 1999, the
Debtors were authorized to sell the Adult Publishing Division to St. Martin's
Press, which sale was consummated on or about April 16, 1999.
F. Extension of Time to Assume or Reject Leases
Pursuant to Section 365(d)(4) of the Bankruptcy Code, the Debtors were
required to assume or reject all nonresidential real property leases under which
they are lessees within 60 days of the Petition Date unless such time period was
extended by the Bankruptcy Court. By Order dated April 21, 1999, the Bankruptcy
Court extended the time within which the Debtors
38
<PAGE>
may assume or reject their nonresidential real property leases through and
including the date of confirmation of a plan(s) of reorganization.
G. Claims Process and Bar Date
1. Schedules and Statements
------------------------
On or about April 14, 1999, the Debtors' respective
Schedules of Assets and Liabilities, Schedules of Executory Contracts and
Unexpired Leases, and Statements of Financial Affairs, were filed with the
Bankruptcy Court.
2. Bar Date Order
--------------
On April 22, 1999, the Bankruptcy Court entered an order
(the "Bar Date Order") (i) fixing May 26, 1999 (the "Claims Deadline") as the
deadline for all creditors of the Debtors (except those expressly excluded by
the Bar Date Order) to file proofs of claim against the Debtors for claims
arising prior to the Petition Date and (ii) approving the form and manner of
notice of the Claims Deadline to be provided by the Debtors to their creditors
and other interested parties. The Bar Date Order provides that, except as set
forth therein, any holder of a Claim that fails to file a timely proof of claim
on or before the Claims Deadline is (a) forever barred from (i) asserting such
Claim, whether directly or indirectly, against the Debtors, the Debtors' estates
and their successors and assigns under any plan of reorganization and (ii)
voting on any plan of reorganization in the Debtors' Chapter 11 cases or sharing
in any distribution thereunder, and (b) receiving any distribution under any
plan of reorganization confirmed by
39
<PAGE>
order of the Bankruptcy Court in the Chapter 11 Cases. Notwithstanding the
foregoing, due to a delay in the service of notice of the Claims Deadline to
certain parties, the Debtors have requested that the Claims Deadline be extended
for approximately three weeks for record holders of publicly traded debt and
equity securities affected by such delay.
IV.
OVERVIEW OF THE PLAN
A. General
The following summary is intended as a brief overview of the Plan and
is qualified in its entirety by reference to the full text of the Plan, a copy
of which is annexed hereto as Exhibit "A, and to the Plan Supplement. Holders of
Claims and Equity Interests are respectfully referred to the relevant provisions
of the Bankruptcy Code and are encouraged to review the Plan and this Disclosure
Statement with their counsel.
In general, a Chapter 11 plan of reorganization must (i) divide claims
and equity interests into separate categories and classes, (ii) specify the
treatment that each category and class is to receive under such plan, and (iii)
contain other provisions necessary to implement the reorganization of a debtor.
A Chapter 11 plan may specify that the legal, equitable, and contractual rights
of the holders of claims or equity interests in certain classes are to remain
unchanged by the reorganization effectuated by the plan. Such classes are
referred to as "unimpaired" and, because of such favorable treatment, are deemed
to vote to accept the plan.
40
<PAGE>
Accordingly, it is not necessary to solicit votes from holders of claims or
equity interests in such "unimpaired" classes. Pursuant to Section 1124(1) of
the Bankruptcy Code, a class of claims or interest is "impaired," and entitled
to vote on a plan, unless the plan "leaves unaltered the legal, equitable, and
contractual rights to which such claim or interest entitles the holder of such
claim or interest."
The Debtors believe that (i) under the Plan holders of impaired Claims
and Equity Interests will obtain a greater recovery than they would otherwise
obtain if the assets of the Debtors were liquidated under Chapter 7 of the
Bankruptcy Code, and (ii) the Plan will enable the Debtors to emerge from
Chapter 11 as a viable and competitive enterprise, and enhance the Debtors'
ability to effect a return to profitability.
B. Classification of Claims and Equity Interests
Section 1122 of the Bankruptcy Code provides that a plan of
reorganization shall classify the claims and equity interests of a debtor's
creditors and equity interest holders. In compliance with Section 1122, the Plan
divides the holders of Claims and Equity Interests into two categories and
eleven Classes, and sets forth the treatment offered to each Class.7 These
- -----------------
7 A debtor is required under Section 1122 of the Bankruptcy Code to classify
the claims and interests of its creditors and interest holders into classes
containing claims and interests that are substantially similar to the other
claims or interests in such class. While the Debtors believe that their
classification of all Claims and Equity Interests is in compliance with the
provisions of Section 1122 of the Bankruptcy Code, it is possible that a
holder of a Claim or Equity Interest may challenge the Debtors'
classification scheme and the Bankruptcy Court may find that a different
classification is required for the Plan to be confirmed. In such event, it
is the present intention of the Debtors, to the extent permitted by the
Bankruptcy Court, to modify the Plan to provide for whatever
(continued...)
41
<PAGE>
Classes take into account the differing nature and priority of Claims against
the Debtors. Section 101(5) of the Bankruptcy Code defines "Claim" as a "right
to payment, whether or not such right is reduced to judgment, liquidated,
unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured or unsecured" or a "right to an equitable remedy for
breach of performance if such breach gives rise to a right to payment whether or
not such right to an equitable remedy is reduced to judgment, fixed, contingent,
matured, unmatured, disputed, undisputed, secured or unsecured." A "Claim"
against the Debtors also includes a Claim against property of the Debtors, as
provided in Section 102(2) of the Bankruptcy Code. An interest is an equity
interest in a debtor.
For the holder of a Claim to participate in a reorganization plan and
receive the treatment offered to the class in which it is classified, its Claim
must be Allowed. Under the Plan, an Allowed Claim is defined as: (a) a Claim
that has been listed by the Debtors in their Schedules and (i) is not listed as
disputed, contingent or unliquidated, and (ii) is not a Claim as to which a
proof of claim has been filed; (b) a Claim as to which a timely proof of Claim
has been filed as of the Bar Date and either (i) no objection thereto, or
application to estimate, equitably subordinate or otherwise limit recovery, has
been made on or before any applicable deadline, or (ii) if an objection thereto,
or application to estimate, equitably subordinate or otherwise limit recovery,
has been interposed, the extent to which such Claim (whether in whole
- --------------------
7 (continued)
reasonable classification might be required by the Bankruptcy Court for
Confirmation, and to use the acceptances received by the Debtors from any
holder of a Claim or Equity Interest pursuant to this solicitation for the
purpose of obtaining the approval of the Class or Classes of which such
holder of a Claim or Equity Interest is ultimately deemed to be a member
42
<PAGE>
or in part) has been allowed by a Final Order; (c) a Claim arising from the
recovery of property under Section 550 or 553 of the Bankruptcy Code and allowed
in accordance with Section 502(h) of the Bankruptcy Code; or (d) any Claim
allowed under the Plan.
C. Treatment of Claims and Equity Interests Under the Plan
The Plan segregates the various Claims against, and Equity Interests
in, the Debtors into Administrative Expense Claims, Priority Tax Claims, Class 1
consisting of Priority Claims, Class 2 consisting of General Secured Claims,
Class 3 consisting of Old Senior Note Claims, Class 4 consisting of GPH Claims,
Class 5 consisting of TOPrS Claims, Class 6 consisting of General Unsecured
Claims, Class 7 consisting of Debt Securities Recission or Damage Claims, Class
8 consisting of Old Preferred Stock Interests, Class 9 consisting of Old Common
Stock Interests, Class 10 consisting of Equity Interest Recission or Damage
Claims and Class 11 consisting of Subsidiary Equity Interests.
Under the Plan, Claims in Classes 1, 2, 6 and 11 are unimpaired, and
Claims in Classes 3, 4, 5, 7, 8, 9 and 10 are impaired. In the Debtors' opinion,
the treatment accorded to the impaired Classes of Claims and Equity Interests
under the Plan represents the best treatment which can be provided to such
Classes under the circumstances and is superior to the treatment which would be
afforded to such Classes in the event of a liquidation of the Debtors. Set forth
below is a summary of the Plan's treatment of the various categories and Classes
of Claims and Equity Interests. This summary is qualified in its entirety by the
full text of the Plan. In the event of an inconsistency between the Plan and the
description contained herein, the terms of the
43
<PAGE>
Plan shall govern. The Plan is complicated and substantial. Time should be
allowed for its analysis; consultation with a legal and/or financial advisor is
recommended and should be considered.
1. Unclassified Categories of Claims
---------------------------------
a. Category 1 -- Administrative Expense Claims
-------------------------------------------
Administrative Expense Claims include the actual and necessary costs
and expenses incurred during the Chapter 11 Cases. Under the Plan, all
Administrative Expense Claims shall be paid in full, in Cash, in such amounts as
(a) are incurred in the ordinary course of business by the Debtors, (b) are
Allowed by the Bankruptcy Court upon the later of the Effective Date, the date
upon which there is a Final Order allowing such Administrative Expense Claim or
any other date specified in such order, or (c) may be agreed upon between the
holder of such Administrative Expense Claim and the Debtors.
Administrative Expense Claims shall include obligations to CITBC,
costs incurred in the operation of the Debtors' businesses after the Petition
Date, the fees and expenses of Professionals retained by the Debtors, any
statutory committee appointed to serve in the Chapter 11 Cases, and the fees due
to the United States Trustee pursuant to 28 U.S.C. ss. 1930. The Plan recognizes
that GPH, the Informal Senior Note Committee, the Old Senior Note Indenture
Trustee, the Informal TOPrS Committee, and the TOPrS Trustee (including the
respective counsel and financial advisors to the foregoing (collectively, all
such parties are referred to herein as the "Other Professionals")) have rendered
a substantial contribution in the
44
<PAGE>
Chapter 11 Cases within the meaning of Section 503(b) of the Bankruptcy Code,
and, accordingly, the reasonable fees and expenses of the Other Professionals
incurred on or before the Effective Date incurred in connection with the Chapter
11 Cases or the Plan shall be paid by the Reorganized Debtors as Administrative
Expense Claims following (i) the submission of a request for payment pursuant to
Section 503(a) of the Bankruptcy Code and (ii) entry of an order of the
Bankruptcy Court allowing same.
All entities seeking an award by the Bankruptcy Court of Professional
Fees, or of compensation for services rendered or reimbursement of expenses
incurred through and including the Confirmation Date under Sections 503(b)(2),
503(b)(3), 503(b)(4) or 503(b)(5) of the Bankruptcy Code, (a) shall file their
respective final applications for allowances of compensation for services
rendered and reimbursement of expenses incurred through the Confirmation Date
within thirty (30) days after the Confirmation Date, and (b) if granted such an
award by the Bankruptcy Court, shall be paid in full in such amounts as are
allowed by the Bankruptcy Court (i) on the later of the Effective Date or the
date such Administrative Expense Claim becomes an Allowed Administrative Expense
Claim, or as soon thereafter as is practicable, (ii) upon such other terms as
may be mutually agreed upon between such holder of an Allowed Administrative
Expense Claim and the Debtors-in-Possession or, on and after the Effective Date,
the Reorganized Debtors, or (iii) in accordance with the terms of any applicable
administrative procedures order entered by the Bankruptcy Court.
All Professional Fees for services rendered in connection with the
Chapter 11 Cases and the Plan after the Confirmation Date, including, without
limitation, those relating to
45
<PAGE>
the occurrence of the Effective Date, the prosecution of Causes of Action
preserved hereunder and the resolution of Disputed Claims, shall be paid by the
Reorganized Debtors upon receipt of an invoice therefor, or on such other terms
as the Reorganized Debtors may agree to, without the need for further Bankruptcy
Court authorization or entry of a Final Order. If the Reorganized Debtors and
any Professional cannot agree on the amount of post-Confirmation Date fees and
expenses to be paid to such Professional, such amount shall be determined by the
Bankruptcy Court. In addition, simultaneously with the closing of the
Post-Effective Date Financing Facility, all of the Debtors' obligations to the
DIP Lender pursuant to the DIP Loan Documents shall be fully and finally
satisfied in accordance with the terms thereof.
b. Category 2 -- Priority Tax Claims
---------------------------------
Allowed Priority Tax Claims shall be paid in full, in Cash, upon the
later of (a) the Effective Date, (b) the date upon which there is a Final Order
allowing such Claim as an Allowed Priority Tax Claim, (c) the date that such
Allowed Priority Tax Claim would have been due if the Chapter 11 Cases had not
been commenced, or (d) upon such other terms as may be agreed to between the
Debtors and any holder of an Allowed Priority Tax Claim; provided, however, that
the Debtors may, at their option, in lieu of payment in full of Allowed Priority
Tax Claims on the Effective Date, make Cash payments respecting Allowed Priority
Tax Claims deferred to the extent permitted by Section 1129(a)(9) of the
Bankruptcy Code and, in such event, interest shall be paid on the unpaid portion
of such Allowed Priority Tax Claim at a rate to be agreed to by the Debtors and
the appropriate governmental unit or, if they are unable to
46
<PAGE>
agree, as determined by the Bankruptcy Court. The Debtors estimate that, on the
Effective Date, the aggregate amount of Allowed Priority Tax Claims will be
approximately $400,000.
2. Unimpaired Classes of Claims
----------------------------
A Chapter 11 plan may specify that the legal, equitable, and
contractual rights of the holders of claims or equity interests in certain
classes are to remain unchanged by the reorganization effectuated by the plan.
Such classes are referred to as "unimpaired" and, because of such favorable
treatment, are deemed to vote to accept the plan. Accordingly, it is not
necessary to solicit votes from holders of Claims or equity interests in such
"unimpaired" classes. Under the Debtors' Plan, the Class of Priority Claims
(Class 1), the Class of General Secured Claims (Class 2), the Class of General
Unsecured Claims (Class 6) and the Class of Equity Interests in Subsidiaries
(Class 11) are unimpaired and, therefore, are deemed to have accepted the Plan.
a. Class 1 -- Priority Claims
--------------------------
Each holder of an Allowed Priority Claim shall receive Cash in an
amount equal to such Allowed Priority Claim on the later of the Effective Date
and the date such Priority Claim becomes an Allowed Priority Claim, or as soon
thereafter as is practicable, unless the holder of an Allowed Priority Claim and
the Reorganized Debtors agree to a different treatment thereof. The Debtors
estimate that, on the Effective Date, the aggregate amount of Allowed Priority
Claims will be less than $50,000.
47
<PAGE>
b. Class 2 -- General Secured Claims
---------------------------------
At the option of the Reorganized Debtors, (i) an Allowed General
Secured Claim shall be reinstated and rendered unimpaired in accordance with
Section 1124(2) of the Bankruptcy Code, (ii) a holder of an Allowed General
Secured Claim shall receive Cash in an amount equal to such Allowed General
Secured Claim, including any interest on such Allowed General Secured Claim
required to be paid pursuant to Section 506(b) of the Bankruptcy Code, on the
later of the Effective Date and the date such General Secured Claim becomes an
Allowed General Secured Claim, or as soon thereafter as is practicable, or (iii)
a holder of an Allowed General Secured Claim shall receive the Collateral
securing its Allowed General Secured Claim and any interest on such Allowed
General Secured Claim required to be paid pursuant to Section 506(b) of the
Bankruptcy Code, in full and complete satisfaction thereof on the later of the
Effective Date and the date such General Secured Claim becomes Allowed, or as
soon thereafter as is practicable.
Included in the Class of General Secured Claims are subclasses
consisting of secured obligations to (i) the Wisconsin Department of Revenue
Division of Economic Development and the Racine County Economic Development
Corporation, and (ii) the Wisconsin Department of Revenue Bureau of Business
Finance. Specifically, Publishing and Parent have an approximately $1 million
joint obligation to the Wisconsin Department of Revenue Division of Economic
Development and Racine County Economic Development Corporation, which is secured
by certain equipment located in Racine County, Wisconsin. Parent has an
approximately $3 million secured obligation to the Wisconsin Department of
48
<PAGE>
Revenue Bureau of Business Finance which is secured by specified equipment
located in Racine County, Wisconsin. The Debtors intend to maintain such
obligations post-Confirmation, and, therefore, to render such claimants
unimpaired by providing them with the treatment set forth in clause (i) of the
preceding paragraph.
c. Class 6 -- General Unsecured Claims
-----------------------------------
To the extent not satisfied by the Debtors in the ordinary course of
business prior to the Effective Date, in full and final satisfaction of such
Claim, the legal, equitable, and contractual rights to which an Allowed General
Unsecured Claim entitles the holder thereof shall be left unimpaired and,
accordingly, shall be satisfied on the latest of (a) the Effective Date, (b) the
date a General Unsecured Claim becomes an Allowed Claim, (c) the date an Allowed
General Unsecured Claim becomes due and payable in the ordinary course of the
Debtors' business consistent with the Debtors' ordinary payment practices, or
(d) the date on which the Debtors and the holder of such Allowed General
Unsecured Claim otherwise agree in writing. At the option of the Debtors, the
treatment provided in the Plan will result in the payment of any Allowed General
Unsecured Claim, in Cash, in an amount equal to such Allowed General Unsecured
Claim which payment shall include post-petition interest for the period from the
Petition Date through the Effective Date calculated as follows: (i) to the
extent holders of Allowed General Unsecured Claim are contractually entitled to
receive interest, such holders shall receive post-petition interest at the
contract rate, and (ii) all other holders of Allowed General Unsecured Claims
shall receive post-petition interest at the rate applicable to federal
judgements pursuant to 28 U.S.C. ss.ss. 1961, which on the Petition Date was
4.584%. The
49
<PAGE>
Debtors estimate that, on the Effective Date, the aggregate amount of Allowed
General Unsecured Claims will be approximately $15.4 million, and that the
aggregate amount of post-petition interest to be paid with respect thereto will
be between approximately $250,000 and $300,000.
d. Class 11 -- Subsidiary Equity Interests
---------------------------------------
On the Effective Date, record holders of Allowed Subsidiary Equity
Interests shall continue to hold such equity interests, which equity interests
shall continue to be evidenced by the capital stock held by such record holders
in the Subsidiary or Subsidiaries as of the Effective Date. All Subsidiaries are
wholly owned, directly or indirectly, by Parent.
3. Impaired Classes
----------------
Pursuant to Section 1124 of the Bankruptcy Code, a class of claims or
equity interests is impaired unless the legal, equitable, and contractual rights
of the holders of claims or equity interests in such class are not modified or
altered. Holders of Allowed Claims and interests in impaired classes are
entitled to vote on a debtor's plan of reorganization. Under the Debtors' Plan,
the Class of Old Senior Note Claims (Class 3), the Class of GPH Claims (Class
4), the Class of TOPrS Claims (Class 5), the Class of Debt Securities Rescission
or Damage Claims (Class 7), the Class of Old Preferred Stock Interests (Class
8), the Class of Old
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Common Stock Interests (Class 9), and the Class of Equity Interest Rescission or
Damage Claims (Class 10) are impaired and, therefore, are entitled to vote on
the Debtors' Plan.
a. Class 3 -- Old Senior Note Claims
---------------------------------
Allowance of Old Senior Note Claims. On the Effective Date, the Old
Senior Note Claims shall be deemed Allowed in the aggregate amount of $150
million plus accrued and unpaid interest relating to the period up to but not
including the Petition Date.
Distributions. On the Effective Date, each holder of an Allowed Old
Senior Note Claim shall receive, in full and final satisfaction of such Allowed
Claim (including any unsecured deficiency Claim in respect of the Old Senior
Notes), its Pro Rata Share of (i) the New Senior Notes and (ii) 2,125,000 shares
of New Parent Common Stock. The New Parent Common Stock issued to holders of
Allowed Old Senior Note Claims as described in clause (ii) of the preceding
sentence, will represent, in the aggregate, 42.5% of the authorized and
outstanding shares of New Parent Common Stock on the Effective Date; provided,
however, that the foregoing percentage is subject to dilution by (i) shares of
New Parent Common Stock issued as a result of the exercise of the New Warrants,
(ii) shares of New Parent Common Stock issued in accordance with the Management
Stock Option Plan, and (iii) such other shares as may be authorized and issued
pursuant to the Reorganized Parent Charter.
Principal Terms of New Senior Notes. Subject to the occurrence of the
Effective Date, the New Senior Note issued pursuant to the New Senior Note
Indenture shall contain the following principal terms:
51
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Issuer: Reorganized Publishing
Guarantor: Reorganized Parent and Reorganized Video (and
their respective direct and indirect subsidiaries
and affiliates other than Reorganized Publishing)
Principal Amount: $87 million
Maturity: Fifth anniversary of the Effective Date
Interest: _________ Payable in Cash at a rate of 10% per
annum, or at the sole election of the issuer,
payable in kind in additional New Senior Notes at
a rate of 13.5% per annum, payable semi-annually;
provided, however, that commencing three years
after the Effective Date, interest on the New
Senior Notes shall be payable only in cash at a
rate of 10% per annum.
Amortization: _____________ Mandatory semi-annual amortization
payments of $8.33 million commencing three years
after the Effective Date, i.e., commencing with
the first semi-annual interest payment that is due
during the fourth year after the Effective Date,
to retire $25.0 million of the principal balance
of the New Senior Notes prior to maturity
Collateral: New Senior Notes shall be secured by all
collateral securing the Old Senior Notes on the
Petition Date as described in this Disclosure
Statement (including, without limitation, the
proceeds arising under the Distribution
Agreement); provided, however, that the liens
securing the -------- ------- Old Senior Notes on
corporate leasehold improvements sold in
connection with Parent's reduction of the office
space at its corporate headquarters in New York,
New York shall be deemed released.8 The New Senior
Notes shall also be secured by (i) a first lien on
(a) the Distribution Agreement, and (b) the
Debtors' rights and interests in and to "Lassie,"
"Felix the Cat," the "Film Library," and "Other
Entertainment Works"; and (ii) a blanket second
lien on all assets pledged to the lender(s) under
the Post-Effective Date Financing Facility.
Consistent with the foregoing, upon the Effective
Date, the
- -----------------
8 See Section II.B.2. for a general description of the collateral securing
the Old Senior Notes on the Petition Date.
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New Senior Notes will be secured by either a first
or second lien on all assets of Reorganized Parent
and its direct and indirect subsidiaries.
Call Protection: New Senior Notes may be redeemed, in whole or in
part, at any time, at the option of the Issuer, at
the redemption prices (expressed as percentages of
principal amount of New Senior Notes) set forth
below, plus accrued and unpaid interest to the
date of redemption:
Years From
Effective Date Redemption Price
-------------- ----------------
1 year 105.00%
2 years 103.33%
3 years 101.25%
Thereafter 100.00%
Any net proceeds from the sale of any collateral
securing the New Senior Notes (excluding sales of
inventory or accounts receivable in the ordinary
course of business) will be used to pay down the
New Senior Notes (subject to the redemption
schedule set forth above).
Covenants: Normal and customary for secured indebtedness of
this nature, to be determined to the reasonable
satisfaction of the Informal Senior Note Committee
and the Informal TOPrS Committee.
Public Trading: The New Senior Notes shall not be listed for
trading on a recognized securities exchange prior
to 75 days from the date of issuance.
Cancellation of Old Senior Notes and Related Instruments. As of the
Effective Date, all Old Senior Notes, and all indentures, agreements,
instruments and other documents evidencing Old Senior Note Claims and the rights
of the holders thereof, shall be canceled and deemed null and void and of no
further force and effect (all without further act or action by any Person), and
all obligations of any Person (including, without limitation, the Old Senior
Note
53
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Indenture Trustee) under such instruments and agreements shall be fully and
finally satisfied and released. Notwithstanding the foregoing, such cancellation
shall not impair the rights and duties under the Old Senior Note Indenture as
between the Old Senior Note Indenture Trustee and the beneficiaries of the trust
created thereby.
b. Class 4 -- GPH Claims
---------------------
Allowance of GPH Claims. On the Effective Date, the GPH Claims shall
be deemed Allowed in the aggregate amount of $10 million plus accrued and unpaid
interest at the rate set forth in the GPH Notes relating to the period up to but
not including the Petition Date. (See Section II.B.3 of this Disclosure
Statement for a description of the GPH Notes and their terms).
Distributions. On the Effective Date, the holder of the Allowed GPH
Claim shall receive, in full and final satisfaction of such Allowed Claim
(including any unsecured deficiency Claim in respect of the GPH Notes) 250,000
shares of New Parent Common Stock. The New Parent Common Stock issued to the
holder of the Allowed GPH Claim pursuant to the Plan, will represent, in the
aggregate, 5% of the authorized and outstanding shares of New Parent Common
Stock on the Effective Date; provided, however, that the foregoing percentage is
subject to dilution by (i) shares of New Parent Common Stock issued as a result
of the exercise of the New Warrants, (ii) shares of New Parent Common Stock
issued in accordance with the Management Stock Option Plan, and (iii) such other
shares as may be authorized and issued pursuant to the Reorganized Parent
Charter.
54
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Cancellation of GPH Notes and Related Instruments. As of the Effective
Date, all GPH Notes, the GPH Note Purchase Agreement and all agreements,
instruments and other documents evidencing the GPH Claims and the rights of the
holder thereof (including, without limitation, the Publishing Notes), and all
liens and security interests securing the GPH Claims, shall be canceled and
extinguished, and deemed null and void and of no force and effect (all without
further act or action by any Person), and all obligations of any Person under
such instruments and agreements shall be fully and finally satisfied and
released.
c. Class 5 -- TOPrS Claims
Allowance of TOPrS Claims. On the Effective Date, the TOPrS Claims
shall be deemed Allowed in the aggregate amount of $105 million plus accrued and
unpaid interest relating to the period up to but not including the Petition
Date.
Distributions. On the Effective Date, each holder of an Allowed TOPrS
Claim shall receive, in full and final satisfaction of such Allowed Claim, its
Pro Rata Share of 2,500,000 shares of New Parent Common Stock. The New Parent
Common Stock issued to holders of Allowed TOPrS Claims pursuant to the Plan,
will represent, in the aggregate, 50.0% of the outstanding shares of New Parent
Common Stock on the Effective Date; provided, however, that the foregoing
percentage is subject to dilution by (i) shares of New Parent Common Stock
issued as a result of the exercise of the New Warrants, (ii) shares of New
Parent Common Stock issued in accordance with the Management Stock Option Plan,
and (iii) such other shares as may be authorized and issued pursuant to the
Reorganized Parent Charter.
55
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Cancellation of TOPrS Certificates and Related Instruments. As of the
Effective Date, all TOPrS Certificates and all Convertible Debentures, and all
indentures, agreements, instruments and other documents evidencing TOPrS Claims
and the rights of the holders thereof, shall be canceled and extinguished, and
deemed null and void and of no further force and effect (all without further act
or action by any Person), and all obligations of any Person under such
instruments and agreements shall be fully and finally satisfied and released,
and the TOPrS Trust shall be deemed dissolved.
d. Class 7 -- Debt Securities Rescission or Damage Claims
------------------------------------------------------
Subject to the releases contained in Section 9.1 of the Plan, each
holder of an Allowed Debt Securities Rescission or Damage Claim shall retain all
proceeds derived from or relating to any litigation instituted by or against any
such holder or on his behalf which are payable by any entity other than the
Debtors or Reorganized Debtors (but not any proceeds from any of the property or
assets of the Debtors except proceeds of insurance policies maintained by the
Debtors) but shall receive no other distribution under the Plan.
Currently, there is a consolidated litigation pending in the United
States District Court for the Southern District of New York (the "District
Court") encaptioned Kevin Lemmer v. Golden Books Family Entertainment, Inc., et
al., Case No. 98 CIV 5748 (AGS) and Green Fund and Cynthia Green Colin v. Golden
Books Family Entertainment, Inc., et al., Case No. 98 CIV 7072 (AGS) purportedly
on behalf of all persons who, during the period between May 13, 1997 and August
4, 1998, purchased Old Common Stock Interests or TOPrS Certificates,
56
<PAGE>
alleging damages based on the Debtors' alleged dissemination of materially false
and misleading statements regarding, among other things, the Debtors'
restructuring program and the effect of the restructuring on the Debtors'
financial condition, operations and liquidity. As of the date hereof, a class
has not been certified in either action. The Debtors and the individual
defendants deny the allegations and have filed a motion to dismiss the case. The
plaintiffs filed an opposition to the Debtors' motion and the Debtors have filed
a response. Additionally, the plaintiffs recently received leave of the District
Court to further amend their complaint. The District Court has required that any
additional pleadings respecting the motion to dismiss arising from such
amendment be filed with the Court by mid-May. Thus, as of the date hereof, no
ruling has been made by the District Court with respect to the motion to
dismiss. The plaintiffs are represented by Milberg, Weiss, Bershad, Hynes &
Learach LLP, One Pennsylvania Plaza, New York, New York 10119, (212) 594-5300,
Attn: Robert Wallner, Esq.
e. Class 8 -- Old Preferred Stock Interests
----------------------------------------
On the Effective Date, all Old Preferred Stock Interests shall be
canceled, annulled, and extinguished, and the holder of the Allowed Old
Preferred Stock Interests shall receive two-thirds (2/3) of the New Warrants to
be issued pursuant to the Plan.
f. Class 9 -- Old Common Stock Interests
-------------------------------------
Impairment and Voting. Class 9 is impaired by the Plan. Consequently,
each holder of an Allowed Old Common Stock Interest shall be entitled to vote to
accept or reject the Plan.
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<PAGE>
Distributions. On the Effective Date, all Old Common Stock Interests
shall be canceled, annulled and extinguished, and each holder of an Allowed Old
Common Stock Interest (including any such Interest consisting of accrued and
unpaid dividends on the Old Preferred Stock Interests) shall receive its Pro
Rata Share of one-third (1/3) of the New Warrants to be issued pursuant to the
Plan.
g. Class 10 -- Equity Interest Rescission or Damage Claims
-------------------------------------------------------
Impairment and Voting. Class 10 is impaired by the Plan. Consequently,
each holder of an Allowed Equity Interest Rescission or Damage Claim shall be
entitled to vote to accept or reject the Plan.
Distributions. Subject to the releases contained in Section 9.1 of the
Plan, each holder of an Allowed Equity Interest Rescission or Damage Claim shall
retain all proceeds derived from or relating to any litigation instituted by or
against any such holder or on his behalf which are payable by any entity other
than the Debtors or Reorganized Debtors (but not any proceeds from any of the
property or assets of the Debtors except proceeds of insurance policies
maintained by the Debtors) but shall receive no other distribution under the
Plan.
As set forth in more detail in subsection IV.C.3.d. above, currently,
there is a consolidated litigation pending in the United States District Court
for the Southern District of New York encaptioned Kevin Lemmer v. Golden Books
Family Entertainment, Inc., et al., Case No. 98 CIV 5748 (AGS) and Green Fund
and Cynthia Green Colin v. Golden Books Family
58
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Entertainment, Inc., et al., Case No. 98 CIV 7072 (AGS), alleging an Equity
Interest Recession or Damages Claim.
D. Description of Transactions to Be Implemented in Connection with the Plan
1. New Senior Notes
----------------
On the Effective Date, the New Senior Notes will be issued pursuant to
the New Senior Note Indenture. The New Senior Notes will have the principal
terms set forth in Section 4.3(d) of the Plan. In addition, the New Senior Notes
will have normal and customary terms for secured indebtedness of this nature and
standard financial covenants and, as set forth in Section IV.3.a. above, will be
guaranteed. A form of the New Senior Note Indenture will be included as an
exhibit to the Plan Supplement.
2. New Warrants
------------
On the Effective Date, the New Warrants shall be issued pursuant to
the Warrant Agreement to purchase that number of shares of New Parent Common
Stock constituting 5%, on a fully-diluted basis, of the authorized and
outstanding shares of New Parent Common Stock on the Effective Date, provided,
however, that the foregoing percentage is subject to dilution by (i) shares of
New Parent Common Stock issued in accordance with the Management Stock Option
Plan, and (ii) such other shares as may be authorized and issued pursuant to the
Reorganized Parent Charter. The New Warrants shall be exercisable until the
third anniversary of the
59
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Effective Date at a price of $46.05 per share and will have normal and customary
terms for a security of this nature.
3. Reorganized Debtors' Charters
-----------------------------
Upon the Effective Date, the Reorganized Debtors' Charters will become
effective. The Reorganized Debtors' Charters, together with the provisions of
the Plan, will provide for the authorization and issuance of the New Senior
Notes, the New Parent Common Stock and the New Warrants, a prohibition on the
issuance of non-voting equity securities in accordance with Section 1123(a)(6)
of the Bankruptcy Code, and such other provisions that are necessary to
facilitate consummation of the Plan.
4. Management Stock Option Plan
----------------------------
a. General; Ratification
---------------------
The Management Stock Option Plan, the form of which is annexed
hereto as Exhibit "G", shall be effective immediately upon the Effective Date.
The Management Stock Option Plan shall be a stock incentive program and shall
provide for the issuance of up to 10%, on a fully-diluted basis, of the shares
of New Parent Common Stock as of the Effective Date of the Plan. Shares of New
Parent Common Stock issued pursuant to the Management Stock Option Plan shall be
allocated as follows:
o ________ Richard E. Snyder (Chief Executive Officer) -- 2%, on a
fully-diluted basis, of the shares of New Parent Common Stock in
the form of restricted stock to vest 2/3 on the second
anniversary of the Effective Date
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and 1/3 on the third anniversary of the Effective Date (with
vesting fully accelerated upon a termination without cause, a
termination for good reason, a termination due to death or
disability or a change of control).
o Richard K. Collins (Chief Operating Officer), Philip Galanes
(Chief Administrative Officer) and Colin Finkelstein (Chief
Financial Officer) -- Each shall receive 1%, on a fully-diluted
basis, of the shares of New Parent Common Stock in the form of at
the money stock options with an exercise price based upon the
total equity value of Reorganized Parent (as set forth in this
Disclosure Statement) to vest ratably over a three year period
(with vesting fully accelerated upon a termination without cause,
a termination for good reason, a termination due to death or
disability or a change of control).
o Other Grants -- 5%, on a fully-diluted basis, of the shares of
New Parent Common Stock shall be reserved for option grants to
key employees up to one-half of which is to be determined by the
Debtors' current management or board to be issued as part of the
Debtors' 1999 bonus plan to management not covered by clauses (a)
or (b) above, with the remainder to be determined by the board of
directors of Reorganized Parent.
On or prior to the Effective Date, the Management Stock Option Plan
shall be adopted by Parent, and by voting to accept the Plan, all holders of
Senior Notes, GPH Claims, and TOPrS Claims (who, collectively, on the Effective
Date, will receive, in the aggregate, approximately 97.5% of the New Parent
Common Stock to be issued pursuant to the Plan) shall be deemed to have ratified
and approved the Management Stock Option Plan. Following the Effective Date, the
Management Stock Option Plan may be modified by the Board of Directors of
Reorganized Parent in accordance with the terms thereof and any such
modification or amendment shall not require an amendment of the Plan.
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b. Purpose
-------
The purpose of the Management Stock Option Plan is to enhance the
profitability and value of Reorganized Parent (hereinafter referred to
throughout this section as the "Company") for the benefit of the Company and its
stockholders by enabling the Company to offer eligible employees and consultants
of the Company and its affiliates who are in a position to contribute materially
to the long-term success of the Company, stock based incentives in the Company
in order to attract, retain and reward such individuals and strengthen the
mutuality of interests between such individuals and the Company's stockholders.
The following description of the Management Stock Option Plan is qualified in
its entirety by reference to such plan, a form of which is annexed hereto as
Exhibit "G".
c. Administration
The Management Stock Option Plan is to be administered and interpreted
by a committee (the "Board Committee") of two or more members of the Board of
Directors of the Company (the "Board") appointed by the Board, each of whom is
intended to be a "non-employee director" (within the meaning of Rule 16b-3
promulgated under the Securities Exchange Act of 1934 ("Rule 16b-3")) and an
"outside director" (within the meaning of Section 162(m) of the Internal Revenue
Code of 1986, as amended (the "Code")). Notwithstanding the foregoing, if and to
the extent that no Board Committee exists which has the authority to administer
the Management Stock Option Plan, the functions of the Board Committee will be
exercised by the Board.
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d. Eligibility and Types of Awards
-------------------------------
All eligible employees ("Eligible Employees") and consultants
("Consultants') of the Company and its affiliates are eligible to be granted
non-qualified stock options ("NQO's), restricted stock ("Restricted Stock") and
performance shares ("Performance Shares") under the Management Stock Option
Plan. Eligible Employees of the Company or any "subsidiary" or "parent" of the
Company (both within the meaning of Section 424 of the Code) shall also be
eligible for grants of incentive stock options ("ISO's"). Eligibility for the
grant of an award under the Plan (an "Award") and actual participation in the
Management Stock Option Plan will be determined by the Board Committee in its
sole discretion.
e. Available Shares
----------------
The Management Stock Option Plan authorizes the grant of Awards to
Eligible Employees and Consultants (each individually a "Participant") with
respect to a maximum of 10%, on a fully-diluted basis, of shares of New Parent
Common Stock ("Shares"), which Awards may be in the form of NQO's, ISO's,
Restricted Stock or Performance Shares, all as qualified by and set forth in the
Management Stock Option Plan; provided, however, that the maximum number of
Shares that may be granted under the Management Stock Option Plan with respect
to awards of ISO's shall be 400,000. If Shares under an Award are forfeited or
canceled for any reason whatsoever, then such Shares shall generally again be
available for Award grants under the Management Stock Option Plan.
f. Awards under the Plan
---------------------
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(i) Stock Options
NSO's and ISO's granted under the Plan will be subject to such terms
not inconsistent with the terms of the Management Stock Option Plan, including
exercise price per Share and conditions and timing of exercise, as may be
determined by the Board Committee and specified in the applicable Award
agreement or thereafter; provided, that any exercise price per Share may not be
less than 100% of the fair market value of a Share on the grant date. The
options that are intended to qualify as ISO's will also be subject to terms and
conditions that comply with the rules of Section 422 of the Code. Payment in
respect of the exercise price of an option granted to an Eligible Employee or
Consultant may be made (i) in cash, bank draft or money order; (ii) if the New
Parent Common Stock is traded on a national securities exchange, the Nasdaq
Stock Market, Inc. or quoted on a national quotation system sponsored by the
National Association of Securities Dealers, through a "cashless exercise"
procedure; or (iii) on such other terms and conditions as may be acceptable to
the Board Committee. Generally, upon a termination of employment or consultancy,
an individual will have a period of up to one year (based upon the type of
termination) to exercise then vested options. Options that are not exercisable
at the time of any such termination shall be canceled. Upon a Participant's
termination for "cause" (as defined in the Management Stock Option Plan) all
unexercised options, whether or not then vested, shall be canceled.
Notwithstanding the foregoing, in the event of any Acquisition Event (as defined
in the Management Stock Option Plan), the Board Committee, in its sole
discretion, may upon at least twenty-day's notice, cancel all outstanding
options; provided all such options subject to cancellation (whether or not then
vested) may be
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exercised in full by the grantee at any time during that twenty-day period; and
further provided that any such cancellation or exercise shall be null and void
if the Acquisition Event does not occur.
(ii) Restricted Stock
Shares of Restricted Stock granted under the Management Stock Option
Plan will be subject to such terms and conditions, as may be determined by the
Board Committee in its sole discretion. The Board Committee may condition the
grant or vesting of Restricted Stock upon the attainment of specified
Performance Goals, including established Performance Goals in accordance with
Code Section 162(m), or such other factors as the Board Committee may determine
in its sole discretion. The purchase price for Restricted Stock will be fixed by
the Board Committee, provided that such purchase price may be zero, to the
extent permitted by applicable law, and, to the extent not so permitted, such
purchase price may not be less than par value.
Unless otherwise determined by the Board Committee, the Participant
will have, with respect to the Shares of Restricted Stock, all of the rights of
a holder of shares of New Parent Common Stock including, without limitation, the
right to receive any dividends, the right to vote such shares and, subject to
and conditioned upon the full vesting of Shares of Restricted Stock, the right
to tender such shares. The Board Committee may, in its sole discretion,
determine at the time of grant that the payment of dividends will be deferred
until, and conditioned upon, the expiration of the applicable restriction
period. Unless otherwise permitted
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by the Board Committee, upon a Participant's termination of employment or
consultancy during a restriction period, all Shares subject to restriction will
vest or be forfeited in accordance with the Management Stock Option Plan and the
Participant's Award agreement.
(iii) Performance Shares
Performance awards granted under the Management Stock Option Plan will
consist of a right which is (a) denominated in cash or Shares, (b) payable in
amounts, as determined by the Board Committee, based upon the achievement of
such Performance Goals during such performance periods as the Board Committee
will establish, and (c) payable at such time and in such form as the Board
Committee will determine. Subject to the terms of the Management Stock Option
Plan and any applicable Award agreement, the Board Committee will determine the
Performance Goals to be achieved during any performance period, the length of
any performance period, the amount of any performance award and the amount and
kind of any payment or transfer to be made pursuant to any performance award.
Any such amounts awarded may be paid currently or on a deferred basis, in the
sole discretion of the Board Committee. Unless otherwise provided by the Board
Committee, upon a termination of employment or consultancy during a performance
period or during any other applicable period or restriction, the Performance
Shares will vest (to the extent permitted under Section 162(m) of the Code) or
be forfeited in accordance with the terms of the Award agreement.
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g. Change in Control
-----------------
Except as otherwise provided by the Board Committee, in the event of
Change in Control of the Company (as defined in the Management Stock Option
Plan), all outstanding Awards granted under the Management Stock Option Plan
will become fully vested and immediately exercisable and any period of
restriction (whether related to the passage of time or the satisfaction of
Performance Goals) shall be deemed satisfied in their entirety; provided,
however, that the Board Committee may, in its sole discretion, provide for the
purchase of any options by the Company or its affiliates (as defined in the
Management Stock Option Plan) for an amount of cash equal to the Change in
Control Price (as defined in the Management Stock Option Plan) over the
aggregate exercise price of such options. Notwithstanding the foregoing, unless
the Board Committee provides otherwise in an Award agreement, no acceleration of
exercisability will occur with respect to options granted under the Management
Stock Option Plan if the Board Committee reasonably determines in good faith,
prior to the occurrence of the Change in Control, that the options will be
honored or assumed, or new rights substituted therefore (each such honored,
accrued or substituted option being referred to in the Plan as an "Alternative
Option"), by a Participant's new employer (or the parent of a subsidiary of such
employer) immediately following the Change in Control, provided that (i) the
shares of stock subject to the Alternative Option are publicly traded and (ii)
the Alternative Option has substantially equivalent rights, benefits and
economic value, as determined by the Board Committee.
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h. Miscellaneous
(i) Transferability
No option will be transferable by the Participant otherwise than by
will or by the laws of descent and distribution. All options will be
exercisable, during the Participant's lifetime, only by the Participant. Shares
of Restricted Stock may not be transferred prior to the date on which shares are
issued, or, if later, the date on which any applicable restriction, performance
or deferral period lapses. No Award will, except as otherwise specifically
provided by law or in the Management Stock Option Plan, be transferable in any
manner, and any attempt to transfer any such Award will be void, and no such
Award will in any manner be liable for or subject to the debts, contracts,
liabilities, engagements or torts of any person who will be entitled to such
Award, nor will it be subject to attachment or legal process for or against such
person. Notwithstanding the foregoing, the Board Committee may determine at the
time of grant or thereafter that a non-qualified stock option that is otherwise
not transferable is transferable in whole or in part and in such circumstances,
and under such conditions, as specified by the Board Committee.
(ii) Adjustments
In the event that the Board Committee determines that any corporate
transaction or event affects the Shares such that an adjustment is deemed
appropriate in order to prevent dilution or enlargement of the benefits intended
to be made available to Participants under the Management Stock Option Plan,
then the Board Committee shall, in such manner as it deems
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equitable, make the adjustments that are necessary to preserve the intended
benefits under the Management Stock Option Plan.
(iii) Non-Qualified Plan
The Management Stock Option Plan is not subject to any of the
requirements of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). The Management Stock Option Plan is not, nor is it intended to be,
qualified under Section 401(a) of the Code.
i. Amendment and Termination
-------------------------
The Board or the Board Committee may at any time, and from time to
time, amend, in whole or in part, any or all of the provisions of the Management
Stock Option Plan (including any amendment deemed necessary to ensure that the
Company may comply with any regulatory requirement), or suspend or terminate it
entirely, retroactively or otherwise; provided, however, that, unless otherwise
required by law or specifically provided in the Management Stock Option Plan,
the rights of a Participant with respect to Awards granted prior to such
amendment, suspension or termination may not be impaired without the consent of
such Participant and, provided further, that without the approval of the
stockholders of the Company in accordance with the laws of the State of
Delaware, to the extent required by the applicable provisions of Rule 16b-3 or
Section 162(m) of the Code, or to the extent applicable to ISO's, Section 422 of
the Code, no amendment may be made that would (i) increase the aggregate number
of shares of New Parent Common Stock that may be issued under the Management
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Stock Option Plan; (ii) increase the maximum individual Participant limitations
for a fiscal year; (iii) change the classification of employees or Consultants
eligible for Award grants under the Management Stock Option Plan; (iv) extend
the maximum option term; (v) decrease the minimum option price of any option;
(vi) extend the maximum option period; (vii) materially alter the performance
criteria for the Award of Restricted Stock; or (viii) require stockholder
approval in order for the Management Stock Option Plan to continue to comply
with the applicable provisions of Section 162(m) of the Code or, to the extent
applicable to ISO's, Section 422 of the Code. In no event may the Management
Stock Option Plan be amended without stockholder approval in a manner that would
require such approval under the rules of any exchange or system on which the
Company's securities are listed or traded at the request of the Company.
j. Certain Federal Income Tax Consequences Relating to the
Management Stock Option Plan
----------------------------
The following summary of the Federal income tax consequences of Awards
under the Management Stock Option Plan is based on statutory authority intended
to reflect the current provisions of the Code and the regulations promulgated
thereunder, which are subject to change at any time (possibly with retroactive
effect). This discussion is limited to the U.S. federal income tax consequences
to individuals who are citizens or residents of the U.S., other than those
individuals who are taxed on a residence basis in a foreign country, and the
U.S. Federal tax effects on the Company in connection with the Management Stock
Option Plan and awards granted thereunder. The U.S. Federal income tax law is
technical and complex, and the discussion below represents only a general
summary.
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(i) Non-Qualified Stock Options
No income will be realized by an optionee upon grant of a nonqualified
stock option. Upon exercise of a nonqualified stock option, the optionee will
recognize ordinary compensation income in an amount equal to the excess, if any,
of the fair market value of the underlying stock over the option exercise price
(the "Spread") at the time of exercise. The Spread will be deductible by the
Company for federal income tax purposes subject to the possible limitations on
deductibility under Sections 280G and 162(m) of the Code of compensation paid to
executives covered by those sections. The optionee's tax basis in the underlying
Shares acquired by exercise of a nonqualified stock option will equal the
exercise price plus the amount taxable as compensation to the optionee. Upon
sale of the shares received by the optionee upon exercise of the nonqualified
stock option, any gain or loss is generally long-term or short-term capital gain
or loss, depending on the holding period. The optionee's holding period for
shares acquired pursuant to the exercise of a nonqualified stock option will
begin on the date of exercise of such option.
(ii) Incentive Stock Options
The Code generally requires that, for incentive stock option
treatment: (i) Shares acquired through exercise of an incentive stock option
cannot be disposed of before two years from the date of grant and one year from
the date of exercise, and (ii) at all times during the period beginning on the
date of grant of the option and ending on the day three months before the date
of exercise, the optionee was an employee of either the Company or its
affiliates.
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Incentive stock option holders will generally incur no federal income tax
liability at the time of grant or upon exercise of such options. However, the
Spread will be an item of adjustment which may give rise to "alternative minimum
tax" liability at the time of exercise. If the optionee does not dispose of the
shares before two years from the date of grant and one year from the date of
exercise, the difference between the exercise price and the amount realized upon
disposition of the shares will constitute long-term capital gain or loss, as the
case may be. Assuming both the holding periods are satisfied, no deduction will
be allowable to the Company for federal income tax purposes in connection with
the grant or exercise of the option or disposition of the shares. If, within two
years of the date of grant or within one year from the date of exercise, the
holder of shares acquired through the exercise of an incentive stock option
disposes of such shares, the optionee will generally realize ordinary taxable
compensation at the time of such disposition equal to the difference between the
exercise price and the lesser of the fair market value of the stock on the date
of initial exercise or the amount realized on the subsequent disposition, and
such amount will generally be deductible by the Company for federal income tax
purposes, subject to the possible limitations on deductibility under Sections
280G and 162(m) of the Code for compensation paid to executives covered by those
sections.
Notwithstanding the foregoing, pursuant to applicable rules under
Section 16(b) of the Securities Exchange Act of 1934, the grant of an option
(and not its exercise) to a person who is subject to the reporting and
short-swing profit provisions under Section 16 of the Exchange Act (a "Section
16 Person") may begin a six-month holding period that (absent a written election
(pursuant to Code Section 83(b)) filed with the Internal Revenue Service within
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30 days after the date of transfer of shares of New Parent Common Stock to
include the Spread in income) defers the timing of income recognition until the
end of the holding period (the "Deferral Period"). There will be no Deferral
Period if the option grant (a) is approved in advance by the Company's Board of
Directors (or a committee composed solely of two or more "Non-Employee
Directors" as defined under applicable law) or (b) approved in advance, or
subsequently ratified by the Company's shareholders no later than the next
annual meeting of shareholders. Consequently, the taxable event for the exercise
of an option granted the requirements described in clauses (a) or (b) above will
be the date of exercise.
The payment by an optionee of the exercise price, in full or in part,
with previously acquired shares will not affect the tax treatment of the
exercise described above. No gain or loss generally will be recognized by the
optionee upon the surrender of the previously acquired shares to the Company,
and shares received by the optionee, equal in number to the previously
surrendered shares, will have the same tax basis as the shares surrendered to
the Company and will have a holding period that includes the holding period of
the shares surrendered. The value of shares received by the optionee in excess
of the number of shares surrendered to the Company will be taxable to the
optionee. Such additional shares will have a tax basis equal to the fair market
value of such additional shares as of the date ordinary income is recognized,
and will have a holding period that begins on the date ordinary income is
recognized.
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(iii) Restricted Stock
An individual who is awarded Restricted Stock may elect under Section
83(b) of the Code to include in ordinary income, as compensation at the time
Restricted Stock is first issued, the excess of the fair market value of such
shares at the time of issuance over the amount paid, if any, for such shares.
Unless a Code Section 83(b) election is timely made (no later than the
expiration of the 30 day period following the time of issuance), no taxable
income will be recognized by the grantee until such shares are no longer subject
to a substantial risk of forfeiture (the "Restrictions"). However, when the
Restrictions lapse, the grantee will recognize ordinary income in an amount
equal to the excess of the fair market value of the New Parent Common Stock on
the date of lapse over the amount paid, if any, for such shares. Any ordinary
income recognized by an employee with respect to Restricted Stock will be
subject to both wage withholding and employment taxes.
If a Code Section 83(b) election is made, any dividends received on
shares which are subject to Restrictions will be treated as dividend income. If
such an election is not made, dividends received on the New Parent Common Stock
for the period prior to the time the Restrictions on such shares lapse will be
treated as additional compensation, and not dividend income, for federal income
tax purposes, and will be (except with regard to Consultants), subject to wage
withholding and employment taxes.
The tax basis in Restricted Stock will be equal to the sum of the
price paid for such shares, if any, and the amount of ordinary income recognized
with respect to the receipt of
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such shares or the lapse of Restrictions thereon. The holding period for
purposes of determining gain or loss on a subsequent sale will begin immediately
after the transfer of such shares to the grantee if a Code Section 83(b)
election is made with respect to such shares, or immediately after the
Restrictions on such shares lapse, if no Code Section 83(b) election is made.
In general, a deduction will be allowed to the Company for federal
income tax purposes (subject to the application of Code Sections 162(m) and
280(G)) in an amount equal to the ordinary income recognized by the grantee with
respect to Restricted Stock awarded pursuant to the Management Stock Option
Plan.
If, subsequent to the lapse of Restrictions on Restricted Stock, a
grantee sells such shares, the difference, if any, between the amount realized
from such sale and the tax basis of such shares will ordinarily result in
capital gain or loss. If a Code Section 83(b) election is made and, before the
Restrictions on the shares lapse, the shares which are subject to such election
are in effect forfeited: (i) the grantee will not be permitted to deduct the
amount included in income by reason of a Code Section 83(b) election, and (ii)
the grantee may recognize a loss in an amount equal to the excess, if any, of
the amount paid for the shares over the amount received upon such forfeiture
(which loss will ordinarily be a capital loss). In such event, the Company will
be required to include in its income the amount of any deduction allowable to it
in connection with the shares. A grantee will recognize gain in an amount equal
to the excess, if any, of the amount received by the grantee upon such resale or
forfeiture over the amount paid for the shares (which gain would ordinarily be
capital gain).
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(iv) Performance Shares
A grantee will not be taxed at the time of grant of Performance
Shares. If the performance targets and/or the other requirements for a payment
of Performance Shares are achieved, the grantee will receive distributions of
New Parent Common Stock and/or cash. The grantee will recognize ordinary income
in an amount equal to any cash received and the fair market value of the New
Parent Common Stock received, on the date of receipt. If the grantee is an
employee, the ordinary income recognize by the grantee will be subject to both
wage withholding and employment taxes.
The grantee's tax basis in any shares received will be equal to the
sum of the price paid for such shares, if any, and the amount of ordinary income
recognized by the grantee with respect to the receipt of such shares. The
holding period for such shares for purposes of determining gain or loss on
subsequent sale will begin immediately after the transfer to the grantee of such
shares.
In general, a deduction will be allowed to the Company for federal
income tax purposes (subject to the possible application of Sections 162(m) and
280G of the Code) in an amount equal to the ordinary income recognized by the
grantee. If the grantee sells such shares, the difference, if any, between the
amount realized from such sale and the tax basis of such shares will ordinarily
result in capital gain or loss.
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k. Future Plan Awards
------------------
Because future awards under the Management Stock Option Plan will be
based upon prospective factors including the nature of services to be rendered
by prospective employees and consultants and their potential contributions to
the success of the Company, actual awards cannot be determined at this time.
5. Cancellation and Surrender of Existing Securities and Agreements.
----------------------------------------------------------------
Except as may otherwise be provided in the Plan, on the Effective
Date, the promissory notes, share certificates, bonds and other instruments
evidencing any Claim or Equity Interest shall be deemed canceled without further
act or action under any applicable agreement, law, regulation, order or rule and
the obligations of the Debtors under the agreements, indentures and certificates
of designations governing such Claims and Equity Interests, as the case may be,
shall be discharged and released. In addition, on the Effective Date,
Reorganized Parent and Richard E. Snyder shall enter into an agreement providing
for Mr. Snyder's transfer to Parent of his entire interest in certain shares of
Old Parent Common Stock in full and complete satisfaction of obligations under a
non-recourse promissory note to Parent related thereto.
Each holder of a promissory note, share certificate, bond or other
instrument evidencing a Claim or Equity Interest, shall surrender such
promissory note, share certificate, bond or instrument to the Reorganized
Debtors (or their disbursing agent), unless such
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requirement is waived by the Reorganized Debtors. No distribution of property
hereunder shall be made to or on behalf of any such holders unless and until
such promissory note, share certificate, bond or instrument is received by the
Reorganized Debtors (or their disbursing agent), or the unavailability of such
promissory note, share certificate, bond or instrument is established to the
reasonable satisfaction of the Reorganized Debtors (or their disbursing agent),
or such requirement is waived by the Reorganized Debtors. The Reorganized
Debtors may require any holder that is unable to surrender or cause to be
surrendered any such promissory notes, share certificates, bonds or instruments
to deliver an affidavit of loss and indemnity and/or furnish a bond in form and
substance (including, without limitation, with respect to amount) reasonably
satisfactory to the Reorganized Debtors. Any holder that fails within the later
of one year after the Effective Date and the date of Allowance of its Claim or
Equity Interest (i) to surrender or cause to be surrendered such promissory
note, share certificate, bond or instrument, (ii) if requested, to execute and
deliver an affidavit of loss and indemnity reasonably satisfactory to the
Reorganized Debtors (or their disbursing agent), and (iii) if requested, to
furnish a bond reasonably satisfactory to the Reorganized Debtors (or their
disbursing agent), shall be deemed to have forfeited all rights, Claims and
Causes of Action against the Debtors and Reorganized Debtors and shall not
participate in any distribution hereunder.
6. Employment Contracts
--------------------
Except as otherwise provided in the Plan or as agreed among the
Informal Committees, the Debtors and the respective employee, on the Effective
Date, employment
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contracts of current employees of the Debtors will be assumed. On the Effective
Date, the current employment contract of Richard E. Snyder shall be deemed
canceled and terminated, and Reorganized Parent and Mr. Snyder shall enter into
a new revised employment contract which shall become automatically effective on
the Effective Date. The form of such new employment contract is attached to the
Restructuring Agreement which is annexed hereto as Exhibit "C". In addition, the
employment contracts of Philip Galanes, Richard Collins and Colin Finkelstein
shall be amended and, as amended, shall be effective on the Effective Date. The
forms of such amendments are collectively annexed hereto as Exhibit "F."
7. Registration Rights Agreements
------------------------------
On and after the Effective Date, Reorganized Parent and appropriate
holders of New Senior Notes and New Parent Common Stock shall enter into an
appropriate registration rights agreement(s).
8. Substantive Consolidation
-------------------------
Substantive consolidation is an equitable right that may be
effectuated in Chapter 11 cases involving affiliated debtors. Substantive
consolidation involves the pooling and merging of the assets and liabilities of
affiliated debtors. All of the debtors in the substantively consolidated group
are treated as if they were a single corporate and economic entity for purposes
of a Chapter 11 plan. Consequently, a creditor of one of the substantively
consolidated debtors is treated as a creditor of the substantively consolidated
group of debtors, and, for purposes of the plan, issues of individual corporate
ownership of property and
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individual corporate liability on obligations are ignored. Substantive
consolidation of two or more debtors' estates generally results in the deemed
consolidation of the assets and liabilities of such debtors, the deemed
elimination of intercompany claims, multiple and duplicative creditor claims,
joint and several liability claims and guarantees, and the payment of allowed
claims from a common fund.
Pursuant to the Plan, contemporaneously with the entry of the
Confirmation Order (but subject to the occurrence of the Effective Date), the
Debtors' estates shall be substantively consolidated. In particular, except as
expressly provided in the Plan, the Debtors and Reorganized Debtors shall
continue to maintain their separate corporate existence for all purposes other
than the treatment of Claims under the Plan. Thus, on the Effective Date: (i)
all assets (and all proceeds thereof) and liabilities of the Debtors shall be
deemed merged or treated as though they were merged into and with the assets and
liabilities of Parent, (ii) no distributions shall be made under the Plan on
account of intercompany Claims among the Debtors and all such Claims (including,
without limitation, Claims based upon the Publishing Notes) shall be eliminated,
(iii) all guarantees of the Debtors of the obligations of any other Debtor shall
be deemed eliminated and extinguished so that any Claim against any Debtor and
any guarantee thereof executed by any other Debtor and any joint or several
liability of any of the Debtors shall be deemed to be one obligation of the
consolidated Debtors, (iv) each and every Claim filed or to be filed in any of
the Chapter 11 Cases shall be deemed filed against the consolidated Debtors, and
shall be deemed one Claim against and obligation of the consolidated Debtors and
(v) for purposes of determining the availability of the right of set-off under
Section 553 of the
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Bankruptcy Code, the Debtors shall be treated as one entity so that, subject to
the other provisions of Section 553 of the Bankruptcy Code, debts due to any of
the Debtors may be set-off against the debts of any of the other Debtors. Such
substantive consolidation shall not (other than for purposes related to the
Plan) affect (i) the legal and corporate structures of the Reorganized Debtors,
and (ii) Subsidiary Equity Interests.
The Debtors believe that substantive consolidation is appropriate in
these cases and will facilitate confirmation of the Plan. Specifically, the
Debtors' operations and indebtedness are significantly interrelated. The Debtors
also share common management and have a centralized cash management system.
Therefore, the Debtors believe that the substantive consolidation of their
Chapter 11 cases is warranted and in the best interest of the Debtors'
creditors, shareholders and estates.
E. Funding for the Plan
The funds utilized to make Cash payments under the Plan have been
and/or will be generated from, among other things, the operation of the Debtors'
businesses, asset dispositions, and borrowing under the Post-Effective Date
Financing Facility. The Post- Effective Date Financing Facility, among other
things, shall (i) be effective on the Effective Date, (ii) be a senior secured
facility, (iii) provide for aggregate borrowings (including a working capital
line of credit) of up to $60 million, provided, that, on the Effective Date, the
maximum amount of borrowing availability under the Post-Effective Date Financing
Facility shall be $45 million with the remaining $15 million of availability
under such facility becoming
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automatically available for borrowing by the Reorganized Debtors upon their
attainment of certain levels of operating performance to be mutually agreed to
by the Debtors and the Informal Senior Note Committee in good faith, and (iv)
contain terms and conditions in form and substance acceptable to the Debtors.
F. Description of Other Provisions of the Plan
1. Disputed Claims
---------------
The Plan provides that with respect to any Disputed Claims and Equity
Interests, for the purposes of effectuating the provisions of the Plan and the
distributions to holders of Allowed Claims and Equity Interests, the Bankruptcy
Court, on or prior to the Effective Date or such date or dates thereafter as the
Bankruptcy Court shall set, may fix or liquidate the amount of such Disputed
Claims and Equity Interests pursuant to Section 502(c) of the Bankruptcy Code,
in which event the amounts so fixed or liquidated shall be deemed the maximum
amounts of the Disputed Claims and Equity Interests pursuant to Section 502(c)
of the Bankruptcy Code for purposes of distribution under the Plan. When a
Disputed Claim or Equity Interest becomes an Allowed Claim or Equity Interest,
the Reorganized Debtors shall distribute to the holder of such Allowed Claim or
Equity Interest, the property distributable to such holder as provided in the
Plan.
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2. Disputed Payments
-----------------
The Plan provides that in the event of any dispute between and among
holders of Claims or Equity Interests and/or the holders of a Disputed Claim or
Equity Interest as to the right of any Person to receive or retain any payment
or distribution to be made to such Person under the Plan, the Reorganized
Debtors may, in lieu of making such payment or distribution to such Person,
instead hold such payment or distribution, without interest, until the
disposition thereof shall be determined by a Final Order of the Bankruptcy Court
or other court with appropriate jurisdiction.
3. Unclaimed Property
------------------
Any distributions under the Plan that are unclaimed for a period of
one year after distribution thereof shall revert and be revested in the
Reorganized Debtors, and any entitlement of any holder of any Claim or Equity
Interest to such distributions shall be forfeited, extinguished, and forever
barred.
4. Issuance of New Securities
--------------------------
The Reorganized Debtors shall issue, in accordance with the terms of
the Plan, 5,000,000 shares of New Parent Common Stock, the New Senior Notes and
263,000 New Warrants. On the Effective Date, the Debtor will transmit written
instructions regarding the surrender of Old Senior Notes, Old Preferred Stock
Interests, and Old Common Stock Interests, and the distribution of shares of New
Parent Common Stock and New Warrants to those parties
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entitled to distributions thereof pursuant to the Plan. Reorganized Parent will
use its reasonable best efforts to cause the New Parent Common Stock and the New
Senior Notes to be listed for trading on a national securities exchange or the
NASDAQ National Market System. All shares of New Parent Common Stock to be
issued pursuant to the Plan (including, without limitation, upon exercise of the
New Warrants) shall be, upon issuance, fully paid and non-assessable, and shall
be subject to dilution only as may be expressly set forth in this Plan or in the
Plan Documents, and the holders thereof shall have no preemptive or other rights
to subscribe for additional shares.
5. Discharge
---------
Except as otherwise expressly provided in Section 1141 of the
Bankruptcy Code or the Plan, the distributions made pursuant to and in
accordance with the applicable terms and conditions of the Plan are in full and
final satisfaction, settlement, release and discharge as against the Debtors of
any debt that arose before the Effective Date, and any debt of a kind specified
in Section 502(g), 502(h), or 502(i) of the Bankruptcy Code, and all Claims and
Equity Interests of any nature, including, without limitation, any interest
accrued thereon from and after the Petition Date, whether or not (i) a proof of
Claim or Equity Interest based on such debt, obligation or equity interest is
filed or deemed filed under Section 501 of the Bankruptcy Code, (ii) such Claim
or Equity Interest is Allowed under Section 502 of the Bankruptcy Code or (iii)
the holder of such Claim or Equity Interest has accepted the Plan; provided,
however, that the foregoing discharge shall not apply to rights of holders of
Rescission or Damage Claims, and Indemnification Claims arising from or related
thereto, to pursue such claims against the
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Debtors solely to obtain a right or recovery against any applicable insurance
coverage of the Debtors or to seek indemnification, all as otherwise provided by
Section 7.3 of the Plan (but not to enforce a judgment on any other property of
the Debtors or Reorganized Debtors).
6. Termination of Subordination Rights
-----------------------------------
The classification and manner of satisfying all Claims and Equity
Interests under the Plan take into consideration all contractual, legal and
equitable subordination rights, whether arising under general principles of
equitable subordination, Sections 510(b) and (c) of the Bankruptcy Code or
otherwise, that a holder of a Claim or Equity Interest may have against other
Claim or Equity Interest holders with respect to any distribution made pursuant
to the Plan. On the Effective Date, all contractual, legal or equitable
subordination rights that a holder of a Claim or Equity Interest may have with
respect to any distribution to be made pursuant to the Plan shall be discharged
and terminated, and all actions related to the enforcement of such subordination
rights shall be permanently enjoined and distributions pursuant to the Plan
shall not be subject to payment to a beneficiary of such terminated
subordination rights, or to levy, garnishment, attachment or other legal process
by any beneficiary of such terminated subordination rights.
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7. Additional Releases9
-------------------
Without limiting the provisions of Section 9.2 of the Plan and except
as otherwise provided in the Plan, as of the Effective Date, in consideration
for, and as part of the treatment afforded to, the holders of Claims and Equity
Interests under the Plan, and for other valuable consideration, each of the
Released Parties shall be deemed forever released from any and all Causes of
Action that any Person may have asserted, could have asserted, or could in the
future assert, directly or indirectly, against any of the Released Parties
relating to the Debtors or the Chapter 11 Cases on or prior to the Effective
Date, provided, however, that the foregoing release shall not apply to (i)
Causes of Action that arise from obligations or rights created under or in
connection with the Plan or any agreement provided for or contemplated in the
Plan, and (ii) the rights of holders of Rescission or Damage Claims to pursue
such claims against present or former officers and directors of the Debtors as
named defendants in litigations respecting such Rescission or Damage Claims
solely for purposes of preserving or obtaining a right of recovery against any
applicable insurance coverage of the Debtors but not to enforce a judgment
against any property of any present or former officers and directors of the
Debtors except to the
- -------------------
9 The U.S. Trustee filed an objection to this Disclosure Statement regarding
the release provisions of the Plan. In summary, the U.S. Trustee has
objected to the Disclosure Statement on the grounds that a broad reading of
the release provisions contained in the Plan may be deemed to release
non-debtor parties from liability arising under any federal, state, city or
municipal (i) tax code, (ii) environmental law or (iii) criminal law.
Generally (and with all rights reserved), the Debtors do not believe that
the release provisions are intended to apply to the areas of concern which
the U.S. Trustee has communicated to the Debtors. The U.S. Trustee has
agreed to withdraw its objection as it relates to this Disclosure
Statement, but has reserved such objection as an objection to Confirmation
of the Plan. The Debtors are negotiating with the U.S. Trustee in an effort
to resolve the objection on a consensual basis.
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<PAGE>
extent of the insurance proceeds of the Debtors and any other proceeds made
available under the indemnification rights as provided for in Section 7.3 of the
Plan. Notwithstanding anything in the Plan to the contrary, nothing in the Plan
shall discharge, release or exculpate any non-Debtor from any liability to the
United States of America and/or its agencies.
Except as, and only to the extent provided otherwise in the Plan, as
of the Effective Date, each of the Released Parties forever releases, waives and
discharges all known and unknown Causes of Action of any nature that such
Released Party has, had or may have against any other Released Party for all
acts and omissions related to the Debtors arising from or related to the Chapter
11 Cases through the Effective Date, other than Causes of Action that arise from
obligations or rights created under or in connection with the Plan or any
agreement provided for or contemplated in the Plan.
The Debtors believe that the third party release and injunction
provisions contained in the Plan are appropriate and essential elements under
the Plan and the Restructuring Agreement. The Debtors believe that such release
and injunction provisions are appropriate in that there is an identity of
interest between the Debtors and the Released Parties due to, among other
things, the Debtors' indemnification obligations to certain of the Released
Parties. In addition, the Released Parties have contributed and are contributing
valuable consideration to the Plan, including but not limited to, (i) the
significant concessions and compromises contained in the Restructuring Agreement
and the Plan, all of which were instrumental in stabilizing the Debtors' pre-
and post-Petition Date operations, (ii) the Released Parties have been integral
to the negotiation and formulation of the Restructuring Agreement and the Plan,
(iii) the Released
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Parties have agreed to accept impaired treatment and relinquish significant
rights under the Plan, absent which the substantial value and recoveries
provided under the Plan would not be possible and (iv) certain of the Released
Parties, who the Debtors believe are critical to the ongoing operations and
success of the Reorganized Debtors, have agreed to provide future services to
the Debtors, in consideration, inter alia, of the releases contained in the
Plan. Furthermore, such provisions are essential elements of the Restructuring
Agreement, pursuant to which members of the Informal Senior Note Committee,
members of the Informal TOPrS Committee and certain other signatory holders of
such securities, Mr. Richard E. Snyder and GPH, have all agreed to accept
impaired treatment under the Plan and all of which support the releases
contained in the Plan. In addition, all General Unsecured Claims will be paid in
full (including post-petition interest) pursuant to the Plan, and, thus holders
of General Unsecured Claims are not prejudiced by the releases contained in the
Plan.
8. Injunctions
-----------
As of the Effective Date and subject to its occurrence, all Persons
that have held, currently hold or may have asserted a Claim, a Cause of Action
or other debt, or liability, or an Equity Interest or other right of a holder of
an Equity Interest that is discharged, released or terminated pursuant to the
Plan, are permanently enjoined from commencing or continuing, in any manner or
in any place, any action or other proceeding, enforcing, attaching, collecting
or recovering in any manner any judgment, award, decree or order, creating,
perfecting or enforcing any lien or encumbrance, asserting a set-off right or
subrogation or recoupment of any kind against any debt, liability or obligation
due to any such releasing Person, and from commencing
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or continuing any action, in any manner or in any place where the foregoing does
not comply with or is inconsistent with the provisions hereof, provided,
however, that the foregoing injunctions shall not apply to rights of the holders
of Rescission or Damage Claims, and Indemnification Claims arising from or
related thereto, to pursue such claims against any Person that is discharged or
released pursuant to this Plan solely to obtain a right of recovery against any
applicable insurance coverage or to seek indemnification as otherwise provided
by Section 7.3 of the Plan but not to enforce a judgment against any property of
any Person that is discharged or released pursuant to this Plan except to the
extent of insurance proceeds or to seek indemnification as otherwise provided by
Section 7.3 of the Plan.
As of the Effective Date, except as otherwise provided in the Plan,
all Persons are permanently enjoined from commencing or continuing, in any
manner or in any place, any action or other proceeding, whether directly,
derivatively or otherwise against any or all of the Released Parties, on account
of or respecting any claims, debts, rights, Causes of Action or liabilities
released or discharged pursuant to the Plan, except to the extent expressly
permitted under the Plan.
Without limitation to the scope, extent, validity or enforceability of
the injunctive relief set forth in the Plan and in the Confirmation Order, by
accepting distributions pursuant to the Plan, each holder of an Allowed Claim or
Equity Interest receiving distributions pursuant to the Plan is deemed to have
specifically consented to the releases and injunctions set forth in the Plan.
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<PAGE>
9. Exculpation
-----------
Pursuant to the Plan, neither the Debtors, Reorganized Debtors, the
Informal Committees, any official committee of creditors appointed in these
cases, or GPH, nor any of their respective members, officers, directors,
employees, advisors, agents or Professionals shall have or incur any liability
to any holder of a Claim or Equity Interest for any act or omission in
connection with, related to, or arising out of, the Chapter 11 Cases, the
preparation or formulation of the Plan, the pursuit of confirmation of the Plan,
the consummation of the Plan or the administration of the Plan or the property
to be distributed under the Plan, except for willful misconduct or gross
negligence, and, in all respects, the Debtors, Reorganized Debtors and each of
their respective members, officers, directors, employees, advisors, agents and
Professionals shall be entitled to rely upon the advice of counsel with respect
to their duties and responsibilities under the Plan; provided, however, that
nothing in the Plan shall, or shall be deemed to, release the Debtors or
Reorganized Debtors from, or exculpate the Debtors or Reorganized Debtors with
respect to, their respective obligations or covenants arising pursuant to the
Plan.
10. Section 1146 Exemption
----------------------
In accordance with Section 1146(c) of the Bankruptcy Code, (a) the
issuance, transfer or exchange of any security under the Plan or the making or
delivery of any instrument of transfer pursuant to, in implementation of, or as
contemplated by the Plan, including any merger agreements or agreements of
consolidation, deeds, bills of sale or assignments executed
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in connection with any of the transactions contemplated under the Plan, or the
revesting, transfer or sale of any real or personal property of the Debtors
pursuant to, in implementation of, or as contemplated by the Plan, (b) the
making, delivery, creation, assignment, amendment or recording of any note or
other obligation for the payment of money or any mortgage, deed of trust or
other security interest under, in furtherance of, or in connection with the
Plan, the issuance, renewal, modification or securing of indebtedness by such
means, and (c) the making, delivery or recording of any deed or other instrument
of transfer under, in furtherance of, or in connection with, the Plan,
including, without limitation, the Confirmation Order, shall not be subject to
any document recording tax, stamp tax, conveyance fee or other similar tax,
mortgage tax, real estate transfer tax, mortgage recording tax or other similar
tax or governmental assessment. Consistent with the foregoing, each recorder of
deeds or similar official for any county, city or governmental unit in which any
instrument hereunder is to be recorded shall, pursuant to the Confirmation
Order, be ordered and directed to accept such instrument, without requiring the
payment of any documentary stamp tax, deed stamps, stamp tax, transfer tax,
intangible tax or similar tax.
11. Full and Final Satisfaction
---------------------------
Pursuant to the Plan, all payments and all distributions shall be in
full and final satisfaction, settlement, release and discharge of all Claims and
Equity Interests, except as otherwise provided in the Plan.
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12. Cram-Down
---------
If any impaired Class entitled to vote shall not accept the Plan by
the requisite majorities provided in Sections 1126(c) or 1126(d) of the
Bankruptcy Code as applicable, or if any impaired Class is deemed to have
rejected the Plan, the Debtors reserve the right (a) to undertake to have the
Bankruptcy Court confirm the Plan under Section 1129(b) of the Bankruptcy Code
and (b) to amend the Plan to the extent necessary to obtain entry of the
Confirmation Order. Without limiting the foregoing, in the event that any Class
of Claims or Equity Interest holders ranking in priority below class 6 (General
Unsecured Claims) votes to reject the Plan (and the Bankruptcy Court determines
that, as a result thereof, the Plan is unconfirmable), the Debtors reserve the
right to amend the Plan to provide that all Classes ranking in priority below
class 6 (i.e., Classes 7, 8, 9 and 10) shall not receive or retain any property
under the Plan, including, without limitation, that Classes 8 and 9 would not
receive the New Warrants currently contemplated to be distributed under the
Plan. In such case, Classes 7, 8, 9 and 10 would be deemed to reject the Plan,
in which event, the Debtors would then seek to confirm the Plan under Section
1129(b) of the Bankruptcy Code without re-soliciting votes to accept or reject
the Plan and Ballots cast respecting such Classes would be disregarded.10
- -------------------
10 GPH has reserved the right not to support the Plan or to invoke its other
rights under the Restructuring Agreement in the event that the Debtors
amend the Plan to provide that Classes 7, 8, 9 and 10 do not receive or
retain any property under the Plan.
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13. Disbursement of Funds and Delivery of Distribution
--------------------------------------------------
Subject to Bankruptcy Rule 9010, all distributions under the Plan
shall be made by the Reorganized Debtors (or their disbursing agent) to the
holder of each Allowed Claim at the address of such holder as listed on the
Schedules as of the Distribution Record Date, unless the Debtors or Reorganized
Debtors have been notified in writing of a change of address, including, without
limitation, by the filing of a proof of claim or notice of transfer of claim
filed by such holder that provides an address for such holder different from the
address reflected on the Schedules. Any payment of Cash made by the Reorganized
Debtors (or their disbursing agent) pursuant to the Plan shall be made by check
drawn on a domestic bank. Any payment or distribution required to be made under
the Plan on a day other than a Business Day shall be made on the next succeeding
Business Day.
Whenever any payment of a fraction of a cent would otherwise be called
for, the actual payment shall reflect a rounding of such fraction to the nearest
whole cent (rounding down in the case of .50 or less and rounding up in the case
of more than .50). No fractional New Senior Notes shall be distributed under the
Plan. Whenever any payment of a fraction of a dollar of principal amount of New
Senior Notes would otherwise be called for, the actual New Senior Note
distributed shall reflect a rounding of such fraction to the nearest whole
dollar of principal amount (rounding down in the case of .50 or less and
rounding up in the case of more than .50). No fractional shares of New Parent
Common Stock or New Warrants shall be distributed under the Plan. Fractional
interests shall be combined into as many whole shares of New Parent Common Stock
or New Warrants, as the case may be, as possible and shall be
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<PAGE>
redistributed to holders of Claims and Equity Interests (as applicable) with
fractional interests, in descending order, until all such whole shares of New
Parent Common Stock or New Warrants are distributed.
As of the close of business on the Distribution Record Date, the
claims register (for Claims) and the transfer ledgers (for Old Senior Notes,
TOPrS Certificates and Equity Interests) shall be closed, and there shall be no
further changes in the record holders of any Claims or Equity Interests. The
Debtors, Reorganized Debtors and the respective indenture trustees for all the
Old Senior Notes and TOPrS Certificates, as the case may be, shall have no
obligation to recognize any transfer of any Claims or Equity Interests occurring
after the close of business on the Distribution Record Date, and shall instead
be entitled to recognize and deal, for all purposes under the Plan (except as to
voting to accept or reject the Plan pursuant to Section 6.1 of the Plan), with
only those holders of record as of the close of business on the Distribution
Record Date.
Except as to applications for allowances of compensation and
reimbursement of expenses under Sections 330 and 503 of the Bankruptcy Code
(with respect to which procedures respecting objections shall be governed by
Section 2.1(b) of the Plan and the Confirmation Order or other Final Order), the
Debtors or Reorganized Debtors shall have the exclusive right to make and file
objections to Administrative Expense Claims, Claims and Equity Interests
subsequent to the Confirmation Date. All objections shall be litigated to Final
Order; provided, however, that the Reorganized Debtors shall have the authority
to compromise, settle, otherwise resolve or withdraw any objections, subject to
approval of the Bankruptcy Court. Unless
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otherwise ordered by the Bankruptcy Court, the Debtors or Reorganized Debtors
shall file all objections to Administrative Expense Claims that are the subject
of proofs of claim or requests for payment filed with the Bankruptcy Court
(other than applications for allowances of compensation and reimbursement of
expenses), Claims and Equity Interests and serve such objections upon the holder
of the Administrative Expense Claim, Claim or Equity Interest as to which the
objection is made as soon as is practicable, but in no event later than 60 days
after the Effective Date or such later date as may be approved by the Bankruptcy
Court.
14. Avoidance and Recovery Actions
------------------------------
As of and subject to the occurrence of the Effective Date, the Debtors
and the Reorganized Debtors, for and on behalf of themselves and their Estates,
will waive and release any of the Causes of Action under Sections 510, 544, 547,
548, 550 and 553 of the Bankruptcy Code.
15. Retention of Jurisdiction
-------------------------
The Bankruptcy Court shall have exclusive jurisdiction of all matters
arising out of, and related to, the Chapter 11 Cases and the Plan pursuant to,
and for the purposes of, Sections 105(a) and 1142 of the Bankruptcy Code and
for, among other things, the following purposes:
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(a) to hear and determine any and all objections to the
allowance of any Claims or any controversies as to the classification of any
Claims, provided that only Debtors may file objections to Claims;
(b) to hear and determine any and all applications by
Professionals for compensation and reimbursement of expenses;
(c) to hear and determine any and all pending applications
for the rejection and disaffirmance of executory contracts and unexpired leases,
and fix and allow any Claims resulting therefrom;
(d) to liquidate any Disputed Claim;
(e) to enforce the provisions of the Plan, including the
injunction, exculpation and releases provided for in the Plan;
(f) to enable the Debtors to prosecute any and all
proceedings which have been or may be brought prior to the Effective Date to set
aside liens or encumbrances and to recover any transfers, assets, properties, or
damages to which the Debtors may be entitled under applicable provisions of the
Bankruptcy Code or any federal state, or local laws;
(g) to correct any defect, cure any omission, or reconcile
any inconsistency in the Plan or in the Confirmation Order as may be necessary
to carry out its purpose and the intent of the Plan;
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(h) to determine any Claim or liability to a governmental
unit which may be asserted as a result of the transactions contemplated herein;
(i) to hear and determine matters concerning state, local,
and federal taxes in accordance with Sections 346, 505 and 1146 of the
Bankruptcy Code; and
(j) to determine such other matters as may be provided for
in the Confirmation Order or as may be authorized under the provisions of the
Bankruptcy Code.
16. Executory Contracts and Unexpired Leases
----------------------------------------
Any unexpired lease or executory contract that has not been expressly
rejected by the Debtors or treated in the Plan with the Bankruptcy Court's
approval on or prior to the Confirmation Date shall, as of the Confirmation Date
(subject to the occurrence of the Effective Date), be deemed to have been
assumed by the Debtors unless there is pending before the Bankruptcy Court on
the Confirmation Date a motion to reject such unexpired lease or executory
contract or such executory contract or unexpired lease is otherwise designated
for rejection; provided that (a) such lease or executory contract is ultimately
rejected and (b) the filing of the Confirmation Order shall be deemed to be a
rejection of all then outstanding unexercised stock options, warrants and
similar rights. In accordance with Section 1123(a)(5)(G) of the Bankruptcy Code,
on the Effective Date, or as soon as practicable thereafter, the Reorganized
Debtors shall cure all defaults under any executory contract or unexpired lease
assumed pursuant to the Plan by making a Cash payment in an amount agreed to
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between the Reorganized Debtors and the claimant, or as otherwise fixed pursuant
to a Final Order.
17. Bar Date for Filing Proofs of Claims Relating to Executory
Contracts and Unexpired Leases Rejected Pursuant to the Plan
------------------------------------------------------------
Claims arising out of the rejection of an executory contract or
unexpired lease designated for rejection pursuant to the Confirmation Order must
be filed with the Bankruptcy Court and/or served upon the Debtors or Reorganized
Debtors or as otherwise may be provided in the Confirmation Order by no later
than 30 days after the notice of entry of an order approving such rejection. Any
Claims not filed within such time will be forever barred from assertion against
the Debtors, their estates, the Reorganized Debtors and their property, and the
holders thereof shall not be entitled to any distribution under the Plan or
otherwise from the Debtors or Reorganized Debtors. Unless otherwise ordered by
the Bankruptcy Court, all Claims arising from the rejection of executory
contracts and unexpired leases shall be treated as General Unsecured Claims
under the Plan.
18. Indemnification Claims
----------------------
(a) Notwithstanding anything to the contrary contained
herein, all Persons holding or asserting Indemnification Claims (whether
directly, by subrogation or otherwise) shall be entitled to obtain recovery on
account of such Claims solely from the proceeds of any applicable directors' and
officers' insurance policy maintained by the Debtors or Reorganized Debtors, as
the case may be, and shall not, under any circumstances, be entitled to
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obtain a recovery in respect of such Indemnification Claims from the Reorganized
Debtors; provided, however, that the Reorganized Debtors shall remain
responsible for, and shall pay, in respect of any and all Indemnification
Claims, all retention amounts and coinsurance obligations arising under, or
necessary to maintain, its directors' and officers' insurance policies. The
Debtors or Reorganized Debtors, as the case may be, shall continue and maintain
all presently existing directors' and officers' insurance policies, and all such
policies shall remain in full force and effect following Confirmation. The
Debtors shall maintain any prior directors' and officers' insurance policies and
renew existing policies as they expire at comparable or greater coverage levels.
(b) As set forth in Section 7.3(b) of the Plan, in the event
that: (i) the Bankruptcy Court does not approve any or all of the material
provisions of Article 9 of the Plan (i.e., releases and injunctions), and (ii)
the Plan is not terminated pursuant to Section 12.5 thereof, then all
Indemnification Claims shall be assumed by the Reorganized Debtors without
limitation.11
19. Compensation and Benefit Programs
---------------------------------
Except as otherwise provided in the Plan, all employment and severance
practices and policies and all compensation and benefit plans, policies, and
programs of the Debtors applicable to their directors, officers or employees,
including, without limitation, all savings
- -----------------------
11 The Informal Committees, under the Plan, have the right to cause the Plan
to not become effective if Section 7.3(b) is made relevant and enforceable,
and have advised the Debtors that, as of the date hereof, they would cause
the Plan to not become effective in such event.
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plans, retirement plans, health care plans, severance benefit plans, incentive
plans, workers' compensation programs and life, disability and other insurance
plans are treated either as executory contracts pursuant to Section 7.1 of the
Plan or as permitted under applicable non- bankruptcy law.
Included in the foregoing compensation and benefit plans to be assumed
pursuant to the Plan is the Debtors' 1999 Bonus Plan. Pursuant to the Debtors'
1999 Bonus Plan, senior and certain middle level management of the Debtors are
eligible to receive a bonus if certain performance targets are obtained by the
Debtors. Such participants are classified into one of five groups, based on
employment position, and, depending on the group in which they are classified,
are eligible to receive bonuses in varying percentages of their base salary
depending upon the level of operating performance achieved.
20. Retiree Benefits
----------------
Payment of any Retiree Benefits shall be continued solely to the
extent, and for the duration of the period, the Debtors are contractually or
legally obligated to provide such benefits, subject to any and all rights of the
Debtors under applicable law.
21. Post-Confirmation Fees, Final Decree
------------------------------------
The Reorganized Debtor shall be responsible for the payment of any
post- confirmation fees due pursuant to 28 U.S.C.ss. 1930(a)(6) and the filing
of post-confirmation
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reports, until a final decree is entered. A final decree shall be entered as
soon as practicable after distributions have commenced under the Plan.
22. Continuation of Bankruptcy Injunction or Stays
----------------------------------------------
All injunctions or stays provided for in the Chapter 11 Cases under
Sections 105 or 362 of the Bankruptcy Code, or otherwise, and in existence on
the Confirmation Date, shall remain in full force and effect until the Effective
Date.
23. Revesting of Assets
-------------------
Except as otherwise provided by the Plan, upon the Effective Date,
pursuant to Section 5.10 of the Plan, title to all properties and assets dealt
with by the Plan shall pass to the Reorganized Debtors free and clear of all
Claims, Liens, encumbrances and interests of creditors and of equity security
holders (except those Claims, Liens, encumbrances and interests created pursuant
to this Plan) and the Confirmation Order shall be a judicial determination of
discharge and extinguishment of all Claims, Liens or Equity Interests (except
those created pursuant to this Plan). Notwithstanding the foregoing, nothing in
Section 5.10 of the Plan shall impact, discharge or extinguish any restriction
contained in any license agreements (or rights thereunder) to which the Debtors
are a party.
24. General Release of Liens
------------------------
Except as otherwise provided in the Plan in connection with the
treatment afforded to holders of Class 2 (General Secured Claims), the New
Senior Notes and the Post-
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Effective Date Financing Facility, or in any contract, instrument, indenture or
other agreement or document created in connection with the Plan or the
implementation thereof, on the Effective Date, all mortgages, deeds of trust,
liens or other security interests against property of the Estates are released
and extinguished, and all the right, title and interest of any holder of such
mortgages, deeds of trust, liens or other security interests will revert to the
Reorganized Debtors as applicable, and the successors and assigns thereof.
25. Conditions to Effective Date of the Plan
----------------------------------------
The Plan shall not become effective unless and until the following
conditions shall have been satisfied or waived pursuant to Section 10.3 of the
Plan:
(a) the Confirmation Order and the Substantive Consolidation
Order, in form and substance reasonably acceptable to the Debtors, GPH, and the
Informal Committees, shall have been entered contemporaneously by the Bankruptcy
Court and shall have become a Final Order;
(b) the Reorganized Debtors shall have credit availability
under the Post-Effective Date Financing Facility to provide the Reorganized
Debtors with financing sufficient to meet their Cash obligations under the Plan
and their business requirements as of and after the Effective Date;
(c) each of the Plan Documents and the New Parent Common
Stock, New Senior Notes and New Warrants, in form and substance reasonably
acceptable to the
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Debtors, GPH, and the Informal Committees, shall have been effected or executed
and delivered and the New Common Stock, New Senior Notes and New Warrants shall
be validly issued and outstanding;
(d) if the Indemnification Claims are to be assumed by the
Reorganized Debtors pursuant to Section 7.3(b) hereof or otherwise, then each of
the Informal Committees shall have consented to such assumption; and
(e) all actions, other documents and agreements necessary to
implement the Plan shall have been effected or executed and delivered.
In the event that one or more of the conditions specified in Section
10.1 of the Plan have not occurred on or before 120 days after the Confirmation
Date, upon notification submitted by the Debtors to the Bankruptcy Court (a) the
Confirmation Order shall be vacated, (b) no distributions under the Plan shall
be made, (c) the Debtors and all holders of Claims and Equity Interests shall be
restored to the status quo ante as of the day immediately preceding the
Confirmation Date as though the Confirmation Date never occurred and (d) the
Debtors' obligations with respect to the Claims and Equity Interests shall
remain unchanged and nothing contained herein shall constitute or be deemed a
waiver or release of any Claims or Equity Interests by or against the Debtors or
any other Person or to prejudice in any manner the rights of the Debtors or any
Person in any further proceedings involving the Debtors.
Upon written consent of each of the Informal Committees and GPH, the
Debtors may waive, by a writing signed by an authorized representative of the
Debtors and subsequently
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filed with the Bankruptcy Court, one or more of the conditions precedent to
effectiveness of the Plan as set forth above.
26. Consolidation and Dissolution of Non-Debtor Subsidiaries
--------------------------------------------------------
The Debtors are analyzing their current corporate structure with a
view toward streamlining and simplifying same. Accordingly, the Debtors may, on
or prior to the Effective Date, merge or otherwise consolidate certain
non-debtor subsidiaries into Publishing or other non-debtor affiliates, and to
dissolve certain other obsolete non-debtor affiliates, each pursuant to
applicable state law.
G. Post-Confirmation Officers and Directors
The officers of the respective Debtors immediately prior to the
Effective Date shall serve as the initial officers of the respective Reorganized
Debtors on and after the Effective Date. Set forth below is the name,
compensation and position of Reorganized Parent's key officers on the Effective
Date.
Post-Confirmation
Name Title Base Salary
------------------------- --------------------------- -------------------
Richard E. Snyder Chairman of the Board and $750,000
Chief Executive Officer
Philip Galanes Executive Vice President, $375,000
Chief Administrative Officer,
General Counsel and
Secretary
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Post-Confirmation
Name Title Base Salary
------------------------- --------------------------- -------------------
Richard K. Collins Executive Vice President, $350,000
and Chief Operating Officer
Colin Finkelstein Executive Vice President and $300,000
Chief Financial Officer
In addition to the post-confirmation base salary set forth above, such
officers (and certain other employees) will also be entitled to participate in
the Debtors' 1999 Bonus Plan as set forth in Section IV.F.19. hereof. The
initial members of the post-Confirmation board of directors of Reorganized
Parent shall consist of the following: (i) Richard E. Snyder, (ii) three (3)
members selected by the Informal TOPrS Committee, and (iii) three (3) members
selected by the Informal Senior Note Committee; provided, however, that (i) the
nominees of each Informal Committee shall be reasonably acceptable to the other
Informal Committee, and (ii) each of the nominees of the Informal Committees
shall be discussed, prior to formal nomination, among the Informal Committees
and current management of the Debtors. The designation of the board members
selected by the Informal Committees, along with the designation of the board
members for Reorganized Publishing and Reorganized Video, shall be filed with
the Bankruptcy Court on or prior to the commencement date of the Confirmation
Hearing, or such later date as the Bankruptcy Court may establish.
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V.
ACCEPTANCE AND CONFIRMATION OF THE PLAN
The following is a brief summary of the provisions of the Bankruptcy
Code respecting acceptance and confirmation of a plan of reorganization. Holders
of Claims and Equity Interests are encouraged to review the relevant provisions
of the Bankruptcy Code and/or to consult their own attorneys.
A. Acceptance of the Plan
This Disclosure Statement is provided in connection with the
solicitation of acceptances of the Plan. The Bankruptcy Code defines acceptance
of a plan of reorganization by a class of Claims as acceptance by holders of at
least two-thirds in dollar amount, and more than one-half in number, of the
allowed Claims of that class that have actually voted or are deemed to have
voted to accept or reject a plan. The Bankruptcy Code defines acceptance of a
plan of reorganization by a class of interests as acceptance by at least
two-thirds in amount of the allowed interests of that class that have actually
voted or are deemed to have voted to accept or reject a plan.
If one or more impaired Classes rejects the Plan, the Debtors may, in
their discretion, nevertheless seek confirmation of the Plan if the Debtors
believe that they will be able to meet the requirements of Section 1129(b) of
the Bankruptcy Code for Confirmation of the Plan (which are set forth below),
despite lack of acceptance by all impaired classes. Also, in
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the event the Bankruptcy Court should determine that the Plan as presently
constituted is not confirmable, the Debtors reserve the right to amend the Plan
to the extent necessary to obtain entry of the Confirmation Order. (See Section
IV.F.12 of this Disclosure Statement).
B. Confirmation
1. Confirmation Hearing
--------------------
Section 1128(a) of the Bankruptcy Code requires the Bankruptcy Court,
after notice, to hold a hearing on confirmation of a plan. Notice of the
Confirmation Hearing of the Plan has been provided to all known holders of
Claims and Equity Interests or their representatives along with this Disclosure
Statement. The Confirmation Hearing may be adjourned from time to time by the
Bankruptcy Court without further notice except for an announcement of the
adjourned date made at the Confirmation Hearing or any subsequent adjourned
Confirmation Hearing.
Section 1128(b) of the Bankruptcy Code provides that any party in
interest may object to confirmation of a plan. Any objection to Confirmation of
the Plan must be filed and served as required pursuant to the Disclosure
Statement Approval Order.
2. Statutory Requirements for Confirmation of the Plan
---------------------------------------------------
At the Confirmation Hearing, the Debtors will request that the
Bankruptcy Court determine that the Plan satisfies the requirements of Section
1129 of the Bankruptcy Code. If
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so, the Bankruptcy Court shall enter an order confirming the Plan. The
applicable requirements of Section 1129 of the Bankruptcy Code are as follows:
(a) The Plan must comply with the applicable provisions of
the Bankruptcy Code;
(b) The Debtors must have complied with the applicable
provisions of the Bankruptcy Code;
(c) The Plan has been proposed in good faith and not by any
means forbidden by law;
(d) Any payment made or promised to be made by the Debtors
under the Plan for services or for costs and expenses in, or in connection with,
these Chapter 11 Cases, or in connection with the Plan and incident to the
Chapter 11 Cases, has been disclosed to the Bankruptcy Court, and any such
payment made before Chapter 11 of the Plan is reasonable, or if such payment is
to be fixed after Confirmation of the Plan, such payment is subject to the
approval of the Bankruptcy Court as reasonable;
(e) The Debtors have disclosed the identity and affiliations
of any individual proposed to serve, after Confirmation of the Plan, as a
director, officer, or voting trustee of each of the Debtors under the Plan.
Moreover, the appointment to, or continuance in, such office of such individual,
is consistent with the interests of holders of Claims and Equity Interests and
with public policy, and the Debtors have disclosed the identity of any insider
that
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the Reorganized Debtors will employ or retain, and the nature of any
compensation for such insider;
(f) Best Interests of Creditors Test. With respect to each
Class of impaired Claims or Equity Interests, either each holder of a Claim or
Equity Interest of such Class has accepted the Plan, or will receive or retain
under the Plan on account of such Claim or Equity Interest, property of a value,
as of the Effective Date of the Plan, that is not less than the amount that such
holder would receive or retain if the Debtors were liquidated on such date under
Chapter 7 of the Bankruptcy Code. In a Chapter 7 liquidation, creditors and
interest holders of a debtor are paid from available assets generally in the
following order, with no lower class receiving any payments until all amounts
due to senior classes have either been paid in full or payment in full is
provided for: (i) first to secured creditors (to the extent of the value of
their collateral), (ii) next to priority creditors, (iii) next to unsecured
creditors, (iv) next to debt expressly subordinated by its terms or by order of
the Bankruptcy Court, and (v) last to holders of equity interests. Attached
hereto as Exhibit "D" is a liquidation analysis prepared by the Debtors (the
"Liquidation Analysis"). As set forth therein, in light of the foregoing
priority, the Debtors believe that if the Chapter 11 cases were converted to a
Chapter 7 liquidation, holders of Old Senior Note Claims, would receive
significantly less than they will receive under the Plan. Moreover, holders of
TOPrS Claims, General Unsecured Claims and Equity Interests would receive no
recovery in the event of a Chapter 7 liquidation.12 In contrast, under the Plan,
- -------------------
12 While the Liquidation Analysis indicates that the holder of the GPH Claim
would receive a better recovery in liquidation than under the Plan,
pursuant to the Restructuring Agreement, GPH supports confirmation of the
Plan.
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holders of the TOPrS Claims will receive 50% of the New Parent Common Stock,
holders of General Unsecured Claims will be paid in full, and holders of Equity
Interests will receive an allocation of the New Warrants;
(g) Each Class of Claims or Equity Interests has either
accepted the Plan or is not impaired under the Plan;
(h) Except to the extent that the holder of a particular
Claim has agreed to a different treatment of such Claim, the Plan provides that
Allowed Administrative and Priority Claims (other than Allowed Priority Tax
Claims) will be paid in full on the Effective Date and that Allowed Priority Tax
Claims will receive on account of such Claims deferred Cash payments, over a
period not exceeding six years after the date of assessment of such Claim, of a
value, as of the Effective Date, equal to the Allowed amount of such Claim;
(i) At least one impaired class of Claims has accepted the
Plan, determined without including any acceptance of the Plan by any insider
holding a Claim of such Class;
(j) Feasibility. Confirmation of the Plan is not likely to
be followed by the liquidation, or the need for further financial reorganization
of the Debtors or any successor to the Debtors under the Plan. Attached hereto
as Exhibit "E" are projections for approximately three (3) years following
confirmation of the Plan and a pro forma balance sheet as of the Effective Date
which demonstrate that, given estimated expenses and income, and taking into
account cash reserves and borrowings under the Post-Effective Date Financing
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Facility, the Reorganized Debtors will be able to satisfy their obligations
under the Plan, as well as their obligations arising in connection with their
ongoing business operations. As discussed in Section IV.E. of this Disclosure
Statement, the Post-Effective Date Financing Facility, among other things, will
provide for aggregate borrowings (including a working capital line of credit) of
up to $60 million; provided, that, on the Effective Date, the maximum amount of
borrowing availability under such facility shall be $45 million with the
remaining $15 million of availability under such facility becoming automatically
available for borrowing by the Reorganized Debtors upon their attainment of
certain levels of operating performance to be mutually agreed upon by the
Debtors and the Informal Senior Note Committee in good faith.
3. Confirmation Without Acceptance by All Impaired Classes
-------------------------------------------------------
Section 1129(b) of the Bankruptcy Code allows a Bankruptcy Court to
confirm a plan, even if such plan has not been accepted by all impaired classes
entitled to vote on such plan, provided that such plan has been accepted by at
least one impaired class. If any impaired classes reject or are deemed to have
rejected the Plan, the Debtors reserve their right to seek the application of
the statutory requirements set forth in Section 1129(b) of the Bankruptcy Code
for Confirmation of the Plan despite the lack of acceptance by all impaired
classes.
Section 1129(b) of the Bankruptcy Code provides that notwithstanding
the failure of an impaired class to accept a plan of reorganization, the plan
shall be confirmed, on request of the proponent of the plan, in a procedure
commonly known as "cram-down," so long as the plan
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does not "discriminate unfairly" and is "fair and equitable" with respect to
each class of Claims or interests that is impaired under and has not accepted
the plan.
The condition that a plan be "fair and equitable" with respect to a
non-accepting class of secured Claims includes the requirements that (a) the
holders of such secured Claims retain the liens securing such Claims to the
extent of the allowed amount of the Claims, whether the property subject to the
liens is retained by the debtor or transferred to another entity under the plan,
and (b) each holder of a secured Claim in the class receive deferred cash
payments totaling at least the allowed amount of such Claim with a present
value, as of the effective date of the plan, at least equivalent to the value of
the secured claimant's interest in the debtor's property subject to the liens.
The condition that a plan be "fair and equitable" with respect to a
non-accepting class of unsecured Claims includes the requirement that either (a)
such class receive or retain under the plan property of a value as of the
effective date of the plan equal to the allowed amount of such Claim, or (b) if
the class does not receive such amount, no class junior to the non-accepting
class will receive a distribution under the plan.
The condition that a plan be "fair and equitable" with respect to a
non-accepting class of equity interests includes the requirements that either
(a) the plan provides that each holder of an equity interest in such class
receive or retain under the plan, on account of such equity interest, property
of a value, as of the effective date of the plan, equal to the greater of (i)
the allowed amount of any fixed liquidation preference to which such holder is
entitled,
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(ii) any fixed redemption price to which such holder is entitled, or (iii) the
value of such equity interest, or (b) if the class does not receive such amount,
no class of equity interests junior to the non-accepting class will receive a
distribution under the plan.
VI.
VALUATION
A. Reorganization Value of Reorganized Debtors
The Debtors have been advised by Conway, Del Genio, Gries & Co., their
financial advisors (hereinafter, the "Financial Advisors"), with respect to the
reorganization value of the Reorganized Debtors. Solely for purposes of the
Plan, the estimated range of the reorganization value was assumed by the
Debtors, based upon advice from the Financial Advisors, to be approximately $157
million to $162 million based upon an assumed Effective Date of June 30, 1999.
THE ASSUMED RANGE OF THE REORGANIZATION VALUE OF THE REORGANIZED
DEBTORS REFLECTS WORK PERFORMED BY THE FINANCIAL ADVISORS ON THE BASIS OF
INFORMATION IN RESPECT OF THE BUSINESS AND ASSETS OF THE DEBTORS AVAILABLE TO
THE FINANCIAL ADVISORS AS OF APRIL 30, 1999. NEITHER THE FINANCIAL ADVISORS NOR
THE DEBTORS HAS UPDATED THE ESTIMATED RANGE OF THE REORGANIZATION
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ENTERPRISE VALUE TO REFLECT INFORMATION AVAILABLE TO THE DEBTORS OR THE
FINANCIAL ADVISORS SUBSEQUENT TO APRIL 30, 1999.
Based upon the assumed range of the reorganization enterprise value of
the Reorganized Debtors of between $157 million to $162 million, the Debtors
have employed an imputed estimate of the range of the reorganization equity
value for Reorganized Parent of approximately $50 million to $55 million or
approximately $10 per share to $11 per share of New Parent Common Stock (based
upon the assumed distribution of 5,000,000 shares of New Parent Common Stock
under the Plan and an aggregate amount of 5,000,000 shares outstanding upon
completion of such distribution).
The foregoing estimates of the reorganization value of the Reorganized
Debtors are based on a number of assumptions, including a successful
reorganization of the Debtors' business and finances in a timely manner, the
implementation of the Reorganized Debtors' business plan (including obtaining
post-consummation financing), the achievement of the forecasts reflected in the
Projections, market conditions as of April 30, 1999 continuing through the
assumed Effective Date of June 30, 1999, and the Plan becoming effective in
accordance with its terms, on a basis consistent with the estimates and other
assumptions discussed herein.
B. The New Warrants
The Plan provides for the distribution of the New Warrants to the
holders of Old Preferred Stock Interests and Old Common Stock Interests. The
exercise of the New Warrants requires the payment to Reorganized Parent of Cash
at the time of exercise. Notwithstanding,
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for purposes of this analysis, it is assumed that all New Warrants are issued as
of the Effective Date. The Debtors have computed the theoretical value of a New
Warrant to be in a range from approximately $0.38 to $0.58 per New Warrant, with
an aggregate value in a range from approximately $100,000 to $150,000.
The theoretical value range for the New Warrants was determined by
applying the Black-Scholes valuation model. The Black-Scholes valuation model is
a complex mathematical formula used to value options that takes into account a
number of factors, including assumptions regarding the price of the underlying
stock and the volatility of such price, the exercise price of the option, the
term of the option, and prevailing interest rates. An adjustment is made to the
option value calculated using the Black-Scholes model to account for the
dilution effect of the New Warrants. For the purposes of this analysis, the
following material assumptions were used: 1) 50% to 55% volatility, 2) exercise
price equal to $46.05, 3) 3 year term to maturity, 4) an interest rate based on
the 3 year U.S. Treasury Bond.
Due to the highly subjective nature of certain of these assumptions
and estimates and other factors, the assumed values of the New Warrants
determined in this manner are inherently uncertain and do not purport to
constitute estimates of the actual values of the New Warrants as of the
Effective Date or any other date. There can be no assurance that a market for
the New Warrants will develop. Accordingly, no assurance can be given that a
holder of such New Warrants will be able to sell such securities or receive the
theoretical stated value should such sale be made.
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IN ESTIMATING THE RANGE OF THE REORGANIZATION VALUE OF THE REORGANIZED
DEBTORS AND THE NEW WARRANTS, THE FINANCIAL ADVISORS: (I) REVIEWED CERTAIN
HISTORICAL FINANCIAL INFORMATION OF THE DEBTORS FOR RECENT YEARS AND INTERIM
PERIODS, (II) REVIEWED CERTAIN INTERNAL FINANCIAL PROJECTIONS, PREPARED AND
PROVIDED BY MANAGEMENT RELATING TO THEIR BUSINESS AND THEIR PROSPECTS, (III) MET
WITH CERTAIN MEMBERS OF SENIOR MANAGEMENT TO DISCUSS OPERATIONS AND FUTURE
PROSPECTS, (IV) REVIEWED PUBLICLY AVAILABLE FINANCIAL DATA AND CONSIDERED THE
MARKET VALUES OF PUBLIC COMPANIES WHICH THE FINANCIAL ADVISORS DEEMED GENERALLY
COMPARABLE TO THE OPERATING BUSINESS OF THE DEBTORS, (V) CONSIDERED CERTAIN
ECONOMIC AND INDUSTRY INFORMATION RELEVANT TO THE OPERATING BUSINESS, AND (VI)
REVIEWED CERTAIN ANALYSES PREPARED BY OTHER FIRMS RETAINED BY THE DEBTORS AND
CONDUCTED SUCH OTHER STUDIES, ANALYSES, INQUIRIES, AND INVESTIGATIONS AS THEY
DEEMED APPROPRIATE. ALTHOUGH THE FINANCIAL ADVISORS CONDUCTED A REVIEW AND
ANALYSIS OF THE DEBTORS' BUSINESSES, OPERATING ASSETS AND LIABILITIES AND THE
DEBTORS' BUSINESS PLANS, THEY ASSUMED AND RELIED ON THE ACCURACY AND
COMPLETENESS OF ALL (I) THE FINANCIAL AND OTHER INFORMATION FURNISHED TO THEM BY
THE DEBTORS AND BY OTHER FIRMS RETAINED BY THE DEBTORS, AND (II) PUBLICLY
AVAILABLE
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INFORMATION. IN ADDITION, THE FINANCIAL ADVISORS DID NOT INDEPENDENTLY VERIFY
MANAGEMENT'S PROJECTIONS IN CONNECTION WITH SUCH ESTIMATES OF THE REORGANIZATION
VALUE, AND NO INDEPENDENT VALUATIONS OR APPRAISALS OF THE DEBTORS WERE SOUGHT OR
OBTAINED IN CONNECTION HEREWITH. ESTIMATES OF THE REORGANIZATION VALUE DO NOT
PURPORT TO BE APPRAISALS OR NECESSARILY REFLECT THE VALUES WHICH MAY BE REALIZED
IF ASSETS ARE SOLD AS A GOING CONCERN, IN LIQUIDATION, OR OTHERWISE.
IN THE CASE OF THE REORGANIZED DEBTORS, THE ESTIMATES OF THE
REORGANIZATION VALUE AND THE NEW WARRANTS PREPARED BY THE FINANCIAL ADVISORS
REPRESENT THE HYPOTHETICAL REORGANIZATION ENTERPRISE VALUE OF THE REORGANIZED
DEBTORS AND THE NEW WARRANTS, RESPECTIVELY. SUCH ESTIMATES WERE DEVELOPED SOLELY
FOR PURPOSES OF THE FORMULATION AND NEGOTIATION OF THE PLAN AND THE ANALYSIS OF
IMPLIED RELATIVE RECOVERIES TO CREDITORS THEREUNDER. SUCH ESTIMATES REFLECT
COMPUTATIONS OF THE RANGE OF THE ESTIMATED REORGANIZATION ENTERPRISE VALUE OF
THE REORGANIZED DEBTORS AND THE NEW WARRANTS THROUGH THE APPLICATION OF VARIOUS
VALUATION TECHNIQUES AND DO NOT PURPORT TO REFLECT OR CONSTITUTE APPRAISALS,
LIQUIDATION VALUES OR ESTIMATES OF THE ACTUAL
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MARKET VALUE THAT MAY BE REALIZED THROUGH THE SALE OF ANY SECURITIES TO BE
ISSUED PURSUANT TO THE PLAN, WHICH MAY BE SIGNIFICANTLY DIFFERENT THAN THE
AMOUNTS SET FORTH HEREIN.
THE VALUE OF AN OPERATING BUSINESS IS SUBJECT TO NUMEROUS
UNCERTAINTIES AND CONTINGENCIES WHICH ARE DIFFICULT TO PREDICT, AND WILL
FLUCTUATE WITH CHANGES IN FACTORS AFFECTING THE FINANCIAL CONDITION AND
PROSPECTS OF SUCH A BUSINESS. AS A RESULT, THE ESTIMATE OF THE RANGE OF THE
REORGANIZATION ENTERPRISE VALUE OF THE DEBTORS SET FORTH HEREIN IS NOT
NECESSARILY INDICATIVE OF ACTUAL OUTCOMES, WHICH MAY BE SIGNIFICANTLY MORE OR
LESS FAVORABLE THAN THOSE SET FORTH HEREIN. BECAUSE SUCH ESTIMATES ARE
INHERENTLY SUBJECT TO UNCERTAINTIES, NEITHER THE FINANCIAL ADVISORS, NOR ANY
OTHER PERSON, ASSUMES RESPONSIBILITY FOR ITS ACCURACY. IN ADDITION, THE
VALUATION OF NEWLY-ISSUED SECURITIES IS SUBJECT TO ADDITIONAL UNCERTAINTIES AND
CONTINGENCIES, ALL OF WHICH ARE DIFFICULT TO PREDICT. ACTUAL MARKET PRICES OF
SUCH SECURITIES AT ISSUANCE WILL DEPEND UPON, AMONG OTHER THINGS, PREVAILING
INTEREST RATES, CONDITIONS IN THE FINANCIAL MARKETS, THE ANTICIPATED INITIAL
SECURITIES HOLDINGS OF PRE-PETITION CREDITORS, SOME OF WHICH MAY PREFER TO
LIQUIDATE THEIR INVESTMENT RATHER THAN HOLD IT ON A
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LONG-TERM BASIS, AND OTHER FACTORS WHICH GENERALLY INFLUENCE THE PRICES OF
SECURITIES.
THE ESTIMATES OF THE REORGANIZATION VALUE DETERMINED BY THE FINANCIAL
ADVISORS REPRESENT ESTIMATED REORGANIZATION VALUES AND DO NOT REFLECT VALUES
THAT COULD BE ATTAINABLE IN THE PUBLIC OR PRIVATE MARKETS. THE IMPUTED ESTIMATE
OF THE RANGE OF THE REORGANIZATION EQUITY VALUE OF REORGANIZED PARENT ASCRIBED
IN THE ANALYSIS DOES NOT PURPORT TO BE AN ESTIMATE OF THE POST-REORGANIZATION
MARKET TRADING VALUE. ANY SUCH TRADING VALUE MAY BE MATERIALLY DIFFERENT FROM
THE IMPUTED ESTIMATE OF THE REORGANIZATION EQUITY VALUE RANGE FOR REORGANIZED
PARENT ASSOCIATED WITH THE FINANCIAL ADVISORS' VALUATION ANALYSIS.
VII.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
The following summary addresses certain material federal income tax
consequences of the Plan to the Debtors and holders of Old Senior Notes, TOPrS
Certificates, the GPH Notes, and the holders of the Debtor's Old Preferred Stock
Interests and Old Common Stock Interests. The summary is based upon the Debtors'
interpretation of provisions of the Internal Revenue Code of 1986, as amended
(the "Code"), Treasury Regulations promulgated
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thereunder, judicial authority, and current Internal Revenue Service ("IRS")
administrative rulings and practice, all of which are subject to change
(possibly with retroactive effect), which could significantly affect the federal
income tax consequences discussed below.
The Debtors' interpretation of the federal income tax consequences is
not binding on the IRS, and the Debtors have not and do not intend to request a
ruling from the IRS with respect to any of the federal income tax aspects of the
Plan. In addition, this summary does not discuss any aspects of state, local, or
foreign tax laws, and this summary does not purport to set forth all aspects of
federal income taxation that may be relevant to certain types of holders of
Claims (e.g., broker-dealers, mutual funds, regulated investment companies,
banks, insurance companies, tax-exempt organizations, investors in pass-through
entities, and foreign persons).
THE FOLLOWING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS
FOR INFORMATIONAL PURPOSES ONLY AND IS NOT TAX ADVICE. ACCORDINGLY, HOLDERS OF
CLAIMS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX
CONSEQUENCES OF THE PLAN, INCLUDING THE APPLICABILITY AND EFFECT OF STATE,
LOCAL, FOREIGN, AND OTHER TAX LAWS.
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A. Federal Income Tax Consequences to the Debtors
1. Cancellation of Indebtedness Income
-----------------------------------
In general, for federal income tax purposes, a debtor will realize
cancellation of indebtedness income ("COD Income") if a creditor accepts less
than full payment in satisfaction of a debt. The amount of COD Income, if any,
realized by the debtor will generally equal the positive difference between the
amount of the existing debt discharged or canceled and the consideration
exchanged therefor which, in general, will equal the sum of (a) the issue price
of any new debt, and (b) the fair market value of stock or other property issued
to the creditors. As discussed in more detail below, the Debtors anticipate that
the implementation of the Plan will cause it to realize COD Income of
approximately $150.5 million, based on certain assumptions regarding the fair
value of the New Parent Common Stock and the issue price of the New Senior Notes
following the implementation of the Plan. If these assumptions do not prove to
be accurate, the Debtors will realize more COD income.
Pursuant to the Plan, the Debtors will exchange (a) $87 million
principal amount of New Senior Notes to be issued by Reorganized Publishing and
42.5% of New Parent Common Stock for $150 million principal amount of Old Senior
Notes and accrued and unpaid interest thereon (approximately $11 million)
through the Effective Date of the Plan, (b) 50.0% of New Parent Common Stock for
approximately $109.8 million principal amount of TOPrS Certificates and accrued
interest thereon (approximately $5.2 million) through the Effective Date of the
Plan; (c) 5% of New Parent Common Stock for $10 million principal amount of the
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GPH Notes and accrued interest thereon (approximately $239,000) through the
Effective Date of the Plan). The Debtors' Old Preferred Stock Interests and Old
Common Stock Interests will receive New Warrants (with the terms described in
Section 2 hereof) to purchase New Parent Common Stock pursuant to the Plan.
In general, the issue price of a debt instrument issued for property
(including another debt instrument) will be the debt instrument's "stated
redemption price at maturity," where neither the debt instrument nor the
property for which it is issued are publicly traded, and all interest payments
consist of "qualified stated interest" at a rate equal to or greater than the
applicable federal rate ("AFR") for the debt instrument. Qualified stated
interest is stated interest at the lowest rate provided for over the term of the
debt instrument that is unconditionally payable in cash or in property (other
than debt instruments of the issuer) at least annually at a fixed rate (or
subject to certain conditions, based on one or more indices). The stated
redemption price at maturity of a debt instrument is the total of all future
payments to be made under the debt instrument other than payments of qualified
stated interest.
In the event all interest payments do not consist of "qualified stated
interest" at the AFR, the issue price of the debt instrument will, in general,
equal its "stated principal amount" where the debt instrument provides for
"adequate stated interest." The stated principal amount of a debt instrument, is
the aggregate amount of all payments due under the debt instrument excluding any
amount of stated interest. Adequate stated interest exists where (a) the debt
instrument has a single fixed rate of interest that is paid or compounded at
least annually and that rate is equal to or greater than the AFR for the debt
instrument, or (b) the stated
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principal amount is less than or equal to the present value of all payments
under the debt instrument discounted at the AFR as of the issue date.
For purposes of these rules, the issuance of additional debt
instruments, pursuant to an unconditional right of the issuer to issue
additional debt ("PIK instrument" -- payment in kind) in payment of interest, is
aggregated with the original debt instrument and is not considered to be a
payment made on the original debt instrument. Therefore, the issue date of the
PIK instrument is the same as the original debt instrument, i.e., in general the
issuance of a PIK instrument will be treated as the deferral of cash interest
payments on the original debt instrument.
If the debt instrument is publicly traded (whether or not the property
for which it is exchanged is publicly traded), its issue price will be its fair
market value on the issue date. On the other hand, if the debt instrument is not
publicly traded, but the property for which it is exchanged is publicly traded,
the issue price of the debt instrument will be equal to the fair market value of
the property on the issue date of the debt instrument. The issue date is
generally the date on which a substantial amount of the debt instrument is
issued.
Property is considered "publicly traded" under Treasury Regulations,
if, in general, at any time during the 60 day period ending 30 days after the
issue date, it is traded on a recognized securities exchange, or is listed on a
quotation medium that is a system of general circulation providing a reasonable
basis to determine fair market value by disseminating either recent price
quotations of one or more identified brokers, dealers or traders, or actual
prices of
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recent sales transactions. The Plan provides that the Debtors will undertake all
reasonable efforts to ensure that the New Senior Notes will be listed on a
national securities exchange or the NASDAQ National Market System. However, in
no event will the New Senior Notes be listed prior to 75 days from the time of
issue and it is not expected that the New Senior Notes will be "publicly traded"
prior to that time.
The New Senior Notes have a five year term and provide for semi-annual
cash interest payments of 10 percent per year or, at the election of the
Debtors, PIK interest at 13.5 percent per year during the first three years of
the Note. As the New Senior Notes are issued with adequate stated interest, in
the event they are not "publicly traded" (as defined above), their issue price
should equal their stated principal amount, or $87 million. In the event that
the New Senior Notes are publicly traded, the issue price of the New Senior
Notes will be determined based upon their fair market value on their issue date,
which may be less, or greater than, their stated principal amount.
The Debtors anticipate that the fair market value of the New Parent
Common Stock, as of the Effective Date of the Plan, will be approximately $50
million. The Debtors anticipate that in the event the New Senior Notes are
"publicly traded", their issue price may be significantly less than their stated
principal amount of $87 million.
The Debtors, therefore, believe that, as a result of the
implementation of the Plan, they will realize COD Income of approximately $150.5
million (assuming that the New Senior Notes have an issue price equal to their
$87 million stated principal amount and the New Parent
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Common Stock has a fair market value of at least $50 million). Should the New
Senior Notes be "publicly traded" (as defined above) at a discount to their
stated principal amount, the amount of COD Income realized by the Debtors will
increase by the amount of such discount.
The COD Income realized by the Debtors as a result of the exchanges
described above will not be included in the Debtors' gross income because the
Debtors are under the jurisdiction of a court in a case under the Bankruptcy
Code. Instead, the Debtors will be required to reduce their tax attributes,
including their NOL carryovers, by the amount of such debt cancellation.
2. Interest Expense and Original Issue Discount
--------------------------------------------
The New Senior Notes will have stated interest payable, of 10 percent
per year if paid in cash or, at the option of the Debtors, 13.5 percent per year
for the first three years of the Note if paid with a payment in-kind note
("PIK") having the same maturity date and conditions as the original instrument.
The New Senior Notes also provide for mandatory semi-annual amortization
payments of $8.33 million, commencing with the first semi-annual payment during
the fourth year after the Effective Date of the Plan.
For purposes of the original issue discount ("OID") rules, the
issuer's right to pay interest by issuing PIK instruments is not considered to
be a payment on the original debt instrument, but is instead, aggregated with
the original debt instrument, i.e. the issue date of a PIK instrument is the
same as the original debt instrument, and is treated as the deferral of cash
interest on the original debt instrument. Because the Debtors have the
unconditional right to
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issue a PIK instrument in lieu of the payment of cash interest on the New Senior
Notes, none of the interest whether or not actually paid in cash will be
considered to be "qualified stated interest" and the New Senior Notes will be
issued with OID.
In addition, in the event that the New Senior Notes are publicly
traded and their fair market value as of their issue date is less than their
face amount, they will be deemed to have been issued with additional OID equal
to such difference. Conversely, if the fair market value of the New Senior Notes
on their issue date is in excess of their face amount, the amount of OID will be
reduced by such excess.
Because the interest yield to maturity on the New Senior Notes will be
lower if the Debtors pay cash interest at 10 percent, as opposed to issuing a
PIK instrument at 13.5 percent, they will be considered to have paid cash
interest for purposes of calculating OID. Therefore, OID at the 10 percent rate
accrues during the first accrual period. If the PIK instrument is instead
issued, the debt instrument (i.e., the New Senior Note) is considered reissued
at its adjusted issue price. (i.e. its original issue price plus prior accruals
of OID, less payments if any), and OID will accrue in the second accrual period
again based on the assumption that cash interest will be paid.
For example, a holder of a New Senior Note with a stated principal
amount and issue price of $1,000 will accrue $50 of OID during the first six
month interest accrual period. If at that time, a PIK instrument (for $67.50) is
issued in lieu of cash interest, a holder will accrue $55.08 of OID during the
second six month accrual period, consisting of $53.38,
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calculated as if cash interest at 10 percent would be paid, and $1.70,
representing the amortization, on a constant yield basis, of the excess of the
principal amount of the instrument ($1,067.50) over its adjusted issue price
($1,050).
OID, in general, will be includible in a holder's taxable income and
deductible by the issuer in accordance with a constant yield method based on a
compounding of interest.
3. NOL Carryovers and Other Tax Attributes
---------------------------------------
Parent is the parent of an affiliated group of corporations, including
Publishing and Video which file a consolidated federal income tax return (the
"Debtor Group"). The Debtor Group's net operating loss ("NOL") carryovers for
regular federal income tax purposes, as of December 26, 1998, were approximately
$305 million. Although the Debtors believe that the amount of NOLs to be
accurate, because the Debtor Group's tax returns for all of the tax years in
which the NOLs were incurred have not been audited by the IRS, that amount may
be subject to review and possible disallowance by the IRS.
Section 382 of the Code provides rules restricting the use of a
corporation's NOL carryovers and certain other tax attributes following an
"ownership change." A corporation will be considered as undergoing an ownership
change if at any time during a rolling three-year period (the "testing period")
the percentage of stock owned by one or more five-percent shareholders or deemed
five-percent shareholders (as defined under technical rules under Section 382)
increases by more than 50 percentage points over the lowest percentage of stock
owned by each of such shareholders during the testing period. In the case of an
affiliated group
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filing consolidated returns, whether an ownership change has occurred is
measured, in general, with respect to the stock ownership of the parent
corporation of the loss group or loss subgroup.
If an ownership change occurs pursuant to the consummation of a
bankruptcy debt restructuring and Section 382(1)(5) (as described below) does
not apply, the NOLs available each year to offset income of the loss
corporation's group is limited (to the extent not previously limited) to the
product of (a) the aggregate fair market value (after taking into account any
increase in value as a result of such bankruptcy restructuring) of the
outstanding stock of the common parent of the group, and (b) the federal
long-term tax-exempt interest rate in effect on the date of the ownership
change, plus the portion of any such limitation amount not utilized in prior
years (the "Section 382 limitation"). (If an ownership change occurs prior to,
and not as a result of the consummation of a bankruptcy debt restructuring, the
aggregate fair market value of the common stock referred to in clause (a) of the
preceding sentence is the stock's value before the ownership change, whether or
not the ownership change occurs while the loss corporation is under the
jurisdiction of the bankruptcy court). If the group ceases the conduct of its
historic business within the two-year period following the date of the ownership
change, the ability of the group to utilize NOLs under the foregoing formula
restriction is eliminated entirely.
In addition, NOL carryovers may be used without restriction during a
five-year period (the "recognition period"), beginning with the date of an
ownership change, to offset "built-in gains" (generally the excess of the fair
market value of the assets of the corporation over their adjusted tax basis --
in the case of an affiliated consolidated group, built-in gains or
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losses are computed on a group basis taking into account each member's assets
but disregarding stock owned by a member in any other member corporation)
existing at the time of the ownership change and recognized during the
recognition period, up to the amount of the net built-in gain on the date of the
ownership change, provided that on the date of the ownership change the amount
of net built-in gain with respect to the assets of the corporation (excluding
cash, cash equivalents and certain other assets) exceeds the lesser of
$10,000,000 or 15% of the fair market value of such assets. (Conversely, if a
corporation has a net unrealized built-in loss exceeding the threshold amount,
any portion of such net unrealized built-in loss recognized during the
recognition period is subject to the Section 382 limitation).
The Debtor Group believes that it has not undergone an "ownership
change" as of the date hereof and that it will undergo an "ownership change" as
a result of the implementation of the Plan. There can be no assurance that the
Debtor Group will not undergo an ownership change prior to the implementation of
the Plan.
Unless a debtor elects for it not to apply, Section 382(1)(5) of the
Code provides that in the case of a debtor under the jurisdiction of a
bankruptcy court in a Title 11 case, assuming no prior ownership change, the
annual formula limitations imposed by Section 382 of the Code (as discussed
above) will not apply to any ownership change resulting from such a proceeding
if qualifying creditors and shareholders (determined immediately before such
ownership change) own, after such ownership change as a result of being
shareholders or creditors immediately before such change, 50 percent or more of
the stock of the loss corporation (or stock of a corporation controlling the
loss corporation, if such controlling
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corporation is also in bankruptcy). "Qualifying creditors" are persons that were
creditors as of a date eighteen months before filing of the petition under Title
11 or persons whose claims arose in the ordinary course of the trade or business
of the loss corporation and in each case the debt was at all times beneficially
owned by such persons. Any debt owned immediately before an ownership change by
a creditor who does not become a direct or indirect 5% shareholder of the
reorganized debtor generally will be treated as always having been owned by such
creditor, except in the case of any creditor whose participation in formulating
the plan of reorganization makes evident to the debtor that such creditor has
not owned the debt for the requisite period.
A cost of applying Section 382(1)(5) of the Code is that NOL
carryovers must be reduced by any deduction of interest claimed by the loss
corporation, with respect to any indebtedness converted into stock, for any
taxable year ending during the three-year period preceding the taxable year of
the ownership change and the portion of the year of the ownership change prior
to the date of the ownership change. Any NOL reduction arising from the
application of Section 382(1)(5) will not again be taken into account in
computing the amount of COD Income realized by the Debtors.
In addition, if Section 382(1)(5) is applicable and is applied, a
second ownership change within two years will result in Section 382(1)(5) being
inapplicable retroactively, and the Debtors' Section 382 limitation for the
second ownership change will be zero.
As of the date hereof, the Debtors have not determined whether they
will satisfy the "qualifying creditors and shareholders" requirement with
respect to the application of
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Section 382(1)(5), as described above. Prior to the implementation of the Plan,
the Debtors will determine whether it satisfies such requirement and, if so,
whether it will be preferable to choose to apply the approach incorporated in
Section 382(1)(5).
If an ownership change occurs on the Effective Date and Section
382(1)(5) is not applied, the NOL carryovers available each year to offset
income would, in general, then be limited under Section 382(1)(6) of the Code,
assuming no prior ownership change, to the product of (i) the fair market value
of the Debtors' common stock immediately after the ownership change and (ii) the
federal long-term tax-exempt interest rate in effect on the date of the
ownership change (currently approximately 5 percent), plus the portion of any
such limitation amount not utilized in prior years.
4. Alternative Minimum Tax
-----------------------
In general, an "alternative minimum tax" ("AMT") is imposed on a
corporation's "alternative minimum taxable income" at a rate of 20% to the
extent such tax exceeds the corporation's regular federal income tax. In
computing taxable income for AMT purposes, certain tax deductions and other
beneficial allowances are modified or eliminated. In particular, even though a
corporation might be able to offset all of its taxable income for regular
federal income tax purposes by available NOL carryovers, only 90% of a
corporation's taxable income for AMT purposes may be offset by available NOL
carryovers (as recomputed for AMT purposes), resulting in an effective AMT of
2%.
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Any AMT that a corporation pays generally will be allowed as a
nonrefundable credit against its regular federal income tax liability in future
taxable years when the corporation is no longer subject to the AMT.
B. Federal Income Tax Consequences to Holders of Old Senior Notes, TOPrS
Certificates, GPH Notes, Old Preferred Stock Interests and Old Common
Stock Interests
1. Overview
--------
Pursuant to the Plan, holders of (a) TOPrS Certificates with a
principal amount of $110 million (joint debt obligations of Parent and
Publishing) will receive 50% of New Parent Common Stock; (b) the GPH loan with a
principal amount of $10 million, (a debt obligation of Video) will receive 5% of
New Parent Common Stock; (c) Old Senior Notes (debt obligations of Publishing)
will receive New Senior Notes of Publishing with a principal amount of $87
million and 42.5% of New Parent Common Stock. As discussed below, the Debtors
believe that for federal income tax purposes the TOPrS Certificates and the Old
Senior Notes constitute "securities" but that the GPH loan and New Senior Notes
will not constitute "securities".
The term "security" is not defined in the Code or in the regulations
issued thereunder and has not been clearly defined by judicial decisions. The
determination of whether a particular debt constitutes a "security" depends upon
an overall evaluation of the nature of the debt. One of the most significant
factors considered in determining whether a particular debt is a security is its
original term. In general, debt obligations issued with a weighted average
maturity at issuance of less than five years (e.g., trade debt and revolving
credit obligations) or
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which are secured do not constitute securities, whereas debt obligations with a
weighted average maturity at issuance of 10 years or more constitute securities.
The status of debt instruments with a weighted average maturity of five years or
more but less than ten years is unclear. Because the New Senior Notes are
secured obligations of Publishing and the mandatory semi-annual amortization
payments to be made on the New Senior Notes may reduce their weighted average
maturity to less than five years, for example, if only cash interest is paid on
the New Senior Notes, the Debtors believe that the New Senior Notes do not
constitute a security.
The Debtors intend to take the position that the exchanges
contemplated by the Plan, as described above, will be treated for federal income
tax purposes as transfers of property (the securities evidenced by the TOPrS
Certificates, a portion of the Old Senior Notes and the debt obligation
evidenced by the GPH loan) to Reorganized Parent in exchange for New Parent
Common Stock in an exchange governed by Section 351 of the Code. (In the case of
the TOPrS Certificate holders, because the TOPrS Certificates are also
obligations of Parent, the exchange may also be treated as a reorganization
i.e., a recapitalization governed by Section 368(a)(1)(E) of the Code.) As more
fully discussed below, a holder's exchange of Old Senior Notes for New Senior
Notes of Reorganized Publishing will be a taxable exchange in which such holder
will recognize gain or loss.
2. Old Senior Notes
----------------
Pursuant to the Plan, holders of Old Senior Notes will exchange a
portion of such notes for New Senior Notes of Reorganized Publishing and will
exchange the remainder of their
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Old Senior Notes for New Parent Common Stock. Although the method for allocating
the portion of Old Senior Notes exchanged for New Senior Notes and the portion
of Old Senior Notes exchanged for New Parent Common Stock is not entirely clear,
the Debtors believe that the determination of the portion of Old Senior Notes
exchanged for each category of consideration received, i.e., New Senior Notes
and New Parent Common Stock should be based on the fair market value of the
stock and issue price of the notes. For example (not taking accrued interest
into account), if $1,000 principal amount of Old Senior Notes are exchanged for
$600 (issue price) of New Senior Notes and $200 (fair market value) of New
Parent Common Stock, approximately $750 principal amount of Old Senior Notes
will be treated as exchanged for $600 (issue price) of New Senior Notes and
approximately $250 principal amount of Old Senior Notes will be treated as
exchanged for $200 (fair market value) New Parent Common Stock.
As discussed above, the Debtors intend to take the position that the
exchange of Old Senior Notes for New Common Stock will be treated as a transfer
of property in an exchange governed by Section 351 of the Code. Assuming the
exchange is governed by Section 351 of the Code, each holder of an Old Senior
Note who exchanges a portion of such Note for New Parent Common Stock (other
than in payment of accrued interest, See "Accrued Interest" below) will not
recognize gain or loss upon such exchange. A holder's tax basis in the New
Parent Common Stock received will equal its basis in the Old Senior Notes
exchanged therefor, determined as discussed above. A holder's holding period for
the New Parent Common Stock received will include the holder's holding period
for the Old Senior Notes. If the exchange were
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not governed by Section 351 of the Code, the exchange would be taxable and each
holder would recognize gain or loss accordingly.
Because the Debtors believe that the New Senior Notes will not be
classified as "securities", the exchange of a portion of the Old Senior Notes
(determined as discussed above) for New Senior Notes will be taxable. A holder
will be required to recognize gain or loss equal to the difference between (i)
the holder's adjusted tax basis in the Old Senior Notes exchanged, and (ii) the
issue price of the New Senior Notes received. The character of any gain or loss
as long-term or short-term capital gain or loss or as ordinary income or loss
will be determined by a number of factors, including the tax status of the
holder, whether the Old Senior Notes constitute a capital asset in the hands of
the holder, whether the Old Senior Notes have been held for more than one year,
and whether the Old Senior Notes were purchased after they had been issued at a
discount. Holders will be subject to limitations on their ability to offset
capital losses against ordinary income. Holders who are individuals, did not
purchase the Old Senior Notes at a discount and who have held the Old Senior
Notes as a capital asset for more than 12 months at the time of the exchange,
are entitled to a preferential tax rate of 20% on long-term capital gains.
A holder's tax basis in New Senior Notes received in exchange for Old
Senior Notes will equal the issue price of the New Senior Notes. The holding
period for the New Senior Notes will begin on the day following their issuance.
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3. TOPrS Certificates
------------------
In general, each holder of a TOPrS Certificate who exchanges such
instrument for New Parent Common Stock (other than in payment for accrued
interest, See "Accrued Interest" below) will not recognize gain or loss upon
such exchange. A holder's tax basis in the New Parent Common Stock received will
equal its basis in the TOPrS Certificates exchanged therefor and its holding
period will include the period in which the TOPrS Certificates were held.
4. GPH Notes
---------
In general, under Section 351 of the Code, the holder of the GPH loan
who exchanges such instrument for New Parent Common Stock (other than in payment
for accrued interest, See "Accrued Interest" below) will not recognize gain or
loss upon such exchange. A holder's tax basis in the New Parent Common Stock
received will equal its basis in the GPH loan exchanged therefor and its holding
period will include the period in which the GPH loan was held.
5. Old Preferred Stock Interests and Old Common Stock Interests
------------------------------------------------------------
Holders of Old Preferred Stock Interests and Old Common Stock
Interests will receive New Warrants (with the terms described in Section IV.D.2
hereof) in exchange for such Interests. A Holder will recognize gain or loss
measured by the difference between its basis in the shares exchanged and the
fair market value of the New Warrants received. The character of
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such gain or loss, as long-term or short-term capital gain or loss, or as
ordinary income or loss will be determined by a number of factors as discussed
above -- See "Old Senior Notes" above, including the tax status of the holder
and whether the claim constitutes a capital asset in the hands of the holder.
6. Accrued Interest
----------------
To the extent New Senior Notes and/or New Parent Common Stock are
received by holders of Old Senior Notes, TOPrS Certificates or the GPH Notes in
discharge of a claim for accrued interest, such property in an amount equal to
the issue price of the New Senior Notes and the fair market value of the New
Parent Common Stock received will be taxable to the holder as interest income
(if not previously included in the holder's gross income). A holder's basis in
such property will be equal to the amount of interest income received, and the
holder's holding period will begin on the day after the Effective Date of the
Plan. The Debtors intend to take the position that property distributed pursuant
to the Plan will first be allocable to principal. Each holder should consult its
own tax advisor concerning the allocation of amounts received pursuant to the
Plan to interest.
7. Interest and Original Issue Discount
------------------------------------
The New Senior Notes will be issued with OID. In general, as discussed
above, the excess of the stated redemption price at maturity of a New Senior
Note over its issue price will constitute OID. The stated redemption price at
maturity of a New Senior Note is the sum of all scheduled amounts payable,
including interest (because interest payable in cash or in kind at
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the option of the issuer is not qualified stated interest). OID, is in general,
includible in a holder's federal taxable income in accordance with a constant
yield method based on a compounding of interest.
At the election of the Debtors, PIK interest, of 13.5 percent per year
during the first three years in lieu of 10 percent cash interest, may be paid on
the New Senior Notes. The possible exercise of such election and/or additional
OID that may result if the New Senior Notes are "publicly traded" and initially
trade at a discount to their stated principal amount may result in a holder
being required to include OID in gross income in advance of the receipt of cash
interest payments.
Each cash payment on a New Senior Note, including cash payments of
stated interest and the semi-annual $8.33 million amortization payments
scheduled to commence in the fourth year of the New Senior Notes, will be
treated as a payment of OID to the extent that OID has accrued as of the date
such payment is due (and has not been paid), and any excess will be treated as a
payment of principal.
8. Market Discount and Bond Premium. A holder of an Old Senior
Note or TOPrS Certificate may have acquired such instrument at a "market
discount", (i.e., a price below its stated redemption price at maturity or, with
respect to an OID instrument, its adjusted issue price) or at a bond or
acquisition "premium" (i.e. a price above its stated redemption price at
maturity or, with respect to an OID instrument, its adjusted issue price).
Generally, accrued market discount is treated as ordinary income to the extent
of any gain recognized upon a
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taxable disposition of the Old Senior Notes or TOPrS Certificates. In a
non-taxable exchange, accrued market discount is carried forward to the stock
and/or securities received in the exchange and with respect to any bond received
in the exchange treated as accrued market discount attributable to such bond,
and with respect to any stock received will be treated as ordinary income to the
extent of gain recognized on a subsequent taxable disposition of such stock. In
a reorganization, bond premium is generally carried forward to the debt
instrument received in the exchange. Bond premium is generally an offset to
interest income and will reduce the holder's basis in the obligation by the
amount amortized.
In addition, Section 108(e)(7) of the Code provides that a creditor
that receives stock in exchange for debt, is required to the extent that gain is
recognized upon a subsequent disposition of such stock, to "recapture" as
ordinary income any bad debt deductions taken by the creditor with respect to
such debt and any ordinary loss claimed by the creditor upon the receipt of the
stock in satisfaction of such debt, reduced by any amount included in income
upon the receipt of the stock.
9. Information Reporting and Backup Withholding
--------------------------------------------
The Debtor Group will be required to file information returns with the
IRS with respect to payments made to certain holders of the Old Senior Notes,
TOPrS Certificates, GPH Notes and Old Preferred Stock Interests and Old Common
Stock Interests as a result of distributions pursuant to the Plan. In addition,
certain holders may be subject to a 31% backup withholding tax in respect of
certain payments, e.g., interest, if they do not provide their
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taxpayer identification numbers. Amounts withheld under the backup withholding
rules are allowed as a refund or credit against holders' United States federal
income tax liability.
THE FOREGOING SUMMARY HAS BEEN PROVIDED FOR INFORMATIONAL PURPOSES
ONLY AND IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING WITH A TAX PROFESSIONAL.
ALL CREDITORS ARE STRONGLY URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES OF THE PLAN.
VIII.
RISK FACTORS
HOLDERS OF OLD SENIOR NOTES, TOPrS CERTIFICATES, GPH NOTES, HOLDERS OF
EQUITY INTERESTS AND ALL OTHER IMPAIRED CREDITORS SHOULD READ AND CONSIDER
CAREFULLY THE FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION SET
FORTH IN THIS DISCLOSURE STATEMENT (AND THE DOCUMENTS DELIVERED TOGETHER
HEREWITH AND/OR INCORPORATED BY REFERENCE HEREIN), PRIOR TO VOTING TO ACCEPT OR
REJECT THE PLAN.
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A. Leverage
Although the Plan will restructure a significant amount of the
Debtors' indebtedness, the Reorganized Debtors will remain leveraged. The degree
to which the Reorganized Debtors are leveraged could have important
consequences, including the following: (i) the Reorganized Debtors' ability to
obtain additional financing in the future for working capital, capital
expenditures, product development, acquisitions, general corporate purposes or
other purposes may be impaired, (ii) a substantial portion of the Reorganized
Debtors' cash flow from operations could be dedicated to the payment of the
principal of and interest on its indebtedness, and (iii) the Reorganized
Debtors' degree of leverage may make it more vulnerable to economic downturns
and may limit its ability to withstand competitive pressures.
B. Dependence on Key Personnel
The Debtors are dependent on the continued services of certain senior
executives, including Richard E. Snyder, Chairman of the Board and Chief
Executive Officer of Parent; Philip Galanes, Executive Vice President, Chief
Administrative Officer, General Counsel and Secretary of Parent; Colin
Finkelstein, Executive Vice President and Chief Financial Officer of Parent; and
Richard Collins, Executive Vice President and Chief Operating Officer of Parent.
The Debtors believe the loss of the services of one or more of these individuals
could have a material adverse effect on the Reorganized Debtors.
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C. Dependence on and Relationships with Key Customers and Licensors
The loss of the sales to any of the Debtors' largest customers would
cause a substantial decrease in business and would have a material adverse
effect on the Debtors. Additionally, the Debtors believe that the variety and
popularity of characters (whether licensed or owned) is among the most important
factors that differentiate their products from those of their competitors. The
loss of any principal licenses would have a material adverse effect on the
Debtors. In addition, the loss of a significant license by the Debtors would
impair their distribution capabilities which, in turn, could adversely affect
its ability to obtain new licenses and to renew existing licenses on favorable
terms, if at all.
The Debtors' relationships with a number of their significant
customers and licensors have been contentious from time to time because of
disputes, in the case of their customers, relating to prior pricing, return and
merchandising policies and, in the case of its licensors, alleged non-compliance
by the Debtors with certain license terms. While management has taken steps to
repair these relationships, there can be no assurance that such relationships,
or other relationships with customers and/or licensors, will not again become
contentious in the future, which could have a material adverse effect on the
Debtors.
D. Competitive Conditions
The children's publishing market is highly competitive. Competition is
based primarily on price, quality, distribution, marketing and licenses. In mass
market sales, the Debtors face competition primarily from smaller competitors.
In the trade and speciality trade
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categories, Golden Books' principal competitors are large publishing companies.
Golden Books also competes for a share of consumer spending on children's
entertainment and educational products against companies that market a broad
range of products utilizing a broad range of technologies that are unrelated to
those marketed by Golden Books.
The market for licenses also is highly competitive and Golden Books
competes against many other licensees for significant licenses. In recent years,
licensors have fragmented licenses, which has reduced the cost of purchasing a
license. As a result, smaller bidders have been able to enter the market for
licenses, which has resulted in increased competition in this market. Many of
Golden Books' significant competitors have greater financial resources than
Golden Books and, in selected markets, greater experience than Golden Books.
E. Risks Relating to Intellectual Properties
The value of the materials in Golden Books' library, both to Golden
Books as a licensor and as an end user, is subject to consumer taste. There can
be no assurance that these properties will be attractive to third-party
licensees or that they will be suitable for inclusion in Golden Books' products.
If properties that are being exploited cease to be attractive to third-party
licensees, licensing revenue from such licenses will decrease.
In view of the complex nature of Golden Books' intellectual property
rights, there is a risk of third-parties asserting claims of ownership or
infringement or asserting a right to payment with respect to the exploitation of
such properties. There can be no assurance that Golden Books would prevail in
any such claim. In addition, Golden Books' ability to
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demonstrate, maintain or enforce these rights may be difficult. Impairment or
difficulty in demonstrating the Golden Books' ownership or license rights in
such properties could adversely affect the ability of Golden Books to generate
revenue from or use such properties. In many cases, the rights owned or being
acquired by Golden Books are limited in scope, do not extend to exploitation in
all present or future media or in perpetuity and may not include the right to
create derivative works, such as merchandising and character rights, remakes or
sequels.
F. Projected Financial Information
The Debtors failed to operate profitably for several years preceding
the Chapter 11 filing. The financial projections annexed as Exhibit "E" to this
Disclosure Statement are dependent upon the successful implementation of the
business plan and the validity of the other assumptions contained therein. These
projections reflect numerous assumptions, including Confirmation and
consummation of the Plan in accordance with its terms, the anticipated future
performance of the Debtors, industry performance, certain assumptions with
respect to competitors of the Debtors, general business and economic conditions,
and other matters, many of which are beyond the control of the Debtors. In
addition, unanticipated events and circumstances occurring subsequent to the
preparation of the projections may affect the actual financial results of the
Debtors. Although the Debtors believe that the projections are reasonably
attainable, variations between the actual financial results and those projected
may occur and be material.
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G. Lack of Market for Securities Issued Pursuant to Plan
There is no currently existing market for the New Senior Notes, New
Parent Common Stock or New Warrants and there can be no assurance that an active
trading market will develop or as to the degree of price volatility in any such
particular market. Accordingly, no assurance can be given that a holder of
securities issued pursuant to the Plan will be able to sell such securities in
the future or as to the price at which any such sale may occur. If such market
were to exist, the liquidity of the market for such securities and the prices at
which such securities will trade will depend upon many factors, including the
number of holders, investor expectations for the Debtors, and other factors
beyond the Debtors' control.
H. Certain Bankruptcy Related Considerations
1. Risk of Non-Confirmation of the Plan
------------------------------------
Although the Debtors believes that the Plan will satisfy all
requirements necessary for Confirmation by the Bankruptcy Court, there can be no
assurance that the Bankruptcy Court will reach the same conclusion. There can
also be no assurance that modifications of the Plan will not be required for
Confirmation, that such negotiations would not adversely affect the holders of
the Old Senior Notes, TOPrS Certificates, GPH Notes, or Equity Interests or that
such modifications would not necessitate the resolicitation of votes.
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2. Nonconsensual Confirmation
--------------------------
In the event any impaired class of claims or equity interests does not
accept a plan of reorganization, a bankruptcy court may nevertheless confirm
such plan of reorganization at the proponent's request if at least one impaired
class has accepted the plan of reorganization (with such acceptance being
determined without including the acceptance of any "insider" in such class) and,
as to each impaired class which has not accepted the plan of reorganization, the
bankruptcy court determines that the plan of reorganization "does not
discriminate unfairly" and is "fair and equitable" with respect to non-accepting
impaired classes. In the event that any impaired Class of Claims or Equity
Interests fails to accept the Plan in accordance with Section 1129(a)(8) of the
Bankruptcy Code, the Debtors reserve the right to request nonconsensual
Confirmation of the Plan in accordance with Section 1129(b) of the Bankruptcy
Code. (See Section IV.F.12. of the Disclosure Statement).
I. Dividends
The Debtors presently intend to retain earnings, if any, for working
capital and to fund capital expenditures. Accordingly, there is no present
intention to pay Cash dividends on any shares of New Parent Common Stock.
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IX.
EXEMPTIONS FROM SECURITIES ACT
REGISTRATION; REGISTRATION RIGHTS
The Plan contemplates the issuance of certain securities to holders of
Allowed Claims and Allowed Equity Interests. Section 1145 of the Bankruptcy Code
creates certain exemptions from the registration and licensing requirements of
federal and state securities laws with respect to the issuance and distribution
of securities by a debtor under a plan of reorganization to holders of claims or
interests wholly or principally in exchange for those claims or interests.
A. Issuance of New Securities Pursuant to the Plan
With respect to the New Senior Notes, New Parent Common Stock and New
Warrants to be issued on the Effective Date, the Debtors intend to rely upon the
exemption from the registration requirements of the Securities Act (and the
equivalent state securities or "blue sky" laws) provided by Section 1145(a)(1)
of the Bankruptcy Code. Generally, Section 1145(a)(1) of the Bankruptcy Code
exempts the issuance of securities from the requirements of the Securities Act
and the equivalent state securities and "blue sky" laws if the following
conditions are satisfied (i) the securities are issued by a debtor, an affiliate
participating in a joint plan of reorganization with the debtor, or a successor
of the debtor under a plan of reorganization, (ii) the recipients of the
securities hold a claim against, an interest in, or a claim for an
administrative expense against, the debtor, and (iii) the securities are issued
entirely in
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exchange for the recipient's claim against or interest in the debtor, or are
issued "principally" in such exchange and "partly" for Cash or property. The
Debtors believe that the issuance of securities contemplated by the Plan will
satisfy the aforementioned requirements and therefore is exempt from federal and
state securities law, although as discussed in Section B below, under certain
circumstances, subsequent transfers of such securities may be subject to
registration requirements under such securities laws.
B. Subsequent Transfer of Securities Issued Under the Plan
The securities issued pursuant to the Plan may be resold by the
holders thereof without restriction unless, as more fully described below, any
such holder is deemed to be an "underwriter" with respect to such securities, as
defined in Section 1145(b)(1) of the Bankruptcy Code. Generally, Section
1145(b)(1) of the Bankruptcy Code defines an "underwriter" as any person who (1)
purchases a claim against, or interest in, a bankruptcy case, with a view
towards the distribution of any security to be received in exchange for such
claim or interest, (2) offers to sell securities issued under a bankruptcy plan
on behalf of the holders of such securities, (3) offers to buy securities issued
under a bankruptcy plan from persons receiving such securities, if the offer to
buy is made with a view towards distribution of such securities, or (4) is an
issuer as contemplated by Section 2(11) of the Securities Act. Although the
definition of the term "issuer" appears in Section 2(4) of the Securities Act,
the reference (contained in Section 1145(b)(1)(D) of the Bankruptcy Code) to
Section 2(11) of the Securities Act purports to include as "underwriters" all
persons who, directly or indirectly, through one or more intermediaries,
control, are controlled by, or are under common control with, an issuer of
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securities. "Control" (as such term is defined in Rule 405 of Regulation C under
the Securities Act) means the possession, direct or indirect, of the power to
direct or cause the direction of the policies of a person, whether through the
ownership of voting securities, by contract or otherwise. Accordingly, an
officer or director of a reorganized debtor (or its successor) under a plan of
reorganization may be deemed to be a "control person," particularly if such
management position is coupled with the ownership of a significant percentage of
the debtor's (or successor's) voting securities. Moreover, the legislative
history of Section 1145 of the Bankruptcy Code suggests that a creditor who owns
at least 10% of the voting securities of a reorganized debtor may be presumed to
be a "control person."
C. Registration Rights
As discussed above, although upon their issuance pursuant to Section
1145(a)(1) of the Bankruptcy Code the New Senior Notes, New Warrants and shares
of New Parent Common Stock may generally be resold by the holders thereof
without registration under the Securities Act (or under equivalent state
securities or "blue sky" laws), a holder may be unable to resell his or its
securities if such holder is deemed to be (a) an "underwriter" within the
meaning of Section 1145(b)(1) of the Bankruptcy Code, or (b) an "affiliate" or
"control person" of the Debtors within the meaning of the Securities Act. In
order to enable holders of New Parent Common Stock, New Warrants and New Senior
Notes to sell their securities without restriction (and to obviate the need to
satisfy the requirements relating to applicable exemptions from federal and
state securities law registration), the Debtors have agreed to provide certain
holders of New Parent Common Stock, New Warrants and New Senior Notes with
certain
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registration rights under an agreement which will be entered into among such
holders and the Reorganized Debtors on and after the Effective Date.
THE FOREGOING SUMMARY DISCUSSION IS GENERAL IN NATURE AND HAS BEEN
INCLUDED IN THIS DISCLOSURE STATEMENT SOLELY FOR INFORMATIONAL PURPOSES. THE
DEBTORS MAKE NO REPRESENTATIONS CONCERNING, AND DO NOT HEREBY PROVIDE ANY
OPINION OR ADVICE WITH RESPECT TO, THE SECURITIES LAW AND BANKRUPTCY LAW MATTERS
DESCRIBED ABOVE. IN LIGHT OF THE COMPLEX AND SUBJECTIVE INTERPRETIVE NATURE OF
WHETHER A PARTICULAR RECIPIENT OF SECURITIES UNDER THE PLAN MAY BE DEEMED TO BE
AN "UNDERWRITER" WITHIN THE MEANING OF SECTION 1145(b)(1) OF THE BANKRUPTCY CODE
AND/OR AN "AFFILIATE" OR "CONTROL PERSON" UNDER APPLICABLE FEDERAL AND STATE
SECURITIES LAWS AND, CONSEQUENTLY, THE UNCERTAINTY CONCERNING THE AVAILABILITY
OF EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND
EQUIVALENT STATE SECURITIES AND "BLUE SKY" LAWS, GOLDEN BOOKS ENCOURAGES
POTENTIAL RECIPIENTS OF NEW SENIOR NOTES, NEW WARRANTS AND NEW PARENT COMMON
STOCK TO CONSIDER CAREFULLY AND CONSULT WITH HIS, HER, OR ITS OWN LEGAL
ADVISOR(S) WITH RESPECT TO SUCH (AND ANY RELATED) MATTERS.
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X.
ALTERNATIVES TO THE PLAN AND CONSEQUENCES OF REJECTION
Among the possible consequences if the Plan is rejected or if the
Bankruptcy Court refuses to confirm the Plan are the following: (1) an
alternative plan could be proposed or confirmed; or (2) the Chapter 11 Cases
could be converted to liquidation cases under Chapter 7 of the Bankruptcy Code.
A. Alternative Plans
As previously mentioned, with respect to an alternative plan, the
Debtors and their professional advisors have explored various alternative
scenarios and believe that the Plan enables holders of Claims and Equity
Interests to realize the maximum recovery under the circumstances. The Debtors
believe the Plan is the best plan that can be proposed and serves the best
interests of the Debtors and other parties-in-interest.
B. Chapter 7 Liquidation
For a discussion of a Chapter 7 liquidation, see Section V(B)(2) above
entitled "Acceptance and Confirmation of the Plan -- Confirmation -- Statutory
Requirement for Confirmation of the Plan."
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XI.
RECOMMENDATION AND CONCLUSION
The Debtors, the Informal Senior Note Committee and the Informal TOPrS
Committee, and their respective professional advisors, have analyzed different
scenarios and believe that the Plan will provide for a larger distribution to
holders of Claims and Equity Interests than would otherwise result if an
alternative restructuring plan were proposed or the assets of the Debtors were
liquidated. In addition, any alternative other than Confirmation of the Plan
could result in extensive delays and increased administrative expenses resulting
in potentially smaller distributions to the holders of Claims and Equity
Interests. Accordingly, the Debtors, the Informal Senior Note Committee and the
Informal TOPrS Committee recommend confirmation of the Plan and urge all holders
of impaired Claims and Equity Interests to vote to accept the Plan, and to
evidence such acceptance by returning their Ballots so that they will be
received by no later than the Voting Deadline.
152
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Date: New York, New York
May 13, 1999
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.,
(for itself and on behalf of each of the above-
captioned Debtors and Debtors-in-Possession)
By: /s/ Richard E. Snyder
---------------------------------------------
Richard E. Snyder
Chairman of the Board and Chief Executive Officer
PROSKAUER ROSE LLP
Counsel to the Debtors and
Debtors-in-Possession
By: /s/ Alan B. Hyman
--------------------------
Alan B. Hyman (AH-6655)
A Member of the Firm
1585 Broadway
New York, New York 10036
(212) 969-3000
153
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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...................................13
1. Who May Vote....................................................14
2. Voting Instructions.............................................15
3. Acceptance or Rejection of the Plan.............................17
4. Confirmation Hearing............................................17
5. Objections......................................................18
II. BACKGROUND AND EVENTS PRECIPITATING
CHAPTER 11 FILING AND SOLICITATION......................................19
A. Overview of the Debtors and their Business Operations................19
1. Children's Publishing Division..................................20
2. Adult Publishing Division.......................................21
3. Entertainment Group Division....................................21
4. Commercial Printing Division....................................22
B. Pre-Petition Debt Structure of the Debtors...........................22
1. Pre-Petition Working Capital Facility...........................23
2. The Old Senior Notes............................................24
3. GPH Claims......................................................25
4. TOPrS Certificates..............................................26
C. Pre-Petition Capital Structure.......................................27
D. Events Precipitating Chapter 11 Filing...............................28
E. Pre-Petition Asset Disposition and Expense Reduction Efforts.........34
III. SIGNIFICANT POST-PETITION EVENTS.........................................35
A. Commencement Of Chapter 11 Cases.....................................35
B. First Day Orders.....................................................35
C. Professional Retentions..............................................36
D. Post-Petition Financing..............................................36
E. Sale of Assets of the Adult Publishing Division......................38
F. Extension of Time to Assume or Reject Leases.........................38
G. Claims Process and Bar Date..........................................39
1. Schedules and Statements........................................39
2. Bar Date Order..................................................39
IV. OVERVIEW OF THE PLAN.....................................................40
A. General..............................................................40
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B. Classification of Claims and Equity Interests........................41
C. Treatment of Claims and Equity Interests Under the Plan..............43
1. Unclassified Categories of Claims...............................44
a. Category 1 -- Administrative Expense Claims..................44
b. Category 2 -- Priority Tax Claims............................46
2. Unimpaired Classes of Claims....................................47
a. Class 1-- Priority Claims....................................47
b. Class 2-- General Secured Claims.............................48
c. Class 6-- General Unsecured Claims...........................49
d. Class 11-- Subsidiary Equity Interests.......................50
3. Impaired Classes................................................50
a. Class 3-- Old Senior Note Claims.............................51
b. Class 4-- GPH Claims.........................................54
c. Class 5-- TOPrS Claims.......................................55
d. Class 7-- Debt Securities Rescission or Damage Claims........56
e. Class 8-- Old Preferred Stock Interests......................57
f. Class 9-- Old Common Stock Interests.........................57
g. Class 10-- Equity Interest Rescission or Damage Claims
.............................................58
D. Description of Transactions to Be Implemented in Connection
with the Plan........................................................59
1. New Senior Notes................................................59
2. New Warrants....................................................59
3. Reorganized Debtors' Charters...................................60
4. Management Stock Option Plan....................................60
a. General; Ratification.......................................60
b. Purpose.....................................................62
c. Administration..............................................62
d. Eligibility and Types of Awards.............................63
e. Available Shares............................................63
f. Awards under the Plan.......................................63
g. Change in Control...........................................67
h. Miscellaneous...............................................68
i. Amendment and Termination...................................69
j. Certain Federal Income Tax Consequences Relating to the
Management Stock Option Plan...........................70
k. Future Plan Awards..........................................77
5. Cancellation and Surrender of Existing Securities
and Agreements..................................................77
6. Employment Contracts............................................78
7. Registration Rights Agreements..................................79
8. Substantive Consolidation.......................................79
E. Funding for the Plan.................................................81
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F. Description of Other Provisions of the Plan..........................82
1. Disputed Claims................................................82
2. Disputed Payments..............................................83
3. Unclaimed Property.............................................83
4. Issuance of New Securities.....................................83
5. Discharge......................................................84
6. Termination of Subordination Rights............................85
7. Additional Releases............................................86
8. Injunctions....................................................88
9. Exculpation....................................................90
10. Section 1146 Exemption.........................................90
11. Full and Final Satisfaction....................................91
12. Cram-Down......................................................92
13. Disbursement of Funds and Delivery of Distribution.............93
14. Avoidance and Recovery Actions.................................95
15. Retention of Jurisdiction......................................95
16. Executory Contracts and Unexpired Leases.......................97
17. Bar Date for Filing Proofs of Claims Relating to Executory
Contracts and Unexpired Leases Rejected Pursuant to the Plan...98
18. Indemnification Claims.........................................98
19. Compensation and Benefit Programs..............................99
20. Retiree Benefits..............................................100
21. Post-Confirmation Fees, Final Decree..........................100
22. Continuation of Bankruptcy Injunction or Stays................101
23. Revesting of Assets...........................................101
24. General Release of Liens......................................101
25. Conditions to Effective Date of the Plan......................102
26. Consolidation and Dissolution of Non-Debtor Subsidiaries......104
G. Post-Confirmation Officers and Directors............................104
V. ACCEPTANCE AND CONFIRMATION OF THE PLAN.................................106
A. Acceptance of the Plan..............................................106
B. Confirmation........................................................107
1. Confirmation Hearing...........................................107
2. Statutory Requirements for Confirmation of the Plan............107
3. Confirmation Without Acceptance by All Impaired Classes........111
VI. VALUATION...............................................................113
A. Reorganization Value of Reorganized Debtors.........................113
B. The New Warrants....................................................114
VII. CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN.....................119
A. Federal Income Tax Consequences to the Debtors......................121
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1. Cancellation of Indebtedness Income............................121
2. Interest Expense and Original Issue Discount...................125
3. NOL Carryovers and Other Tax Attributes........................127
4. Alternative Minimum Tax........................................131
B. Federal Income Tax Consequences to Holders of Old Senior
Notes, TOPrS........................................................132
1. Overview.......................................................132
2. Old Senior Notes...............................................133
3. TOPrS Certificates.............................................136
4. GPH Notes......................................................136
5. Old Preferred Stock Interests and Old Common Stock Interests...136
6. Accrued Interest...............................................137
7. Interest and Original Issue Discount...........................137
8. Market Discount and Bond Premium...............................138
9. Information Reporting and Backup Withholding...................139
VIII.RISK FACTORS............................................................140
A. Leverage............................................................141
B. Dependence on Key Personnel.........................................141
C. Dependence on and Relationships with Key Customers and
Licensors...........................................................142
D. Competitive Conditions..............................................142
E. Risks Relating to Intellectual Properties...........................143
F. Projected Financial Information.....................................144
G. Lack of Market for Securities Issued Pursuant to Plan...............145
H. Certain Bankruptcy Related Considerations...........................145
1. Risk of Non-Confirmation of the Plan............................145
2. Nonconsensual Confirmation......................................146
I. Dividends...........................................................146
IX. EXEMPTIONS FROM SECURITIES ACT
REGISTRATION; REGISTRATION RIGHTS.......................................147
A. Issuance of New Securities Pursuant to the Plan.....................147
B. Subsequent Transfer of Securities Issued Under the Plan.............148
C. Registration Rights.................................................149
X. ALTERNATIVES TO THE PLAN AND CONSEQUENCES OF REJECTION..................151
A. Alternative Plans...................................................151
B. Chapter 7 Liquidation...............................................151
XI. RECOMMENDATION AND CONCLUSION...........................................152
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EXHIBITS
A - Amended Plan of Reorganization
B - Form 10-K for the fiscal year ended December 26, 1998
C - Restructuring Agreement
D - Liquidation Analysis
E - Pro Forma balance sheet and financial projections
F - Forms of Amendments to Certain Employment Agreements
G - Form of Management Stock Option Plan
H - Form of Reorganized Debtors' Charters
v
<PAGE>
EXHIBITS
--------
Exhibits to the Disclosure Statement have been filed with the
Bankruptcy Court under separate cover.
vi
THIS AGREEMENT IS NOT AN OFFER WITH RESPECT TO ANY SECURITIES OR SOLICITATION OF
ACCEPTANCES OF A CHAPTER 11 PLAN. SUCH OFFER OR SOLICITATION WILL BE MADE IN
COMPLIANCE WITH ALL APPLICABLE SECURITIES LAWS AND/OR PROVISIONS OF THE
BANKRUPTCY CODE.
RESTRUCTURING AGREEMENT
Restructuring Agreement (the "Agreement"), dated as of March 11, 1999, by
and among Golden Books Family Entertainment, Inc. ("Parent"), Golden Books
Publishing Company, Inc. ("Publishing"), Golden Books Home Video, Inc. ("Video"
and together with Parent and Publishing, collectively, the "Golden Books
Entities"), Richard E. Snyder ('Snyder"), Golden Press Holding, L.L.C. ("GPH"),
the undersigned members of the informal senior note committee (the "Informal
Senior Note Committee") and the members of the Informal TOPrS Committee (as
hereafter defined).
RECITALS
A. Pursuant to an Indenture dated as of September 15, 1992 (as amended, the
"Old Senior Note Indenture"), between Publishing and Marine Midland Bank (as
successor trustee to the Bank of New York), Publishing issued $150 million of
7.65% senior notes due 2002 (the "Old Senior Notes").
B. Publishing failed to pay an interest payment due on the Old Senior Notes
on September 15, 1998, following which the members of the Informal Senior Note
Committee, together with certain other holders of Old Senior Notes, formed an ad
hoc committee of holders of Old Senior Notes. The Informal Senior Note Committee
has retained Stroock & Stroock & Lavan LLP as its counsel, and Houlihan, Lokey,
Howard & Zukin, Inc. as its financial advisors.
C. Pursuant to a certain Amended and Restated Declaration of Trust dated
August 20, 1996, the Golden Books Financing Trust, a Delaware statutory business
trust (the "TOPrS Trust"), issued $118 million of 8.75% Convertible Trust
Originated Preferred Securities due 2016 (the "TOPrS"), which TOPrS represent
undivided beneficial ownership interests in the assets of the TOPrS Trust which
consist of $118 million of 8.75% Convertible Debentures due 2016 (the
"Convertible Debentures" and together with the TOPrS, collectively, the "TOPrS
Certificates") issued by Parent and Publishing on a joint and several basis.
D. In or about November 1998, the obligors under the TOPrS Certificates
deferred a scheduled interest payment on the TOPrS Certificates, following which
the holders of TOPrS Certificates listed on the signature page hereof formed an
ad hoc committee of holders of TOPrS Certificates (the "Informal TOPrS
Committee"), which committee has retained Cleary, Gottlieb, Steen & Hamilton as
its counsel and Jefferies & Co., Inc. as its financial advisors. In or
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about February 1999, the obligors under the TOPrS Certificates again deferred a
scheduled interest payment on the TOPrS Certificates.
E. As of March 11, 1999, the members of the Informal TOPrS Committee in the
aggregate hold approximately $34,085,000 of TOPrS Certificates.
F. Pursuant to that certain Note Purchase Agreement dated as of September
8, 1998, among Parent, Video, Publishing and GPH, Video obtained a $10 million
loan from GPH for which Video issued a promissory note (the "GPH Note") to GPH
in the original principal amount of the loan, which loan is asserted to be
secured by certain collateral as described more fully in the Note Purchase
Agreement. GPH also holds the right, title and interest in and to 13,000 shares
of Parent's Series B convertible Preferred Stock, no par value (the "Preferred
Stock"). (Unless otherwise stated herein, all references to GPH shall be to GPH
in its capacity both as the holder of the Video Note and the holder of the
Preferred Stock).
G. The Golden Books Entities, Snyder, the Informal Senior Note Committee,
the Informal TOPrS Committee and GPH have been engaged in negotiations
concerning, and have reached an agreement on the principal terms of, a proposed
reorganization of the outstanding indebtedness and liabilities of, and equity
interests in, the Golden Books Entities, on the terms and conditions set forth
in this Agreement.
H. It is contemplated that the reorganization plan described in this
Agreement (the "Plan") will be implemented through confirmation of a
"pre-arranged" or "pre-negotiated" reorganization for the Golden Books Entities
under chapter 11 of title 11 of the United States Code, 11 U.S.C. ss.ss. 101 et
seq. (the "Bankruptcy Code"), which Plan has the support of the Informal Senior
Note Committee, the Informal TOPrS Committee, and each of the respective members
thereof, the Golden Books Entities, Snyder and GPH.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Covenants of the Parties. The Golden Books Entities, Snyder, GPH, the
Informal Senior Note Committee, the Informal TOPrS Committee and each of the
respective members thereof, hereby covenants to one another to use their
reasonable best efforts to, as expeditiously as possible, and subject to the
terms of this Agreement, carry out the following:
(a) prepare the Plan, which shall contain the principal terms and
conditions set forth on Exhibit "A" attached hereto and made a part hereof, and
all documentation related thereto (including, without limitation, the indenture,
security agreements and guarantees regarding the New Senior Notes (as defined on
Exhibit "A" attached hereto), a disclosure statement pursuant to Section 1125 of
the Bankruptcy Code containing information which is not materially inconsistent
with the information heretofore provided to the financial advisors to the
Informal Senior Note Committee and the Informal TOPrS Committee, respectively
(the
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"Disclosure Statement"), and the new Snyder employment Agreement (as described
on Exhibit "A" attached hereto));
(b) as promptly as reasonably practicable, but in any event not later than
the periods set forth in paragraph 2 hereof, the Golden Books Entities shall (i)
file voluntary petitions for reorganization under Chapter 11 of the Bankruptcy
Code, and as promptly as reasonably practicable thereafter or contemporaneously
therewith, file the Plan, a proposed interim order to approve of
debtor-in-possession financing (the "DIP Order") (both substantially in the
forms attached as Exhibit "B" hereto), the Disclosure Statement, financial
projections to be attached as an exhibit to the Disclosure Statement (the
"Projections"), and such other documents as may be necessary and appropriate in
order to effectuate the Plan, (ii) proceed in good faith to obtain confirmation
and consummation of the Plan consistent with at least the timetable set forth in
paragraph 2 hereof, and (iii) support the Plan in good faith; provided, however,
that the obligations of the Golden Books Entities hereunder shall not be
interpreted so as to require them to act in a manner which is not consistent
with their fiduciary duties under the Bankruptcy Code and applicable law ;
provided, further, however, that if the Golden Books Entities, pursuant to the
preceeding proviso or otherwise, act in a manner materially inconsistent with
this Agreement or the provisions contained in Exhibit A or B hereto, this
Agreement may be terminated pursuant to paragraph 2 hereof; and
(c) the Informal Senior Note Committee, the Informal TOPrS Committee, and
each of the respective members thereof, Snyder and GPH shall (i) support
confirmation of the Plan (including, without limitation, providing a
recommendation in the Disclosure Statement that creditors vote to accept 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 hereto),
(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
Golden Books Entities, (v) oppose any motion (A) seeking to file any other plan
of reorganization for any or all of the Golden Books Entities or (B) to shorten
or terminate the initial 120-day exclusive period to file a plan of
reorganization provided to the Golden Books Entities under Section 1121 of the
Bankruptcy Code, without the express written consent of the Golden Books
Entities (which consent may or may not be given by the Golden Books Entities in
their sole and absolute discretion, and (vi) not file, consent to, join or
otherwise support any motion to (A) convert the Chapter 11 case of any or all of
the Golden Books Entities to Chapter 7 liquidations, (B) dismiss any or all of
the Golden Books Entities' Chapter 11 cases, (C) appoint a Chapter 11 trustee or
examiner in any or all of the Golden Books Entities' Chapter 11 cases, or (D)
vacate the automatic stay imposed pursuant to Section 362 of the Bankruptcy Code
to foreclose on any collateral or to otherwise take action inconsistent with the
terms and provisions of this Agreement; provided, however, that the obligations
of the Informal Senior Note Committee and the Informal TOPrS Committee, and each
of the respective members thereof, Snyder and GPH shall not be interpreted so as
to require such parties to act in a manner which is not consistent with their
fiduciary duties under applicable law. The Informal Senior Note Committee, the
Informal TOPrS Committee, and each of the respective members thereof, Snyder and
GPH each
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hereby agrees that the distributions under the Plan in respect of such person's
claims against, or interests in, the Golden Books Entities is fair and equitable
under Section 1129(b) of the Bankruptcy Code.
2. Termination. This Agreement shall terminate and all of the obligations
of the Golden Books Entities, the Informal Senior Note Committee and the
Informal TOPrS Committee, and each of the respective members thereof, Snyder and
GPH shall be of no further force or effect immediately upon the occurrence of
any of the following (each, a "Termination Event") unless such Termination Event
is waived in writing by all of the Informal Senior Note Committee, the Informal
TOPrS Committee, Snyder and GPH:
(a) the Plan and the DIP Order are not filed within twenty-one (21) days
after the Effective Date (as hereafter defined);
(b) the Projections are not filed within twenty-five (25) days after the
filing of the Plan;
(c) the Plan is not confirmed within one hundred and fifty (150) days after
the Effective Date (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);
(d) the Plan shall not become effective within two hundred (200) days after
the Effective Date;
(e) any party hereto fails to perform, in any material respect, any of
their obligations hereunder or to support the terms set forth in Exhibits A
and B annexed hereto;
(f) 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 hereunder of the respective
members of the Informal Senior Note Committee or Informal TOPrS Committee;
or
(g) 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 Exhibit A and B hereof (including, without
limitation, a material modification to, or severance of, the release and
indemnification provisions set forth in Exhibits A and B hereof).
3. Representations and Warranties.
(a) Each party represents and warrants to the other parties that (i) it is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its formation, (ii) its execution, delivery and performance of
this Agreement are within the power and authority of such party and have been
duly authorized by such party and that no other approval or authorization is
required, (iii) this Agreement has been duly executed and delivered
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<PAGE>
by it and constitutes its legal, valid and binding obligation, enforceable in
accordance with the terms hereof, and (iv) none of the execution and delivery of
this Agreement or compliance with the terms and provisions hereof will violate,
conflict with or result in a breach of, its certificate of incorporation or
bylaws or other constitutive document, any applicable law or regulation, any
order, writ, injunction or decree of any court or governmental authority or
agency, or any agreement or instrument to which it is a party or by which it is
bound or to which it is subject.
(b) Each member of the Informal Senior Note Committee and the Informal
TOPrS Committee further represents and warrants, as applicable, that (i) it
holds the principal amount of Old Senior Notes and TOPrS Certificates, as the
case may be, as set forth next to its name on the signature page hereof, (ii)
except as contemplated herein or in the Plan, it has not transferred, assigned
or otherwise disposed of, or entered into any agreement (whether written or
oral) to transfer, assign or otherwise dispose of, its right, title and interest
in and to the Old Senior Notes and TOPrS Certificates which it holds, and (iii)
except with respect to the Plan described in this Agreement, it has not
consented to and is not currently supporting or participating in the formulation
of, and has not entered into any agreement(whether written or oral) with respect
to, (x) any other plan of reorganization for the Golden Books Entities or (y)
the sale of all or substantially all of the assets of the Golden Books Entities
or all or substantially all of the stock or notes to be issued pursuant to the
Plan.
(c) GPH further represents and warrants that (i) that it holds all of the
right, title and interest in and to the GPH Note and the Preferred Stock, (ii)
except as contemplated herein or in the Plan, it has not transferred, assigned
or otherwise disposed of, or entered into any agreement (whether written or
oral) to transfer, assign or otherwise dispose of its right, title and interest
in and to the GPH Note and the Preferred Stock, and (iii) except with respect to
the Plan described in this Agreement, it has not consented to, and is not
currently supporting or participating in the formulation of, and has not entered
into any agreement (whether written or oral) with respect to, (x) any other plan
of reorganization for the Golden Books Entities, or (y) the sale of all or
substantially all of the assets of the Golden Books Entities or the stock or
warrants to be issued to GPH pursuant to the Plan.
4. Effective Date. This Agreement shall become effective immediately upon
the date of execution and delivery by all signatories hereto (the "Effective
Date").
5. Documentation Satisfactory. All documents and papers relating to this
Agreement, the Plan, the new notes to be issued to holders of Old Senior Notes
under the Plan, and the DIP Order shall be satisfactory to each party hereto in
its sole, good faith independent judgment. The Informal Senior Note Committee,
the Informal TOPrS Committee and GPH shall receive advance copies of the Plan
and all other documents and papers relating to the Plan and this Agreement as
they may reasonably request.
6. Specific Performance. The Informal Senior Note Committee, Informal TOPrS
Committee, and each of the respective members thereof, Snyder and GPH hereby
agree that, in addition to being entitled to exercise all rights granted by law,
including recovery of damages, the Golden Books Entities shall be entitled to
specific performance of its rights under
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<PAGE>
this Agreement. The Informal Senior Note Committee, Informal TOPrS Committee,
and each of the respective members thereof, Snyder and GPH further agree that
monetary damages would not be adequate compensation for any loss incurred by the
Golden Books Entities by reason of a breach by the other parties hereto of any
provision of this Agreement, and hereby agree to waive the defense in any action
for specific performance that a different remedy would be adequate.
7. Amendments. This Agreement may not be amended except by an instrument in
writing signed by all parties hereto.
8. Successors and Assigns. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto, and their
respective successors and assigns. Without in any manner limiting the scope,
extent or effect of the foregoing, the respective members of the Informal Senior
Note Committee and the Informal TOPrS Committee, and GPH, shall not transfer,
assign or otherwise dispose of their right, title and interest in and to, as
applicable, the Old Senior Notes (and any and all rights, claims and obligations
associated therewith), and the TOPrS Certificates (and any and all rights,
claims and obligations associated therewith), or, with respect to GPH, the GPH
Note and the Preferred Stock (and any and all rights, claims and obligations
associated therewith), and any such transfer shall be void and of no force and
effect unless and until such transferee or assignee agrees in writing at the
time of such transfer or assignment to be bound by this Agreement in its
entirety without revision. In the event of any such transfer or assignment, the
transferor or assignor, as the case may be, shall, within one business day
following such transfer or assignment, provide written notice of such transfer
or assignment to the Golden Books Entities together with a copy of the written
agreement of the transferee or assignee to be bound by this Agreement in its
entirety without revision.
9. Notices. In addition to any notice requirement set forth in any
indenture or other agreement, any notice required or desired to be served, given
or delivered under this Agreement shall be in writing, and shall be deemed to
have been validly served, given or delivered if provided by personal delivery,
or upon receipt of fax delivery, as follows:
(a) if to the Golden Books Entities or to Snyder, to Philip Galanes, Esq.,
Chief Administrative Officer, Golden Books Family Entertainment, Inc., 888
Seventh Avenue, New York, New York 10106-4100, fax: 212-547-6771, with a copy to
Alan B. Hyman, Esq., Proskauer Rose LLP, 1585 Broadway, New York, New York
10036, fax: 212-969-2900;
(b) if to the Informal Senior Note Committee, to Fred S. Hodara, Esq.,
Stroock & Stroock & Lavan LLP, 180 Maiden Lane, New York, New York 10038-4982,
fax: 212-806-6006;
(c) if to the Informal TOPrS Committee, to James E. Millstein, Esq.,
Cleary, Gottlieb, Steen & Hamilton, One Liberty Plaza, New York, New York
10006-1470, fax: 212- 225-3999; and
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(d) if to GPH, to Marc Abrams, Esq., Willkie Farr & Gallagher, 787 Seventh
Avenue, New York, New York 10019-6099, fax: 212-728-8111.
10. Headings. The headings of this Agreement are for reference only and
shall not limit or otherwise affect the meaning hereof.
11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to internal
conflicts of law principles.
12. Counterparts. This Agreement may be executed in counterparts in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
individually by their officers duly authorized as of the date first written
above.
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
By: /s/
---------------------------------
Name:
Title:
GOLDEN BOOKS PUBLISHING COMPANY, INC.
By: /s/
---------------------------------
Name:
Title:
GOLDEN BOOKS HOME VIDEO, INC.
By: /s/
---------------------------------
Name:
Title:
7
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/s/
- ---------------------------------
Richard E. Snyder
GOLDEN PRESS HOLDING, L.L.C.
By: Warburg, Pincus Ventures, L.P.,
Managing Member
By: Warburg, Pincus & Co.,
General Partner
By: /s/
---------------------------------
Name:
Title:
[additional signature pages omitted]
8
<PAGE>
EXHIBIT "A"
PLAN TERM SHEET
<PAGE>
Golden Books Family Entertainment, Inc.
Restructuring Term Sheet
The following presents an overview of the material terms of a financial
restructuring of Golden Books Family Entertainment, Inc. (the "Company" or
"Golden Books") which would be acceptable to the Steering Committee of Holders
of 7.65% Senior Notes (the "Notes Committee" or the "Noteholders"), the Steering
Committee of Holders of 8.75% Convertible TOPrS (the "TOPrS Committee" or the
"TOPrs"), Golden Press Holdings, L.L.C., the holder of the Company's Series B
12% Convertible Preferred Stock and the GPH Bridge Loan (in both such
capacities, "GPH"), Richard Snyder ("Snyder") and the Company (the
"Restructuring"). The terms discussed herein are part of an entire compromise
and are not valid in part. Nothing contained herein shall constitute an offer,
acceptance or a legally binding obligation of the Company, the Noteholders, the
TOPrS, GPH or any other party in interest and is subject to definitive
documentation and other customary conditions.
I. Treatment of Claims
The proposed Restructuring will classify and provide treatment for claims
against and interests in the Company as described below.
7.65% Senior Notes
($150.0 million of claims Each holder of the Company's 7.65% Senior Notes
plus accrued interest) will receive its pro rata share of:
(i) New Senior Secured Notes (the "New Notes")
with the following terms:
Issuer: TO BE DETERMINED
Guarantors: TO BE DETERMINED
Principal Amount: $87.0 million
Maturity: 5 years from the Effective Date
(as defined in the Plan)
Interest: The New Notes shall have an annual
interest rate payable at the
Company's sole option, either (i)
in cash at a rate of 10.0% or (ii)
in-kind at a rate of 13.5%, payable
semi- annually; provided, however,
that three years after the
Effective Date, the New Notes shall
be payable only in cash at the rate
of 10.0%.
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Amortization: Mandatory semi-annual amortization
payments of $8.33 commencing three
years after the Effective Date,
i.e., commencing with the first
semi-annual payment that is during
the fourth year after the Effective
Date, to retire $25.0 million of
the principal balance of the New
Notesprior to maturity.
Collateral: All existing collateral on the
7.65% Senior Notes including,
without limitation, the Christmas
Classics, Lone Ranger and Underdog,
PP&E at the Racine, Wisconsin
manufacturing facility, real estate
and PP&E at Crawfordsville,
Indiana, leasehold improvements at
the New York headquarters and first
and second liens on Accounts
Receivable and Inventory, provided,
however, that the Noteholders shall
release their lien on the corporate
leasehold improvements sold in
connection with the reduction of
office space. This Agreement
assumes that all rights to the Sony
Distribution Agreement and the
related license agreement are
granted as first lien collateral to
the New Senior Secured Notes upon
issuance of the New Senior Secured
Notes on the Effective Date, and
that,in the interim, upon
commencement of the bankruptcy
case, a second lien on such rights
shall be granted to the Noteholders
as adequate protection junior and
subordinated in lien and right to
payment to GPH's claimed first
priority lien and security
interest. Notwithstanding the grant
of such second lien on the Sony
Distribution Agreement and the
related license agreement, each
party reserves all rights with
respect to the extent and priority
of all asserted liens and asserted
claims relating to such Agreements
as of the date immediately prior to
the commencement of the bankruptcy
case. Any net proceeds from the
sale of the Collateral, excluding
the Sony Distribution Agreement
proceeds unless and until the
Effective Date has occurred,
outside the ordinary course of
business will be
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outside the ordinary course of
business will be used to pay down
the New Senior Secured Notes
(subject to the redemption schedule
set forthbelow). The collateral
package will be augmented in
connection with the Company's
procurement of the New Working
Capital Facility, whether a DIP
facility in bankruptcy or an exit
financing facility. Such
replacement collateral as and for
adequate protection shall consist
of a first lien on Lassie, Felix
Felix the Cat, the Film library,
the additional assets listed on
Exhibit 2 hereto and the related
Accounts Receivable and Inventory
and a blanket second lien on all
assets pledged to the New Working
Capital Lender. Consistent with the
foregoing, when issued, the New
Senior Secured Notes will be
secured by either a first lien or a
second lien on all of the assets of
the Company and its direct and
indirectsubsidiaries.
Call
Protection The New Notes may be redeemed, in
whole or in part, at any time, at
the option of the Company, at the
redemption prices (expressed as
percentages of principal amount)
set forth below, plus accrued and
unpaid interest to the date of
redemption.
Years from Redemption
Effective Date Price
-------------- ----------
1 Year 105.00%
2 Years 103.33%
3 Years 101.25%
Thereafter 100.00%
Terms: Normal and customary for secured
indebtedness of this nature, to be
determined to the satisfaction of
the Notes Committee and the TOPrS
Committee.
(ii) 42.5% of the primary shares of the Company's
restructured Common Stock prior to dilution
from the management stock incentive
program and the warrants.
TOPrS Each holder of the Company's TOPrS will receive
its pro rata
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($110.0 million of Claims share of 50.0% of the primary shares
plusaccrued interest) of the Company's restructured Common Stock
prior to dilution from the management stock
incentive program and the warrants.
GPH Bridge Loan The holder of the GPH Bridge Loan will receive
($10.0 million of claims 5.0% of the primary shares of the Company's
plus accrued interest) restructured Common Stock prior to dilution from
the management stock incentive program and the
warrants.
Other Unsecured Subject to the review and consent of the
Creditors Noteholders, the TOPrS, GPH and the Company, such
creditors shall be reinstated.
Employment Contracts All such contracts shall be revised to the extent
necessary to comport with the terms herein and
such additional terms as are to be agreed and, as
such, shall be reaffirmed; except that Snyder
shall enter into a new revised contract which is
attached hereto as Exhibit 1 in exchange for 2.5%
of the primary shares of the Company's
restructured Common Stock prior to dilution from
the management stock incentive program and the
warrants as of the Effective Date in the form of
restricted stock with vesting and eligibility
terms consistent with the restricted stock
provided to Snyder under the management stock
incentive program detailed below. All such revised
Employment Agreements shall be immediately
submitted to the Notes Committee and the TOPrS
Committee.
Preferred and Common Stock Current preferred and common shareholders (giving
effect to all accrued and unpaid dividends on the
Preferred Stock) will receive warrants to purchase
5.0% of the primary shares of the Company's
restructured Common Stock prior to dilution from
management stock incentive program for a period of
three years at an exercise price such that the
Noteholders, the TOPrS and the Company's unsecured
creditors all shall have received par plus accrued
interest on their claims via the consideration
provided to such parties herein. The warrants
shall be issued 2/3 to the preferred shareholders
and 1/3 to the common shareholders.
Securities Fraud Claims Security fraud claims shall be paid solely from
the proceeds of any applicable D&O insurance
coverage in amounts to be determined.
Management Management will participate in a stock incentive
program, which shall providefor up to 10.0% of the
Company's fully-
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diluted restructured Common Stock as of the
Effective Date. Such stock shall be allocated as
follows:
(i) Snyder: 2.0% of the Company's fully-diluted
restructured 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 date of the Effective
Date (with vesting of such stock fully
accelerated upon a termination without
Cause, a termination for Good Reason, a
termination due to death or Disability or a
change of control of the Company).
(ii) COO, CAO, and CFO: an aggregate of 3.0% of
the Company's fully-diluted Common Stock in
the form of "at the money" stock options
with an exercise price based upon the total
equity value of the Company (as set forth in
the Disclosure Statement for the Plan) to
vest ratably over a three year period (with
vesting of such stock fully accelerated upon
a termination without Cause, a termination
for Good Reason, a termination due to death
or Disability or a change of control of the
Company).
(iii) 5.0% of the Company's fully-diluted
restructured Common Stock reserved for
option grants to key employees, up to
one-half of which is to be determined by the
Company's management or current board to be
issued as part of the Company's 1999 bonus
plan to management not covered above, with
the remainder to be determined by the
Company's new Board of Directors.
Lock-up, Forbearance, and Upon Agreement between the Company, the Notes
Agreements Consent Committee, the TOPrS Committee, Snyder and
GPH regarding the terms of the Restructuring, the
Notes Committee and the TOPrS Committee shall each
use their respective best efforts to cause holders
of at least 66 2/3% of each such issue to enter
into, and Snyder and GPH shall enter into, formal
Lock-up, Forbearance, and Consent Agreements (the
"Consenting Claims") which shall, among other
things, (i) be subject to termination dates
relating to (x) the timely consummation of the
Restructuring and (y) if applicable, the timely
filing of a mutually acceptable plan of
reorganization, (ii) provide for the support of
said Noteholders, TOPrS, Snyder and GPH for the
Restructuring, and (iii) ensure that if a
Consenting Claim is sold, assigned or conveyed in
any way (a "Sale Transaction"), or any interests
granted therein, said
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Sale Transaction shall be conditioned upon the
assumption of the Lock-up. Forbearance and Consent
Agreements by the Transferee of such Consenting
Claim.
Liquidity Provisions The Company shall take all reasonable efforts
necessary to ensure an active and fully-valued
public market for the New Common Stock and the New
Notes of the restructured Company including, but
not limited to, (i) issuing appropriate releases
of information and otherwise complying with the
requirements of paragraph (c) of Rule 144 under
the Securities Act of 1933, as amended, (ii)
conducting informal meetings with potential
investors and research analysts, (iii) registering
the common stock of the restructured Company under
the Securities Exchange Act of 1934, as amended,
so that the restructured Company will be a public
reporting company and (iv) obtaining the listing
of the New Common Stock and the New Notes on a
national securities exchange of NASDAQ NMS. Any
creditor who would be deemed following the
Effective Date of the Restructuring to be an
"affiliate" of the restructured Company by reason
of its equity holdings in the Company or otherwise
would be granted demand registration rights on
commercially customary terms. If the Restructuring
is consummated via a Chapter 11, the New Common
Stock and the New Notes shall be issued pursuant
to Section 1145 of the Bankruptcy Code.
Additionally, the Company shall file the
appropriate shelf registration documents within 30
days of the Effective Date to ensure the
securities issued in the Restructuring are freely
tradable.
Board Representation The Company's New Board of Directors shall
initially be composed of seven members as follows:
three nominees each for the Notes Committee and
the TOPrS Committee plus the CEO. Each of these
initial nominees shall be discussed, prior to
formal nomination, among the Notes Committee, the
TOPrS Committee and the Company and each of the
initial nominees shall be acceptable to the Notes
Committee and the TOPrS Committee and shall have
appropriate industry background and expertise.
Indemnity, Injunction The Plan shall provide that all parties hereto
and Release shall receive the benefit of releases, injunctions
and indemnities (some of which are conditional as
more fully set forth in the Plan) except with
respect to obligations arising hereunder and to
the
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extent consistent with the Securities Fraud Claims
provisions above.
Miscellaneous Registration rights and other features of the
securities discussed herein shall be subject to
further negotiations.
II. Financing Requirements
The Company has announced its intention to raise a New Working Capital Facility
to a) pay down any outstanding indebtedness under the Company's existing
NationsBank credit facility and b) fund the Company's 1999 Business Plan. The
New Working Capital Facility will be secured by the following:
o all collateral currently pledged to the NationsBank credit facility; and
o additional collateral as may be necessary subject to the terms and
conditions herein.
The aggregate size of the New Working Capital Facility shall initially be $45
million, but the Company shall retain the right to increase the size of the New
Working Capital Facility to $60 million upon the achievement of performance
targets to be mutually agreed upon by the Company, the Notes Committee and the
TOPrS Committee.
7
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EXHIBIT 1
[FORM OF SNYDER EMPLOYMENT CONTRACT]
8
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between Golden Books Family Entertainment, Inc., a
Delaware corporation (the "Company"), and Richard E. Snyder (the "Executive"),
dated as of the __ day of _________, 1999.
1. Definition of Change of Control. For the purpose of this
Agreement, a "Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more (on
a fully diluted basis) of either (i) the then outstanding shares of common stock
of the Company, taking into account as outstanding for this purpose such common
stock issuable upon the exercise of options or warrants, the conversion of
convertible stock or debt, and the exercise of any similar right to acquire such
common stock (the "Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the Company entitled
to vote generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (a), the
following acquisitions shall not constitute a Change of Control: (i) any
acquisition by the Company or any "affiliate" of the Company, within the meaning
of 17 C.F.R. ss. 230.405 (an "Affiliate"), (ii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
Affiliate of the Company, (iii) any acquisition by any corporation pursuant to a
transaction which complies with classes (i), (ii) and (iii) of subsection (c) of
this Section 1, or (iv) any acquisition by the Executive or a group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) that includes the
Executive.
(b) Individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent thereto whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
60% of, respectively, the then outstanding shares of common stock and the
combined voting
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power of the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation resulting from
such Business Combination (including, without limitation, a corporation which as
a result of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries) in
substantially the same proportions as their ownership, immediately prior to such
Business Combination of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be, and (ii) no Person (excluding (A)
any employee benefit plan (or related trust) sponsored or maintained by the
Company or any Affiliate of the Company, or such corporation resulting from such
Business Combination or any Affiliate of such corporation, or (B) any entity in
which the Executive has an equity interest, or any Affiliate of such entity)
beneficially owns, directly or indirectly, 35% or more (on a fully diluted
basis) of, respectively, the then outstanding shares of common stock of the
corporation resulting from such Business Combination, taking into account as
outstanding for this purpose such common stock issuable upon the exercise of
options or warrants, the conversion of convertible stock or debt, and the
exercise of any similar right to acquire such common stock, or the combined
voting power of the then outstanding voting securities of such corporation
except to the extent that such ownership existed prior to the Business
Combination and (iii) at least a majority of the members of the board of
directors of the corporation resulting from such Business Combination were
members of the Incumbent Board at the time of the execution of the initial
agreement, or of the action of the Board, providing for such Business
Combination; or
(d) Approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
2. Employment Period. The Company hereby agrees to continue to
employ the Executive and the Executive hereby agrees to remain in the continued
employ of the Company, subject to the terms and conditions of this Agreement,
for the period commencing on the date hereof (the "Effective Date") and ending
on May 8, 2003 or such earlier date on which the Executive's employment is
terminated pursuant to the terms hereof (the "Employment Period").
3. Terms of Employment. (a) Position and Duties. (i) Commencing on
the Effective Date and for the remainder of the Employment Period, the Executive
shall be the Chief Executive Officer of the Company and Chairman of the
Company's Board of Directors and shall have such duties, responsibilities and
authority as shall be consistent therewith. The Executive shall be based in New
York City.
(ii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote full time during normal business hours to the
business and affairs of the Company and to use the Executive's best efforts to
perform faithfully and efficiently such responsibilities. During the Employment
Period it shall not be a violation of this Agreement for the Executive to (A)
serve on corporate, civic or charitable boards or committees, (B) deliver
lectures, fulfill speaking engagements or teach at educational institutions and
(C) manage personal investments, so long as
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such activities do not interfere with the performance of the Executive's
responsibilities as an employee of the Company in accordance with this
Agreement. It is expressly understood and agreed that to the extent that any
such activities have been conducted by the Executive prior to a Change of
Control, the continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to a Change of Control shall not
thereafter be deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment Period,
the Executive shall receive an annual base salary ("Annual Base Salary") at a
rate of $750,000 until the third anniversary of the Effective Date and,
thereafter, at a rate of $850,000. The Annual Base Salary shall be paid in equal
monthly installments. During the Employment Period, the Annual Base Salary shall
be reviewed at least every 12 months. Any increase in Annual Base Salary shall
not serve to limit or reduce any other obligation to the Executive under the
Agreement. The Annual Base Salary shall not be reduced after any such increase
and the term Annual Base Salary as utilized in this Agreement shall refer to
Annual Base Salary as so increased.
(ii) Annual Bonus. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during the Employment
Period, an annual bonus (the "Annual Bonus") pursuant to the Company's Executive
Officer Bonus Plan or a replacement therefor (the "Annual Plan") under one or
more of the criteria prescribed in the plan as generally designed by a
compensation expert mutually satisfactory to the Board and the Executive and
approved by the Compensation Committee of the Board of Directors, which bonus
shall be pro rated in the case of a bonus for any fiscal year during which the
Executive was employed for less than 12 months. The Executive shall have a
target annual bonus of 100% of his Annual Base Salary (the "Target Bonus") and
an annual bonus opportunity of 200% of his Annual Base Salary (inclusive of the
Target Bonus), subject in each case to attainment of the performance goals set
forth in the Annual Plan. The Executive waives any right to receive a pro rated
Target Award under Section 15 of the Executive Officer Bonus Plan upon a "change
of control," as defined therein, so long as he shall be employed on the last day
of the fiscal year and be entitled to an Annual Bonus at the levels specified
herein on a non pro rated basis for the fiscal year of such "change of control"
if the performance goals for such fiscal year are achieved. Each such Annual
Bonus shall be paid no later than the end of the third month of the fiscal year
next following the fiscal year for which the Annual Bonus is awarded, unless the
Executive shall elect to defer the receipt of such Annual Bonus. The parties
acknowledge that the Annual Plan has been approved by the stockholders of the
Company in accordance with the requirements of Section 162(m) of the Internal
Revenue Code of 1986, as amended (the "Code"). The Board may award the Executive
bonuses other than pursuant to the Annual Plan in its discretion.
(iii) Restricted Stock. Simultaneous with, and as further
consideration for, the Executive's execution of this Agreement, the Company
shall grant to the Executive restricted shares of Common Stock which represent
2.5% of the Company's then issued and outstanding Common Stock (but prior to
dilution by any portion of the 10.0% of the Common Stock available under the
management incentive plan referenced in Section 3(b)(iv) below or any
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warrants) in accordance with the form of restricted stock agreement annexed as
Exhibit A hereto (the "Restricted Stock"). Not less than two-thirds (2/3) of the
shares of Restricted Stock shall vest on the second anniversary of the date
hereof and the remaining shares of Restricted Stock shall vest on the third
anniversary of the date hereof provided the Executive has been continuously
employed through each applicable vesting date. Notwithstanding the foregoing, in
the event the Executive's employment is terminated by reason of his death or
Disability or the Executive is terminated by the Company without Cause or
terminates his employment for Good Reason, the shares of Restricted Stock shall
become fully vested on the Date of Termination. Upon a Change in Control, the
provisions of Section 8 shall apply. The Company shall file and maintain a Form
S-8 with regard to the Restricted Stock and shall file Forms S-3 as reasonably
requested by the Executive with regard to the Restricted Stock.
(iv) Management Restricted Stock. Simultaneous with, and as
further consideration for, the Executive's execution of this Agreement, the
Company shall make an additional grant to the Executive of restricted shares of
Common Stock which represent 2.0% of the Company's issued and outstanding Common
Stock on a fully diluted basis (including all shares authorized, whether or not
issued or covered by a grant, under any employee stock incentive plan and any
warrants) pursuant to the Company's management incentive plan in accordance with
the form of management restricted stock agreement annexed as Exhibit B hereto
(the "Management Restricted Stock"). Not less than two-thirds (2/3) of the
shares of Management Restricted Stock shall vest on the second anniversary of
the date hereof and the remaining shares of Management Restricted Stock shall
vest on the third anniversary of the date hereof provided the Executive has been
continuously employed through each applicable vesting date. Notwithstanding the
foregoing, in the event the Executive's employment is terminated by reason of
his death or Disability or the Executive is terminated by the Company without
Cause or terminates his employment for Good Reason, the Management Restricted
Stock shall become fully vested on the Date of Termination. Upon a Change in
Control, the provisions of Section 8 shall apply. The Company shall file and
maintain a Form S-8 with regard to the Management Restricted Stock and shall
file Forms S-3 as reasonably requested by the Executive with regard to the
Management Restricted Stock.
(v) Incentive, Savings, Retirement and Equity Plans. During
the Employment Period, the Executive shall be eligible to participate in all
incentive, savings and retirement plans, practices, policies and programs
applicable generally to other senior executives of the Company and its
affiliated companies, provided that after a Change of Control in no event shall
such plans, practices, policies and programs provide the Executive with
incentive opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction is
applicable), savings opportunities and retirement benefit opportunities, in each
case, less favorable, in the aggregate, than the most favorable of those
provided by the Company and its affiliated companies for the Executive under
such plans, practices, policies and programs as in effect at any time during the
120-day period immediately preceding a Change of Control. In addition, the
Executive may participate in other equity plans and share in future grants to
management employees of stock options contemplated to be granted at or about the
Effective Date to management employees.
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(vi) Supplemental Retirement Plan. In addition to any
retirement benefits payable to the Executive pursuant to a plan or program
described in Section 3(b)(v), the Executive shall be entitled to a supplemental
retirement benefit, paid in the form of a single life annuity, of $250,000 per
annum, with payments commencing on the first day of the month immediately
following the latest of (i) May 8, 2001, (ii) the Executive's cessation of
employment with the Company other than by reason of death, or (iii) when the
Executive ceases to receive long term disability benefits pursuant to Section
3(b)(vii) below. Notwithstanding the above, at the election of the Executive
made at any time prior to the commencement of payment, such supplemental
retirement benefit shall be paid in the form of a joint and 50% survivor
annuity, which is the actuarial equivalent of such single-life annuity (as
determined by the Company's actuaries using reasonable actuarial assumptions).
(vii) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall be eligible
for participation in and shall receive all benefits under welfare benefit plans,
practices, policies and programs provided by the Company and its affiliated
companies (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs) to the extent applicable generally
to other peer executives of the Company and its affiliated companies, provided
that after a Change of Control in no event shall such plans, practices, policies
and programs provide the Executive with benefits which are less favorable, in
the aggregate, than the most favorable of such plans, practices, policies and
programs in effect for the Executive at any time during the 120-day period
immediately preceding a Change of Control. Executive shall be provided with both
active and retiree medical benefits on an indemnity basis with a $3 million
lifetime cap subject to an obligation to pay 20% of the cost of such benefits up
to a maximum of $200,000. The Company shall provide either (1) term life
insurance coverage to the Executive with a death benefit of at least $3 million,
or (2) at the Executive's election, a monthly cash allowance equal to the cost
of insurance determined pursuant to the "Table 1 rate" for insurance coverage up
to $3 million obtained by the Executive. For this purpose, the "Table 1 rate" is
the rate published by the United States Department of the Treasury as uniform
premiums for group term life insurance protection as currently set forth in
Treasury Regulation section 1.79-3(d). In the event of the Executive's
"Disability" (as defined in Section 4(a)), the Company shall provide the
Executive with an annual Disability benefit of no less than $700,000 per annum
until the Executive reaches age 70.
(viii) Expenses. During the Employment Period, the Company shall
pay or promptly reimburse the Executive for all business expenses upon
presentation of receipts therefor in accordance with the normal practices of the
Company. It is acknowledged that the Executive will incur expenses consistent
with an executive of his stature in the Company's industry.
(ix) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits of a type and an amount
appropriate to an executive of Executive's stature in the Company's industry,
including, without limitation, tax and financial
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planning services, payment of club dues, and an automobile of his choice and
payment of related expenses, including the services of a driver (collectively,
"Fringe Benefits").
(x) Vacation. During the Employment Period, the Executive
shall be entitled to five weeks of paid vacation per year.
4. Termination of Employment. (a) Death or Disability. The
Executive's employment shall terminate automatically upon the Executive's death
during the Employment Period. If the Company determines in good faith that the
Disability of the Executive has occurred during the Employment Period (pursuant
to the definition of Disability set forth below), it may give to the Executive
written notice in accordance with Section 12(b) of this Agreement of its
intention to terminate the Executive's employment. In such event, the
Executive's employment with the Company shall terminate effective on the 30th
day after receipt of such notice by the Executive (the "Disability Effective
Date"), provided that, within the 30 days after such receipt, the Executive
shall not have returned to full-time performance of the Executive's duties. For
purposes of this Agreement, "Disability" shall mean the absence of the Executive
from the Executive's duties with the Company on a full-time basis for 90 out of
120 consecutive business days as a result of incapacity due to mental or
physical illness which is determined to prevent the Executive from performing
his duties to the Company by a physician selected by the Company or its insurers
and acceptable to the Executive or the Executive's legal representative.
(b) Cause. The Company may terminate the Executive's employment
during the Employment Period for Cause, provided that the Notice of Termination
is delivered to the Executive not more than 180 days after the discovery by the
Company of the Cause event. For purposes of this Agreement, "Cause" shall mean:
(i) the conviction of, or pleading guilty to, a felony or crime involving moral
turpitude, or (ii) the willful and continued failure of the Executive to perform
substantially the Executive's duties with the Company or one of its affiliates
(other than any such failure resulting from incapacity due to physical or mental
illness which results in a Disability), after a written demand for substantial
performance is delivered to the Executive by the Board, which specifically
identifies the manner in which the Board or Chief Executive Officer believes
that the Executive has not substantially performed the Executive's duties.
For purposes of this provision, no act or failure to act, on the part
of the Executive, shall be considered "willful" unless it is done, or omitted to
be done, by the Executive in bad faith or without reasonable belief that the
Executive's action or omission was in the best interests of the Company. Any
act, or failure to act, based upon authority given pursuant to a resolution duly
adopted by the Board or based upon the advice of regular outside counsel for the
Company shall be conclusively presumed to be done, or omitted to be done, by the
Executive in good faith and in the best interests of the Company. The cessation
of employment of the Executive shall not be deemed to be for Cause unless and
until there shall have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of a majority of the entire membership of
the Board at a meeting of the Board called and held for such purpose (after
reasonable notice is provided to the Executive and the Executive is given an
opportunity,
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together with counsel, to be heard before the Board), finding that, in the good
faith opinion of the Board, the Executive is guilty of the conduct described,
and specifying the particulars thereof in detail.
(c) Good Reason. The Executive's employment may be terminated by
the Executive for Good Reason, provided that the Notice of Termination is
delivered to the Company not more than 180 days after the discovery by the
Executive of the Good Reason event. For purposes of this Agreement, "Good
Reason" shall mean in each case, without the Executive's prior written consent:
(i) the assignment to the Executive of any duties inconsistent with
the Executive's position (including status, offices, titles and reporting
requirements), authority, duties or responsibilities as contemplated by Section
3(a) of this Agreement, or any other action by the Company which results in a
diminution in such position, authority, duties or responsibilities, excluding
for this purpose an action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the Executive;
(ii) any failure by the Company to comply with any of the
provisions of Section 3(b) of this Agreement (other than failure not occurring
in bad faith) or any material breach by the Company of this Agreement which, in
either case, is not remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location outside New York City, or, after a Change of Control, the
Company's requiring the Executive to travel on Company business to a
substantially greater extent than required immediately prior to a Change of
Control; or
(iv) any failure by the Company to comply with and satisfy Section
11(c) of this Agreement.
(d) Notice of Termination. Any termination by the Company for
Cause, or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 12(b) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under the provision so indicated and (iii) if the
Date of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than 30
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.
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(e) Date of Termination. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination or
any later date specified therein, as the case may be (although such Date of
Termination shall retroactively cease to apply if the circumstances providing
the basis of termination for Cause or Good Reason are cured in accordance with
Section 4(b) or 4(c) of this Agreement, respectively), (ii) if the Executive's
employment is terminated by the Company other than for Cause or Disability, the
Date of Termination shall be the date on which the Company notifies the
Executive of such termination and (iii) if the Executive's employment is
terminated by reason of death or Disability, the Date of Termination shall be
the date of death of the Executive or the Disability Effective Date, as the case
may be.
5. Obligations of the Company Upon Termination. (a) Good Reason;
Other Than for Cause, Death or Disability. If, during the Employment Period, the
Company shall terminate the Executive's employment other than for Cause or
Disability or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in cash
within 30 days after the Date of Termination (or, in the case of any amount
calculated based on the actual performance during the fiscal year of the
termination, at such time as bonuses are paid or made available to other
senior executives of the Company) the aggregate of the following amounts:
A. the sum of (1) the Executive's Annual Base Salary
through the Date of Termination to the extent not theretofore paid, (2)
the product of (x) the Annual Bonus paid or payable, including any
bonus or portion thereof which has been earned but deferred (and
annualized for any fiscal year consisting of less than twelve full
months or during which the Executive was employed for less than twelve
full months), for the most recently completed fiscal year during the
Employment Period or, if the Date of Termination occurs during the
fiscal year during which the Effective Date occurs, for the current
fiscal year based on the actual performance results for the measuring
period ending at the end of such fiscal year assuming that the
Executive was employed by the Company for the entire fiscal year (the
"Earned Bonus"), provided that (and without affecting the definition of
Earned Bonus), if Executive is entitled pursuant to the Annual Plan to
a portion of the Target Bonus for a fiscal year as a result of a
"change of control," as defined in the Annual Plan, the amount payable
under A2 if for the same fiscal year shall be reduced by the amount of
the Target Bonus being otherwise paid, and (y) a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is 365
(the "Pro Rata Bonus"), and (3) any compensation previously deferred by
the Executive (together with any accrued interest or earnings thereon)
and any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses (1), (2),
and (3) shall be hereinafter referred to as the "Accrued Obligations");
and
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B. If the Date of Termination is prior to May 8, 2001,
the amount equal to the product of (1) three and (2) the sum of the
Executive's Annual Base Salary and the Earned Bonus, or if the Date of
Termination is on or after May 8, 2001, the amount equal to the product
of (a) two and (b) the sum of the Executive's Annual Base Salary and
the Earned Bonus; and
C. an amount equal to the difference between (a) the
actuarial equivalent of the benefit (utilizing actuarial assumptions no
less favorable to the Executive than those most favorable to the
Executive in effect under the Company's qualified defined benefit
retirement plan (the "Retirement Plan") at any time during the 120 days
immediately prior to a Change of Control) under the Retirement Plan,
and any excess or supplemental retirement plan in which the Executive
participates (together, the "SERP") which the Executive would receive
if the Executive's employment continued for (I) if the Date of
Termination is prior to May 8, 2001, three years after the Date of
Termination, or (II) if the Date of Termination is on or after May 8,
2001, two years after the Date of Termination, and (b) the actuarial
equivalent of the Executive's actual benefit (paid or payable), if any,
under the Retirement Plan and the SERP as of the Date of Termination.
For purposes of this subsection (C), it shall be assumed that all
accrued benefits are fully vested and that the Executive's compensation
during the applicable two or three year period is that required by
Section 3(b)(i) and by Section 3(b)(ii) but based on the Earned Bonus;
(ii) all stock options, restricted stock and other stock-based
compensation shall become immediately exercisable or vested, as the case
may be;
(iii) If the Date of Termination is prior to May 8, 2001, for three
years after the Executive's Date of Termination, or, if the Date of
Termination is on or after May 8, 2001, for two years but, in all cases,
for such longer period as may be provided by the terms of the appropriate
plan, program, practice or policy, the Company shall continue benefits to
the Executive and/or the Executive's family at least equal to those which
would have been provided to them in accordance with the plans, programs,
practices and policies described in Section 3(b)(vii) of this Agreement if
the Executive's employment had not been terminated, provided, however, that
if the Executive becomes reemployed with another employer and is eligible
to receive medical or other welfare benefits under another employer
provided plan, the corresponding medical and other welfare benefits
described herein shall be terminated. For purposes of determining
eligibility (but not the time of commencement of benefits) of the Executive
for retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained employed until
the later of the applicable two or three year period after the Date of
Termination or the end of the Employment Period and to have retired on the
last day of such period;
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(iv) If the Date of Termination is prior to May 8, 2001, for three
years after the Executive's Date of Termination, or, if the Date of
Termination is on or after May 8, 2001, for two years, the Company shall
continue to provide the Executive with Fringe Benefits; and
(v) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or benefits
required to be paid or provided to the Executive or which the Executive is
entitled to receive under any plan, program, policy or practice or contract
or agreement of the Company and its affiliated companies, to the extent
payment of any such amounts or benefits are not already provided for under
this Agreement including, but not limited to, the supplemental retirement
benefit set forth in Section 3(b)(vi) above (such other amounts and
benefits shall be hereinafter referred to as the "Other Benefits").
(b) Death. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal representatives
under this Agreement, other than for payment of Accrued Obligations and the
timely payment or provision of Other Benefits (to the extent payable upon the
Executive's death). 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 (or at such other time as expressly provided herein). With
respect to the provision of Other Benefits after a Change of Control, the term
Other Benefits as utilized in this Section 5(b) shall include, without
limitation, and the Executive's estate and/or beneficiaries shall be entitled to
receive, benefits at least equal to the most favorable benefits provided by the
Company and affiliated companies to the estates and beneficiaries of peer
executives of the Company and such affiliated companies under such plans,
programs, practices and policies relating to death benefits, if any, as in
effect with respect to other peer executives and their beneficiaries at any time
during the 120- day period immediately preceding a Change of Control.
(c) Disability. If the Executive's employment is terminated by
reason of the Executive's Disability during the Employment Period, this
Agreement shall terminate without further obligations to the Executive, other
than for payment of Accrued Obligations and the timely payment or provision of
Other Benefits. Accrued Obligations shall be paid to the Executive in a lump sum
in cash within 30 days of the Date of Termination (or at such other time as
expressly provided herein). With respect to the provision of Other Benefits
after a Change of Control, the term Other Benefits as utilized in this Section
5(c) shall include, and the Executive shall be entitled after the Disability
Effective Date to receive, disability and other benefits at least equal to the
most favorable of those generally provided by the Company and its affiliated
companies to disabled executives and/or their families in accordance with such
plans, programs, practices and policies relating to disability, if any, as in
effect generally with respect to other peer executives and their families at any
time during the 120-day period immediately preceding a Change of Control.
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(d) Cause; Other Than for Good Reason. If the Executive's
employment shall be terminated for Cause during the Employment Period, this
Agreement shall terminate without further obligations to the Executive other
than the obligation to pay to the Executive (x) his Annual Base Salary through
the Date of Termination, (y) the amount of any compensation previously deferred
by the Executive, and (z) Other Benefits, in each case to the extent theretofore
unpaid. If the Executive voluntarily terminates employment during the Employment
Period, excluding a termination for Good Reason, this Agreement shall terminate
without further obligations to the Executive, other than for Accrued Obligations
but not including the Pro Rata Bonus and the timely payment or provision of
Other Benefits. In such case, all Accrued Obligations shall be paid to the
Executive in a lump sum in cash within 30 days of the Date of Termination (or at
such other time as expressly provided herein). 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, restricted stock and
other stock-based compensation that is 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. In no event shall the Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of this Agreement
and such amounts shall not be reduced whether or not the Executive obtains other
employment. The Company agrees to pay as incurred, all legal and professional
fees and expenses which the Executive may reasonably incur as a result of the
negotiation and preparation of this Agreement and any contest by the Executive
in good faith, by the Company or others of the validity or enforceability of, or
liability under, any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive about the amount
of any payment pursuant to this Agreement), plus in each case interest on any
delayed payment at the applicable Federal rate provided for in Section
7872(f)(2)(A) of the Code; provided, that, in connection with any contest of
this Agreement prior to a Change of Control, the Executive shall
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only be entitled to reimbursement of legal fees in the event that he prevails
with respect to at least one material issue.
8. Change in Control. Upon the occurrence of a Change in Control of
the Company during the Employment Period, all stock options, restricted stock
and other stock-based compensation shall become immediately exercisable or
vested, as the case may be, including without limitation, the Restricted Stock
and the Management Restricted Stock.
9. Certain Additional Payments by the Company. (a) Anything in
this Agreement to the contrary notwithstanding, in the event it shall be
determined that any payment or distribution by the Company to or for the benefit
of the Executive (whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise or paid or payable as a
result of any prior or future actions or change in effective control or
ownership (within the meaning of Section 280G of the Code), but determined
without regard to any additional payments required under this Section 9) (a
"Payment") would be subject to the excise tax imposed by Section 4999 of the
Code or any interest or penalties are incurred by the Executive with respect to
such excise tax (such excise tax, together with any such interest and penalties,
are hereinafter collectively referred to as the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by the Executive of all taxes and
any benefits that result from the deductibility by the Executive of such taxes
(including, in each case, any interest or penalties imposed with respect to such
taxes), including, without limitation, any income taxes (and any interest and
penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment equal to the
Excise Tax imposed upon the Payments.
(b) Subject to the provisions of Section 9(c), all determinations
required to be made under this Section 9, including whether and when a Gross-Up
Payment is required and the amount of such Gross-Up Payment and the assumptions
to be utilized in arriving at such determination, shall be made by Ernst & Young
or such other "Big Five" (or its equivalent) certified public accounting firm as
may be designated by the Executive and reasonably acceptable to the Company (the
"Accounting Firm") which shall provide detailed supporting calculations both to
the Company and the Executive within 15 business days of the receipt of notice
from the Executive that there has been a Payment, or such earlier time as is
requested by the Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group effecting the Change
of Control, the Executive shall appoint another nationally recognized accounting
firm to make the determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All fees and expenses of
the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment,
as determined pursuant to this Section 9, shall be paid by the Company to the
Executive within 10 business days of the receipt of the Accounting Firm's
determination. Any determination by the Accounting Firm shall be binding upon
the Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments
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which will not have been made by the Company should have been made
("Underpayment"), consistent with the calculations required to be made
hereunder. In the event that the Company exhausts its remedies pursuant to
Section 9(c) and the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notification shall be given as soon
as practicable but no later than ten business days after the Executive is
informed in writing of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid. The
Executive shall not pay such claim prior to the expiration of the 30-day period
following the date on which it gives such notice to the Company (or such shorter
period ending on the date that any payment of taxes with respect to such claim
is due). If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim,
(ii) take such action m connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with respect
to such claim by an attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order effectively
to contest such claim, and
(iv) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of the payment of costs and
expenses relating to such representation. Without limitation on the foregoing
provisions of this Section 9(c), the Company shall control all proceedings taken
in connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute such
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the
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Company directs the Executive to pay such claim and sue for a refund, the
Company shall advance the amount of such payment to the Executive, on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority at
his sole cost and expense.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9(a) or 9(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information; Nonsolicitation. (a) The Executive
shall hold in a fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the Company or any of
its affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the Executive's
employment with the Company, the Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it. In no event shall an asserted
violation of the provisions of this Section 10 constitute a basis for deferring
or withholding any amounts otherwise payable to the Executive under this
Agreement.
(b) Until the later of (i) May 8, 2001 or (ii) one year following
the termination of the Executive's employment for any reason, the Executive
shall not, directly or indirectly, (i) employ or seek to employ any person who
is at the Date of Termination, or was at any time within the six-month period
preceding the Date of Termination, an employee of the Company or any of its
subsidiaries or affiliates or otherwise cause or induce any employee of the
Company or any of its subsidiaries or affiliates to terminate such employee's
employment with the Company or such subsidiary or affiliate for the employment
of another company (included for this purpose
14
<PAGE>
the contracting with any person who was an independent contractor of the Company
during such period) or (ii) solicit any customers of the Company to purchase
products or services then sold by the Company from another person or entity
without, in either case, the prior written consent of the Company's Board of
Directors.
11. Successors. (a) This Agreement is personal to the Executive
and without the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this Agreement are
not part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written agreement
executed by the parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
-------------------
Richard E. Snyder
Linden Farm
34 Boutonville Road
Cross River, New York 10518
15
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If to the Company:
-----------------
Golden Books Family Entertainment, Inc.
850 Third Avenue
New York, New York 10022
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 4(c)(i)-(iv) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) The Executive and the Company acknowledge that this Agreement
supersedes the amended and restated employment agreement dated as of the 20th
day of August, 1996 by and between the Executive and the Company (as so amended
on the 9th day of September, 1997) and any other agreement between them
concerning the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and the Company has caused these presents to be executed in its name on its
behalf, all as of the day and year first above written.
RICHARD E. SNYDER
--------------------------------
16
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GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
By:
-------------------------------------
Name:
Title:
17
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Exhibit A
---------
[Restricted Stock Agreement]
18
<PAGE>
Exhibit B
---------
[Management Restricted Stock Agreement]
19
<PAGE>
EXHIBIT "B"
FORMS OF PLAN OF REORGANIZATION AND DIP ORDER
[Forms of Exhibit "B" are available upon request]
<PAGE>
NEWS
[GRAPHIC OMITTED]
FOR IMMEDIATE RELEASE
Investor/Press Contact:
Philip Galanes
Chief Administrative Officer
Golden Books Family Entertainment
212-547-4466
GOLDEN BOOKS FAMILY ENTERTAINMENT REPORTS THE
APPROVAL OF THE DISCLOSURE STATEMENT AND
SCHEDULING OF THE CONFIRMATION
HEARING ON THE PLAN OF REORGANIZATION
New York, New York, May 18, 1999. Golden Books Family Entertainment, Inc.
reported that the Disclosure Statement respecting its Plan of Reorganization was
approved by the Court overseeing the reorganization proceedings on May 13, 1999.
The Court set July 13, 1999 as the hearing date for confirmation of the Plan.
As previously reported, pursuant to the Plan, which reflects the consensual
agreement with the Company's major creditors, the Company will significantly
reduce its existing long-term debt, pay all trade debt in full, and under the
direction of its current management team, proceed with its publishing and
entertainment operations.
The Company is the leading children's book publisher in North America and
owns one of the largest libraries of family entertainment copyrights. The
Company creates, publishes and markets entertainment products for children and
families through all media.
<PAGE>
This press release includes statements which may constitute forward-looking
statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. Although the Company believes that expectations
contained in such forward-looking statements are reasonable, it can give no
assurance that such expectations will prove to be correct. This information may
involve risks and uncertainties that could cause actual results to differ
materially from the forward-looking statements. Factors which could cause or
contribute to such differences include, but are not limited to, factors detailed
in the Company's Securities and Exchange Commission filings.
# # #
