SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 25, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ...... to ......
Commission file number 0-14399
Golden Books Family Entertainment, Inc.
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(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 No.)
incorporation or organization)
888 Seventh Avenue, 40th Floor, New York, New York 10106
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 547-6700
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $ .01 per share
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days. Yes |X| or No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in the definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |_|
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant was $14,521,349, computed by reference to the
bid price as quoted on the OTC Bulletin Board on March 20, 2000 of approximately
$1 13/16.* As of March 17, 2000, 10,233,889 shares of Common Stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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* For purposes of this calculation, all outstanding shares of Common Stock
have been considered held by non-affiliates other than the 2,219,901
shares held by directors and certain principal shareholders. In making
such calculation, the Registrant does not determine the affiliate or
non-affiliate status of any shares for any other purpose.
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GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
December 25, 1999
INDEX
PART I
ITEM 1. BUSINESS..............................................................1
ITEM 2. PROPERTIES............................................................9
ITEM 3. LEGAL PROCEEDINGS....................................................10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..................12
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATEDSTOCKHOLDER MATTERS...........................................13
ITEM 6. SELECTED FINANCIAL DATA..............................................14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS................................................16
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK...........27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA..........................28
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE.............................................29
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT...................29
ITEM 11. EXECUTIVE COMPENSATION...............................................31
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.......34
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................36
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K......37
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PART I
In February 1999, Golden Books Family Entertainment, Inc. (the "Company" or the
"Registrant") reached an agreement with its major creditors pursuant to which
its then existing long-term debt would be significantly reduced and its existing
trade obligations would be paid in full. In accordance with that agreement, the
Registrant, as well as Golden Books Publishing, Inc and Golden Books Home Video,
Inc. filed petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code ("Bankruptcy Code"). See "Item I. Business-Recent Events" below.
Significant components of the Amended Joint Plan of Reorganization (as
hereinafter defined) were approved by the Bankruptcy Court on December 22, 1999.
On January 27, 2000, the Company formally emerged from protection under the
Bankruptcy Code upon the consummation of the Amended Joint Plan of
Reorganization. The Company has applied the reorganization and fresh-start
reporting adjustments as required by SOP 90-7 to the consolidated balance sheet
as of December 25, 1999 (the "Effective Date").
Under fresh start accounting, a new reporting entity is deemed to be created and
the recorded amounts of assets and liabilities are adjusted to reflect their
estimated fair values at the Effective Date.
As used herein, Successor Company refers to Golden Books Family Entertainment,
Inc. and subsidiaries from the Effective Date and Predecessor Company refers to
Golden Books Family Entertainment, Inc. and subsidiaries prior to the Effective
Date.
ITEM 1. BUSINESS
The Company publishes, produces, licenses and markets an extensive range of
children's books and family related entertainment products. The Company
currently has two business segments, which it operates primarily through its
principal operating subsidiary, Golden Books Publishing Company, Inc. ("Golden
Books Publishing"): (1) Consumer Products, which includes its Children's
Publishing and, until its sale in April 1999, Adult Publishing divisions, and
(2) Entertainment, which operates as the Golden Books Entertainment Group
("GBEG") division. The Company previously maintained a third business segment
(Commercial Products), until the sale of its Manufacturing facility in November
1999 (See "Item I. Business-Recent Events" below), which provided printing,
graphic, creative and distribution services to third parties. For certain
financial information with respect to the Company's business segments see Note
19 to the Company's Consolidated Financial Statements contained herein.
Consumer Products
Children's Publishing. The Company is the largest publisher of children's books
in the North American retail market and has published its flagship product line,
"Little Golden Books", for over 50 years. The Children's Publishing division
produces storybooks, coloring/activity books, puzzles, educational workbooks,
reference books, novelty books and chapter books. The products of the Children's
Publishing division utilize both owned (in whole or in part) characters, such as
The Poky Little Puppy and Lassie, and characters licensed by the Company from
third parties, such as Disney (Tarzan, Toy Story 2), Nintendo (Pokemon), Mattel
(Barbie) and Mercer Mayer (Little Critters).
The Children's Publishing division's products have traditionally been designed
primarily for children up to age seven and have been distributed mainly through
mass market channels (which include national discount store chains, such as
Wal-Mart, K-Mart, Target and Toys "R" Us). The Company also sells children's
products through bookstores and other retailers (children's educational
specialty retailers, toy stores, supermarkets, drugstores and warehouse clubs),
special markets (such as school book clubs, school book fairs, paperback
jobbers, catalogues and educational institutions) and international channels.
The Children's Publishing products fall into three broad categories: (i)
"Classic," (ii) education and reference and (iii) trade and novelty products.
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(i) Classic Products
The Company's Classic category of products consists of storybooks and
coloring/activity books and products, as described below. This category of
products accounts for the largest share of the Company's Children's Publishing
revenues and unit sales. Most products in the Classic category are high volume
products that carry a retail price under $5.00. During 1999 and the beginning of
2000, the Company continued to introduce new Classic products with higher price
points which were sold through mass market channels, bookstores and specialty
retail stores. The Company instituted price increases January 1, 1999 and again
on January 3, 2000 on selected products, principally in the Classic Category and
has continued to change its product mix and move toward more profitable product.
Storybooks are published principally under the Golden Books, Little Golden Books
and Golden Look Look trademarks. In addition to storybooks in the foregoing
formats, the Company also publishes paperback books and touch and feel books for
babies, including Pat the Bunny.
Coloring/activity books and products include coloring books, paint books,
sticker books, paper doll books, crayons and boxed activity products. The
Company markets these products under the Golden Books and Merrigold Press
trademarks.
The Company's coloring/activity books and products generally are designed to be
appropriate for children ages three to five and are designed to encourage
age-appropriate activities, particularly the development of artistic and motor
skills. They contain less thematic material than the Company's storybooks and
focus primarily on images and scenes utilizing licensed or owned characters.
(ii) Education and Reference
The Company's education and reference products consist of Road to Reading (a
level reading series), workbooks, flashcards and reference books. The Company's
workbook and flashcard products have retail price points between $2.00 and $3.50
and its Road to Reading books have retail price points between $4.00 and $5.00.
All such products are sold primarily through mass market outlets, although the
Company continues to take advantage of sales opportunities for these products
through bookstores, specialty retail and special markets distribution channels.
The Company first began publishing its Road to Reading level reading series in
1998 using its existing characters and titles, as well as licensed characters
such as Barbie. In early 2000, the Company introduced a new line of Pokemon
workbooks.
(iii) Trade and Novelty Products
The Company's current product offerings in this category consist of flap books,
pop-up books, book plus products, multiple format books and treasuries. Most
products in this category are in the $5.00 to $15.00 retail price range and are
primarily distributed through bookstores, specialty retail stores and special
markets.
The Company continues to expand its product offerings in the trade and novelty
category, with an emphasis on products featuring the Company's proprietary
characters. The Company believes that significant sales opportunities for its
higher priced trade and novelty products exist through bookstores, mass market,
special market and international distribution channels.
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Adult Publishing. Until its sale in April 1999, the Company's Adult Publishing
division published trade books targeted at adults focusing on hobbies, parenting
and the family.
Licensing and Publishing Agreement Developments. In December 1998, the Company
signed a license agreement with Disney, amending the then existing terms of the
license agreement the Company had entered into with Disney in 1997. The Disney
agreement allows the Company to use, in selected product categories and until
December 31, 2000, all of Disney's animated characters, including Mickey Mouse,
Winnie the Pooh and Pinocchio and characters from Disney feature films such as
The Little Mermaid, The Lion King, Aladdin, The Hunchback of Notre Dame and Toy
Story, as well as characters from recent releases such as Tarzan, Toy Story 2
and A Bug's Life.
On March 21, 2000, the Company announced that the Amended Disney License
Agreement would not be renewed and will thus expire on December 31, 2000 (the
"Expiration Date"). In accordance with the rights and obligations of the Company
under the Amended Disney License Agreement, commencing on the Expiration Date,
the Company will have a 13 month period, expiring on January 31, 2002 (the
"Sell-off Period") in which it can continue to sell Disney licensed product
manufactured by the Company until the Expiration Date. Until the Amended Disney
License Agreement expires, all rights and obligations of the Company will remain
in effect and the Company will continue to honor all terms of the Amended Disney
License Agreement through the Sell-off Period. In Fiscal 1999, the sales of
Disney licensed product accounted for slightly less than 20% of the Company's
net sales. The Company believes the termination of the Amended Disney License
Agreement will enable it to continue its change toward more profitable product.
The Company does not believe that the expiration of the Amended Disney License
Agreement will have a negative impact in Fiscal 2000. While the Company is
currently evaluating the long-term impact of the expiration of the Amended
Disney License Agreement, the Company believes that anticipated lost revenues
due to the expiration of this agreement can be mitigated over time from
increased revenues generated from other licensed products as well as increased
sales of proprietary product.
In September 1999, the Company entered into a licensing agreement with Nintendo
North America, Inc. pursuant to which the Company is permitted to use, in
selected product categories, all of Ninetendo's animated Pokemon characters. In
addition, the Company is currently discussing with Nintendo an expansion of the
use of Pokemon product lines currently under license. The Company also maintains
a licensing agreement for the educational television series Between the Lions,
anticipated to debut on PBS in Fall 2000.
The Company has an agreement with Mattel that allows the Company to use, in
selected product categories, the Barbie character.
The Company has an agreement with Warner Brothers that allows the Company to
use, in selected product categories, the Scoobie-Doo and Powerpuff Girls
characters.
A majority of the Company's revenues are generated from the licensing of
characters from third parties. Typically, the licenses granted by third parties
to the Company are for varying terms and may be terminated by the licensor only
upon a breach by the Company of its obligations under the license.
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Entertainment
The Company generates entertainment revenues from the Golden Books Entertainment
Group ("GBEG") division by (i) selling its video products, (ii) licensing
properties from its film library to third parties, both domestically and
internationally, for use on television, on home video and in ancillary media and
(iii) licensing properties from its library for merchandise and the exploitation
of certain music publishing rights. The Company sold its McSpadden Smith music
publishing business in December 1999, but still maintains certain music
publishing rights. GBEG's film library is comprised of copyrights, distribution
rights, trademarks and licenses relating to characters, television programs and
motion pictures, both animation and live action, and includes individual
specials and multiple episode series. Among the film library characters are
Rudolph the Red-Nosed Reindeer, Frosty the Snowman, Santa Claus Is Coming to
Town, Lassie, Underdog, The Lone Ranger, Tennessee Tuxedo, Shari Lewis' Lambchop
and Hush Puppy. The film library also contains 26 half-hour episodes of Felix
the Cat, and 52 half-hour episodes of Abbott and Costello.
The existing licenses granted to third parties in respect of the GBEG division's
properties generally cover a limited time period, typically two to three years
in duration. GBEG's licenses are typically narrow, allowing the same property to
be simultaneously licensed to multiple parties for different purposes thus
allowing GBEG to maximize license revenue from the properties in its film
library. During 1999, the Company entered into a licensing agreement with a
major broadcast network, granting the network a multi-year license for the USA
broadcast rights to Frosty the Snowman and Rudolph the Rednosed Reindeer.
Commercial Products
Until the sale of its Manufacturing Facility (as defined below) in November
1999, the Company, through the Commercial Products Division of its wholly owned
subsidiary, Golden Books Publishing, provided creative, printing and publishing
services to third parties.
Distribution and Sales
The Company's Children's Publishing products are distributed through (i) mass
market, both directly and through independent distributors, (ii) bookstores and
specialty retail stores, (iii) special markets, such as book clubs and internet
distributors, and (iv) international distribution channels. Historically, mass
market distribution has accounted for, and continues to account for, the largest
portion of children's publishing product sales. Among the Company's largest
customers in 1999 were Wal-Mart, K-Mart, Target and Toys "R" Us. To a lesser
extent, the Company has distributed its Children's Publishing products through
other domestic distribution channels.
Internationally, the Company distributes its Children's Publishing products
mainly through third parties and through a wholly-owned subsidiary in Canada.
The Company's sales in Canada account for the majority of its international
sales revenues.
The GBEG division exploits its film library assets through all media and
territories worldwide directly or through sub-distributors. GBEG's series,
specials, and features are licensed directly to domestic and international
broadcasters (terrestrial, cable and satellite) and home video distributors
through an internal program distribution staff. Sub-agents have been appointed
in specific territories on a case-by-case basis. Similarly, product licensing
and merchandising is conducted by an internal department with occasional use of
outside agents. The GBEG division maintains a long-term distribution agreement
with Sony Wonder, a division of Sony Music, under which Sony Wonder produces and
distributes the GBEG division's children's home video and audio products, with
the Company receiving the gross proceeds, less Sony's manufacturing cost and a
distribution fee.
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Competition
The children's publishing market is highly competitive. Competition is based
primarily on price, quality, distribution, marketing and licenses. In mass
market sales, the Company faces competition primarily from smaller competitors,
including, (i) but not limited to, Landoll, Inc., in the coloring/activity
category and (ii) School Zone Publishing Co. and Publications International,
Ltd, in the educational workbook category. In the trade and specialty trade
categories, the Company's principal competitors are Random House, Inc., Simon &
Schuster, Inc., Scholastic Corp. and HarperCollins Publishers, Inc. The Company
also competes for a share of consumer spending on children's entertainment and
educational products against companies that market a broad range of products
utilizing a broad range of technologies that are unrelated to those marketed by
the Company, such as computer-based products. The market for licenses from third
parties is also highly competitive and the Company competes against many other
licensees for significant licenses. Many of the Company's current competitors
have greater financial resources than the Company and, in selected markets,
greater experience than the Company. Many of the markets in which the Company
operates contain a number of competing entities, many of which may have greater
financial resources and experience with respect to these markets than the
Company.
The GBEG division faces strong competition from other independent licensing
agencies and from the in-house licensing divisions of motion picture and
television studios. Additionally, the GBEG division faces intense competition
for available creative personnel, distribution channels and financing including
motion picture studios, television networks and independent production
companies, many of which have greater financial resources than the Company.
Manufacturing
The Company manufactured the majority of its Children's Publishing products at
its manufacturing facility in Sturtevant, WI, (the "Manufacturing Facility")
with additional components and services obtained from third party vendors in the
United States and abroad. As a result of the decline in the revenues of the
Children's Publishing division, the Manufacturing Facility exceeded the
Company's existing needs. Because of the Company's inability to utilize the full
capacity of the Manufacturing Facility, among other reasons, the Manufacturing
Facility was burdened by high operating costs. As a result, in November 1999,
the Company sold its Manufacturing Facility to a third party printer. See "Item
2. Properties". Simultaneously with the sale of the Manufacturing Facility, the
Company and the buyer entered into a printing services agreement. Pursuant to
the terms of the printing services agreement, the Company is obligated to
purchase a substantial portion of the Company's existing product from the buyer.
The Company continues to maintain relationships with other printers and
suppliers of additional components and services in the United States and abroad.
Employees
The Company and its subsidiaries currently have approximately 560 employees,
calculated on a full-time equivalent basis none of whom are represented by labor
unions.
In connection with the production of storybooks and coloring/activity books, the
Company typically hires writers, illustrators and other creative talent on a
freelance, work-for-hire basis to complete its projects.
Recent Events
Amended Joint Plan of Reorganization
In February 1999, the Company reached an agreement with its major creditors
pursuant to which its then existing long-term debt would be significantly
reduced and its existing trade obligations would be paid in full. In accordance
with that agreement, the Company, as well as Golden Books Publishing and Golden
Books Home Video, Inc. filed petitions for reorganization under Chapter 11 of
the United States Bankruptcy Code on February 26, 1999. Under an order dated
September 24, 1999, the Bankruptcy Court confirmed the Company's Amended Joint
Plan of Reorganization (the "Amended Joint Plan of Reorganization"). Significant
components of the Amended Joint Plan of Reorganization were approved by the
Bankruptcy Court on December 22, 1999. On January 27, 2000, the Company formally
emerged from
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protection under the Bankruptcy Code upon the consummation of the Amended Joint
Plan of Reorganization. The Company has applied the reorganization and
fresh-start accounting adjustments as required by SOP 90-7 to the consolidated
balance sheet as of December 25, 1999.
The following is a summary of the Amended Joint Plan of Reorganization:
o The Senior Notes of $150.0 million were converted into (i) new Senior
Secured Notes (as hereinafter defined) in the principal amount of $87.0
million due 2004, with interest at the rate of 10.75%, if paid in cash,
or, at the Company's option for the first two years, 14.25% payable in
kind, and (ii) 42.5% of the Successor Company's common stock issued post
recapitalization, prior to dilution (4,250,000 shares). The Senior Secured
Notes are secured by the existing collateral which had already been
granted to the holders of the Senior Notes as well as certain additional
collateral.
o The Trust Originated Preferred Securities (the "TOPrS") indebtedness of
$109.8 million was converted into 50% of the Successor Company's common
stock issued post recapitalization, prior to dilution (5,000,000 shares).
o The Golden Press Holdings, L.L.C. loan facility in the amount of $10.0
million was converted into 5% of the Successor Company's common stock
issued post recapitalization, prior to dilution (500,000 shares).
o The existing employment agreement with Richard E. Snyder (the Predecessor
and Successor Company's Chairman of the Board and Chief Executive
Officer), was terminated and Mr. Snyder received, in consideration of his
executing a new employment agreement and surrendering certain claims and
rights under his then effective employment agreement, 2 1/2% of the
Successor Company's common stock issued post recapitalization, prior to
dilution in the form of restricted stock (250,000 shares), among other
things.
Shares of preferred and common stock of the Company outstanding at January 27,
2000 ("Old Company Stock") were cancelled in accordance with the Amended Joint
Plan of Reorganization. Holders of Old Company Stock received under the Amended
Joint Plan of Reorganization warrants to purchase an aggregate of 525,000 shares
of the Successor Company's common stock at an exercise price of $23.03 per
share, issued post recapitalization, prior to dilution, allocated two-thirds to
the preferred and one-third to the common shareholders of the Old Company Stock.
In accordance with the Amended Joint Plan of Reorganization, the Company issued,
pursuant to the Company's 1999 Equity Award Plan, 233,889 restricted shares of
the Successor Company's common stock to Richard E. and 703,193 options to
purchase an equal number of shares of Successor Company common stock to senior
management and non-employee directors. 232,361 options to purchase an equal
number of shares of the Successor Company's common stock are subject to further
grants. See "Item 11. Executive Compensation".
Until November 1999, the Company had manufactured the majority of its Children's
Publishing products at its Manufacturing Facility, with additional components
and services obtained from third party vendors in the United States and abroad.
As a result of the decline in the revenues of the Children's Publishing
division, the Manufacturing Facility exceeded the Company's existing needs.
Additionally, the Company was burdened by high operating costs due to its
inability to utilize the full capacity of the Manufacturing Facility.
Accordingly and in anticipation of the Company's emergence from Bankruptcy, in
November 1999 the Company sold the Manufacturing Facility (including the
Commercial Products Division) to a third party resulting in a loss of
approximately $8.8 million. Simultaneous with the sale of the Manufacturing
Facility, the Company and the buyer entered into a printing services agreement.
Pursuant to the terms of the printing services agreement, the Company is
obligated to purchase a substantial portion of the Company's existing product
from the buyer.
Upon the consummation of the Amended Joint Plan of Reorganization, the Successor
Company entered into a revolving credit and term loan agreement consisting of a
revolving credit facility of up to $50.0 million and a term loan in the
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amount of $10.0 million (the "Revolving Credit and Term Loan Agreement"). The
proceeds from the Revolving Credit and Term Loan Agreement were utilized to
repay all of the then outstanding amounts under the Company's
Debtor-in-Possession Loan, with additional proceeds being available for working
capital and general corporate purposes.
The revolving portion of the Revolving Credit and Term Loan Agreement in the
amount of $50.0 million for the revolving credit portion of the Revolving Credit
Agreement matures on December 31, 2002 together will all accrued and unpaid
interest thereon. Such due date may be extended for one year periods. Interest
on the revolving credit portion of the Revolving Credit and Term Loan Agreement
is payable monthly in arrears on the first day of each month commencing February
1, 2000 at a rate equal to the Prime Rate plus 1.75%. The Successor Company is
required to pay an unused line of credit fee in the amount of 1/2 of 1% per
annum monthly in arrears on the last day of each month commencing January 31,
2000. The Successor Company is also required to pay a termination fee of: (i) 3%
through December 31, 2000, (ii) 2% through December 31, 2001 and (iii) 1%
through December 31, 2002, multiplied by the total maximum amount available
above the then outstanding amount reduced by any payments made under the term
loan portion of the Revolving Credit and Term Loan Agreement if the revolving
credit portion of the Revolving Credit and Term Loan Agreement is paid in full
prior to December 31, 2002. Such percentages would be reduced to 1%, .5% and
.25% respectively, if the termination is a result of the sale of the Successor
Company or the offering of debt or equity realizing gross proceeds of not less
than $200.0 million.
The term loan portion of the Revolving Credit and Term Loan Agreement in the
amount of $10.0 million is payable in installments by the Successor Company over
its three year term with all remaining principal together with all accrued and
unpaid interest thereon due in full on December 31, 2002. Interest on the term
loan portion of the Revolving Credit and Term Loan Agreement is payable monthly
in arrears on the first day of each month commencing February 1, 2000 at a rate
equal to the Prime Rate plus 1.75%.
The Revolving Credit and Term Loan Agreement requires the Successor Company to
maintain compliance with certain financial and non-financial covenants,
including minimum EBITDA and limitations on: (i) dividends, distributions and
prepayment, (ii) incurences of additional indebtedness and (iii) capital
expenditures (all as defined in the Revolving Credit and Term Loan Agrement),
among others. The minimum EBITDA covenant requires the achievement of
approximately $1.0 million in EBITDA for Fiscal 2000. While the Company's budget
projects EBITDA in excess of this amount, the Company has not achieved this
level of EBITDA in recent years. The Successor Company has approximately $15.4
million and $6.8 million outstanding under the revolving credit and term loan
portions, respectively of the Revolving Credit and Term Loan Agreement as of
December 25, 1999. At March 17, 2000, the Successor Company had available
borrowings of $19.3 million under the revolving credit portion of the Revolving
Credit and Term Loan Agreement.
Upon consummation of the Amended Joint Plan of Reorganization, the Successor
Company entered into an indenture agreement (the "Indenture") governing the
terms of the senior secured notes in the principal amount of $87.0 million (the
"Senior Secured Notes") due in full on December 31, 2004 together with all
accrued and unpaid interest thereon. Interest at the rate of 10.75% per annum
commencing January 1, 2000 is payable semi-annually on June 30th and December
31st of each year of the term of the Senior Secured Notes. Interest may be paid
in the form of additional Senior Secured Notes at a rate of 14.25% per annum in
lieu of cash at the Successor Company's option for all interest payments due on
or prior to December 31, 2002. The Senior Secured Notes are secured by the
existing collateral which had been granted to the holders of the Predecessor
Company's senior notes as well as certain additional collateral. The Indenture
requires the Successor Company to maintain compliance with certain financial and
non-financial covenants, including minimum EBITDA and limitations on: (i)
restricted payments, (ii) incurences of additional indebtedness and (iii)
capital expenditures (all as defined in the Indenture), among others. The
Successor Company has outstanding $87.0 million in Senior Notes as of December
25, 1999.
In accordance with the Amended Joint Plan of Reorganization, the Company is in
the process of paying all pre-petition trade creditors with undisputed claims
all amounts due with interest accrued thereon at 4.25% and is working to resolve
all disputed claims of pre-petition trade creditors in the Bankruptcy Court.
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Fresh Start Accounting
The consolidated balance sheet information at December 25, 1999 reflects the
Company's Amended Joint Plan of Reorganization and the application of the
principles of "Fresh Start" accounting in accordance with the provisions of
SOP-97. Accordingly, such financial information is not comparable to the
Company's historical financial information prior to December 25, 1999.
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ITEM 2. PROPERTIES
The principal properties currently used by the Company in the conduct of its
business are the following:
The Company's corporate offices, publishing and principal sales offices are
located in leased premises on three floors at 888 Seventh Avenue in New York
City. In January 1999, the Company reduced the space covered by the lease from
112,000 square feet (on six floors) to 55,000 square feet. The amended lease
covering the reduced space is for a term expiring July 31, 2013. The Company
believes that the facilities covered by the amended lease are adequate for the
Successor Company's needs.
The Company's principal administrative offices are located in a 68,000 square
foot leased facility in Sturtevant, WI. Adjacent to the principal administrative
offices is a 430,200 square foot manufacturing facility that the Company began
manufacturing at in February 1998. The Manufacturing Facility had a capacity
which exceeded the Company's needs. In November 1999, the Company sold the
Manufacturing Facility to a third party printer and entered into an agreement
whereby the buyer would continue to manufacture certain of the Company's
Children's Publishing products at the facility.
The Company's principal warehousing and distribution facilities are located in a
403,000 square foot building owned by the Company and located in Crawfordsville,
Indiana. In 1998, the Company closed a distribution center in Coffeyville,
Kansas and consolidated the distribution functions in Crawfordsville, Indiana.
The Coffeyville, Kansas property was sold in January 1999.
In addition, the Company owns or rents several other smaller properties that are
used for administration, sales offices and warehousing, or are held for sale.
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ITEM 3. LEGAL PROCEEDINGS
On February 26, 1999, the Company and certain of its subsidiaries filed
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code, and emerged therefrom on January 27, 2000. See "Recent Events". In
accordance with the Amended Joint Plan of Reorganization, the Company is in the
process of paying all pre-petition trade creditors with undisputed claims all
amounts due with interest thereon at 4.25%, and working to resolve all disputed
claims of pre-petition trade creditors in the Bankruptcy Court.
The Company and Penn Corporation ("Penn") have been informed by the United
States Environmental Protection Agency (the "EPA") and/or state regulatory
agencies that they may be potentially responsible parties ("PRPs") and face
liabilities under the Comprehensive Environmental Response, Compensation, and
Liability Act (commonly known as "CERCLA" or "Superfund") and/or similar state
laws. Although the Company divested Penn in December 1996, the Company has
agreed to indemnify Peacock Papers, Inc. against certain of Penn's environmental
liabilities, including the Cork Street Landfill and Fulford Street Property
sites discussed herein. In all cases except those described below, the Company
has resolved its liability or is in the process of resolving its liability for
amounts that are not material.
On October 2, 1996, the Company received notice from the City Attorney of
Kalamazoo, Michigan that Beach Products, a division of Penn, will be asked to
participate in the remediation of the Cork Street Landfill site located in
Kalamazoo which was allegedly used by Beach Products. Current cost estimates for
the remediation required at the site are as high as $24,000,000. More than 70
entities will be requested to provided financial contribution to the
remediation.
On November 14, 1996, the Michigan Department of Environmental Quality requested
that corrective actions be taken at the Company's former Fulford Street Property
site located in Kalamazoo, Michigan as a result of the discovery on November 8,
1996 of a leaking underground storage tank system. Recent sampling results taken
pursuant to the corrective action plan for this site indicated the presence of
groundwater contamination at levels exceeding the Michigan Department of
Environmental Quality standards in one of six groundwater samples. Additional
sampling will be undertaken to determine the source of the contamination.
Current estimates indicate that future costs associated with this release are
not expected to exceed $200,000. However, in the event that the contamination
has migrated off the site, these costs could increase.
At the Hunt's Landfill site in Racine County, Wisconsin, the Company's liability
pursuant to the terms of a consent decree is limited to approximately 4% of the
total remedial costs. Although the last phase of remediation activities was
completed in 1996, the Company and the other PRPs are obligated to fund the
operation and maintenance of the site for the next 20-30 years. The current
estimate of the total costs of such operation and maintenance is approximately
$5 million. In accordance with the consent decree, the Company has established a
reserve for its share of the probable clean-up costs.
In 1991 the EPA issued a unilateral administrative order (the "1991 Order") to
the Company and four other PRPs, requiring the Company and the other PRPs to
perform a remedial design and remedial action at the Hertel Landfill Superfund
Site in Plattekill, New York. The Company did not agree to comply with the
Order. The EPA subsequently sued the Company and other PRPs seeking recovery of
its costs at this site. Various PRPs in the litigation brought claims for
contribution against each other and the Company. The Company settled its
liability to the United States for noncompliance with the 1991 Order and agreed
to comply with the 1991 Order by implementing the remedy at the site, which is
now estimated to cost up to $4.9 million, excluding potential groundwater
remediation costs. On July 9, 1998, the Company and other PRPs entered into a
consent decree with the United States and the State of New York to resolve their
alleged liability for past response costs and formalize their agreement to
perform the remedy at the site. Under the consent decree, the Company and the
other settling parties are jointly and severally obligated to perform the remedy
and reimburse certain governmental past and future costs. The Company has paid
approximately $1.7 million toward remedial costs since 1996 and has completed
construction of the landfill cap. The Company's share of future costs for
operation and maintenance of the cap and landfill monitoring are expected to be
less than $500,000. The Company's share of the government's future costs is
expected to be $170,000.
The Company also has been identified as a PRP at a site located in Poughkeepsie,
New York. The Company and eight
10
<PAGE>
other PRPs received a notice letter in 1995 from the State of New York regarding
this site. The State of New York sought recovery of its past oversight costs of
more than $600,000 plus future oversight and maintenance costs associated with
this site, estimated by the State of New York to be $830,000. The Company has
received no further communications from the State of New York with respect to
this site but believes that the construction phase of the remedy has been
completed.
In addition to these environmental matters, the Company is party to the
following legal proceedings.
Live Entertainment, Inc. (Artisan Entertainment, Inc.) filed an action in
December 1998 in the California Superior Court against the Company to recover
damages in excess of $2.3 million as a result of the Company allegedly breaching
certain of its obligations under a licensing agreement. The Company has filed an
answer and cross complaint alleging breaches of the licensing agreement by Live
Entertainment, Inc. and seeking recission of the agreement.
The Company filed an action in 1994 in the United States District Court, Eastern
District of Wisconsin captioned as Western Publishing Company, Inc. v.
MindGames, Inc. seeking a declaration of rights in regard to the Company's
alleged breach of various of its obligations under its licensing agreement with
the defendant for distribution through 1994 of the adult board game known as
"Clever Endeavor." The District Court has granted the Company's motion for
summary judgment with respect to MindGames, Inc.'s claims to recover
approximately $2.4 million in lost profits and other losses. MindGames, Inc. has
agreed to dismiss its remaining claim to recover approximately $120,000 of
unpaid royalties in order to appeal the District Court's ruling. Although the
parties have filed initial briefs with the 7th Circuit Court of Appeals, the
appeal was stayed during the Company's bankruptcy proceeding.
The Company is a party to certain other legal proceedings which are incidental
to its ordinary business, none of which the Company believes are material to the
Company and its subsidiaries taken as a whole.
In consideration of the aforementioned matters, the Successor Company has
recorded accruals in the "deferred compensation and other deferred liabilities"
account of approximately $8.3 million in the consolidated balance sheet at
December 25, 1999. While it is not feasible to predict or determine the outcomes
of these aforementioned proceedings, it is the opinion of management that they
maintain adequate reserves in the consolidated balance sheet.
11
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Richard E. Snyder
Age: 66
Mr. Snyder has served as Chief Executive Officer of the Company since May 8,
1996. Mr. Snyder was President of the Company from January 31, 1996 to May 8,
1996. Prior to that time, Mr. Snyder had, since 1994, been an independent
business consultant and investor. He was the Chairman and Chief Executive
Officer of Simon & Schuster from 1975 to 1994. Mr. Snyder is a director of
Reliance Group Holdings, Inc.
Richard Collins
Age: 48
Mr. Collins has served as Golden Books Publishing Company, Inc.'s Chief
Operating Officer since June 1998. From July 1997 until June 1998, he served as
the Company's Executive Vice President, Director of Sales and Retail Marketing.
From October 1991 to July 1997, Mr. Collins was employed at Unilever/Lipton,
most recently as Vice President, Strategic Customer Management.
Philip Galanes
Age: 36
Mr. Galanes has served as Chief Administrative Officer of the Company since
November 1998. From December 1996 until November 1998 he served as the Company's
General Counsel and Vice President, Legal Affairs. From January 1995 to November
1996, Mr. Galanes was an associate at the law firm of Paul, Weiss, Rifkind,
Wharton & Garrison. Previously, Mr. Galanes was an associate at the law firm of
Debevoise & Plimpton.
Colin Finkelstein
Age: 39
Mr. Finkelstein has served as Executive Vice President and Chief Financial
Officer of the Company since January, 1999. He served as Senior Vice President,
Finance and Planning of the Company and Executive Vice President, General
Manager of the Company's Children's Publishing division from October 1996 until
January 1999. From November 1988 until September 1996, Mr. Finkelstein was
employed by EMI Music, Inc., most recently as Vice President, Controller.
12
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
STOCKHOLDERS' INFORMATION
COMMON STOCK PRICES
The Predecessor Company's common stock, par value $.01 per share ("Common
Stock") had historically been traded over-the-counter and quoted on the NASDAQ
National Market System (symbol GBFE). On February 17, 1999, the Predecessor
Company's Common Stock was delisted from the NASDAQ National Market System for
failure to meet continued listing standards. Until the Company's reorganization
on January 27, 2000, the Predecessor Company's Common Stock has been quoted on
the OTC Bulletin Board. The following table sets forth the range of prices of
the Predecessor Company's Common Stock (which represent actual transactions), by
quarter, as provided by the National Association of Securities Dealers, Inc.
Fiscal Year Ended December 25, 1999
- --------------------------------------------------------------------------------
High Low
First Quarter 3 5/16 9/32
Second Quarter 5/8 7/32
Third Quarter 1/2 11/64
Fourth Quarter 1/4 3/32
Fiscal Year Ended December 26, 1998
- --------------------------------------------------------------------------------
High Low
First Quarter 11 3/16 10 5/16
Second Quarter 11 3/4 3 3/4
Third Quarter 6 1/8 5/16
Fourth Quarter 7/8 1/8
The Successor Company's common stock, par value $.01 per share was issued on
January 27, 2000 and the bid price as quoted on the OTC Bulletin Board (symbol
GBKF) on March 20, 2000 was $1 13/16.
DIVIDEND POLICY
Holders of the Successor Company's Common Stock are entitled to receive such
dividends as may be lawfully declared by the Board of Directors. Management does
not currently anticipate the payment of cash dividends on the Successor
Company's common stock in the foreseeable future.
In addition, the Indenture and the Revolving Credit and Term Loan Agreement
restrict the Company's ability to pay dividends.
13
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected consolidated financial data below is derived from the consolidated
financial statements of the Predecessor Company, except for the December 25,
1999 balance sheet information which represents the Successor Company and should
be read in conjunction with the consolidated financial statements of the Company
and the notes thereto included elsewhere herein. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and "Consolidated
Financial Statements." In 1996 the Company changed its fiscal year end so as to
end on the last Saturday of December in each year. As a result, the fiscal 1996
results from operations are not necessarily comparable to other periods as
presented.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
Year Ended 11 Months Year Ended
---------- Ended ----------
December 25, December 26, December 27, December 28, February 3,
1999 1998 1997 1996 1996
---- ---- ---- ---- ----
Income Statement Data: (In Thousands, Except Per Share Data)
Revenues
<S> <C> <C> <C> <C> <C>
Net sales $ 165,259 $ 193,573 $ 242,481 $ 254,046 $ 369,572
Royalties and other income 512 653 1,080 959 1,722
--------- --------- --------- --------- ---------
Total Revenues 165,771 194,226 243,561 255,005 371,294
--------- --------- --------- --------- ---------
Costs and expenses:
Cost of sales 111,421 181,141 176,238 231,792 281,392
Selling, general and administrative 79,041 98,293 111,307 142,721 129,020
(Gains) losses on sales of assets (7,300) 1,762 (10,786) 65,741 6,701
Write-off of assets -- 15,309 -- -- --
--------- --------- --------- --------- ---------
Total costs and expenses 183,162 296,505 276,759 440,254 417,113
--------- --------- --------- --------- ---------
Loss before reorganization items,
fresh-start valuation,
distributions on Guaranteed
Preferred Beneficial Interests in
the Company's and Golden Books
Publishing Company, Inc.'s (17,391) (102,279) (33,198) (185,249) (45,819)
Convertible Debentures, interest
expense, net, (benefit) provision
for income taxes and extraordinary
item
Reorganization items (21,329) -- -- -- --
Fresh-start valuation 77,007 -- -- -- --
Distributions on Guaranteed Preferred
Beneficial Interests in the
Company's and Golden Books
Publishing Company, Inc.'s 1,628 10,282 10,282 3,597 --
Convertible Debentures (Contractual
distributions of $9,667 for the
year ended December 25, 1999)
Interest expense, net of interest
income (Contractual interest
expense of $14,646 for the year
ended December 25, 1999) 3,366 16,704 6,163 6,764 9,896
--------- --------- --------- --------- ---------
Income (loss) before (benefit)
provision for income taxes and 33,293 (129,265) (49,643) (195,610) (55,715)
extraordinary item
(Benefit) provision for income taxes (590) (666) 37 1,893 11,332
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item 33,883 (128,599) (49,680) (197,503) (67,047)
Extraordinary item-early extinguishment
of debt 151,956 -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss) $ 185,839 $(128,599) $ (49,680) $(197,503) $ (67,047)
========= ========= ========= ========= =========
Net income (loss) per basic and diluted
common share before extraordinary item $ 1.15 ($ 4.89) ($ 2.18) ($ 8.73) ($ 3.23)
Net income per basic and diluted
common share-extraordinary item 5.38 -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss) per basic and diluted
common share $ 6.53 ($ 4.89) ($ 2.18) ($ 8.73) ($ 3.23)
========= ========= ========= ========= =========
</TABLE>
14
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA (continued)
The consolidated balance sheet information at December 25, 1999 reflects
the Company's Amended Joint Plan of reorganization and the application of
the principles of "Fresh Start" accounting in accordance with the
provisions of SOP-97. Accordingly, such financial information is not
comparable to the Company's historical financial information prior to
December 25, 1999.
<TABLE>
<CAPTION>
Successor | Predecessor Company
Company |
December 25, | December 26, December 27, December 28, February 3,
1999 | 1998 1997 1996 1996
---- | ---- ---- ---- ----
<S> <C> | <C> <C> <C> <C>
Working (deficiency) capital $ (4,641) | $ (267,997) $ 95,780 $ 168,210 $ 165,309
|
Total assets 289,998 | 254,951 323,164 367,235 321,965
|
Long-term debt (including amount |
shown as current for Predecessor |
Company) 93,750 | 150,000 149,897 149,862 149,845
|
Guaranteed preferred beneficial |
interests in the Company's and |
Golden Books Publishing -- | 115,000 110,707 110,488 --
Company, Inc.'s Convertible |
Debentures |
|
Convertible Preferred Stock - |
Series A -- | -- -- -- 9,985
|
Common stockholders' equity |
(deficit) 49,750 | (189,081) (61,309) (19,637) 74,368
</TABLE>
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Forward-Looking Statements
The following should be read in conjunction with the audited consolidated
financial statements of Golden Books Family Entertainment, Inc. and Subsidiaries
(the "Company") at December 25, 1999 and December 26,1998 and for the years then
ended and the related notes thereto.
This Annual Report on Form 10-K and in particular Management's Discussion and
Analysis of Financial Condition and Results of Operations, as well as "Item
1-Business" and "Item 3-Legal Proceedings", contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. The Company's actual results of operations and future financial
condition may differ materially from those expressed or implied in any such
forward-looking statements as a result of many factors, including factors that
may be beyond the Company's control. On January 27, 2000, the Company formally
emerged from proceedings under Chapter 11 of the Bankruptcy Code. Future success
of the Company depends on the Company's ability to maintain lower operating
costs, return to profitability and generate sufficient cash flow to meet its
operational and financing requirements including servicing its reduced
indebtedness and Revolving Credit and Term Loan Agreement. Other factors that
may cause actual results of operations and future financial condition to differ
from those expressed or implied in any forward-looking statements contained
herein include loss of key licenses, adverse changes in relationships with key
customers, the degree of acceptance of new product introductions, the level of
product returns, changes in consumer preferences, such as the growth of
computer-based products, and consumer spending habits, competition from existing
and potential competitors, pricing pressures, costs of labor and other costs and
expenses, demographics and general economic conditions. The Company cautions
that the foregoing list of important factors is not exclusive. The Company does
not undertake to update any forward-looking statements contained herein or that
may be made from time to time by or on behalf of the Company.
The Company's financial results in Fiscal 1999 were impacted as a result of its
filing for reorganization under Chapter 11 of the Bankruptcy code on February
26, 1999, from which the Company did not formally emerge until January 27, 2000.
Because significant components of the Amended Joint Plan of Reorganization were
approved by the Bankruptcy Court on December 22, 1999, pursuant to guidance
provided by SOP 90-7, the Company adopted Fresh-Start accounting as of December
25, 1999.
Under fresh start accounting, a new reporting entity is deemed to be created and
the recorded amounts of assets and liabilities are adjusted to reflect their
estimated fair values at the Effective Date. A black line has been drawn to
separate the Successor Company's (as defined below) consolidated balance sheet
from those of the Predecessor Company (as defined below) to signify that they
are different reporting entities and such consolidated balance sheets have not
been prepared on the same basis. As used herein, Successor Company refers to
Golden Books Family Entertainment, Inc. and Subsidiaries from the Effective date
and Predecessor Company refers to Golden Books Family Entertainment, Inc. and
Subsidiaries prior to the Effective Date.
16
<PAGE>
The Company has currently two business segments, which it operates primarily
through its principal operating subsidiary, Golden Books Publishing Company,
Inc. ("Golden Books Publishing"): (1) Consumer Products, which includes its
Children's Publishing and, until its sale in April 1999, Adult Publishing
divisions, and (2) Entertainment, which operates as the Golden Books
Entertainment Group ("GBEG") division. The Company previously maintained a third
business segment (Commercial Products) until the sale of its Manufacturing
facility in November 1999 which provided printing, graphic, creative and
distribution services to third parties. For certain financial information with
respect to the Company's business segments see Note 19 to the Company's
Consolidated Financial Statements contained herein.
Fiscal Year Ended December 25, 1999 Compared to Fiscal Year Ended December 26,
1998
Revenues
Total revenues for Fiscal 1999 decreased $28.4 million (14.6%) to $165.8 million
compared to $194.2 million for Fiscal 1998. Revenues decreased in the Consumer
Products, Entertainment and Commercial Products segments due to the factors
described below. The Company believes that the revenue decline is partially
attributable to the after effects of the February 26, 1999 Bankruptcy filing.
Consumer Product revenues decreased $14.8 million (9.8%) to $135.9 million for
Fiscal 1999 compared to $150.7 million for Fiscal 1998. Children's Publishing
revenues decreased $9.9 million to $132.6 million for Fiscal 1999 compared to
$142.5 million for Fiscal 1998. The decline in Children's Publishing revenue is
mainly attributable to the Company's strategic focus on changing the product mix
towards more profitable product. Additionally, the Company experienced decreases
in sales related to key license products, reduced purchases by certain mass
retailers (including Wal-Mart, among others), an overall decrease in the
bookclub business and reduced international sales. These decreases were
partially offset by increased revenues generated from product initially
introduced in September 1999 associated with the Pokemon license, a price
increase on certain product lines in January 1999 and the launch of a new
novelty product line in 1999. Revenues from the Adult Publishing business
decreased $4.9 million to $3.3 million for Fiscal 1999 compared to $8.2 million
for Fiscal 1998. The Company sold the Adult Publishing business in April 1999.
Accordingly, Fiscal 1999 does not include any revenue generated from the Adult
Publishing business after the sale.
Entertainment revenues decreased $4.3 million (14.8%) to $24.7 million for
Fiscal 1999 compared to $29.0 million for Fiscal 1998. The decrease is primarily
attributable to fewer new home video releases in 1999 as compared to 1998, which
saw greater revenue generated from the sale of new "Madeline" videos. The
decrease is partially offset by an increase in television revenue relating to a
multi-year contract for the USA broadcasting rights for Frosty the Snowman and
Rudolph the Red Nosed Reindeer.
Commercial Products revenues decreased $9.3 million (64%) to $5.2 million for
Fiscal 1999 compared to $14.5 million for Fiscal 1998. The Commercial Products
business terminated when the Company sold its Manufacturing Facility in November
1999.
Gross Profit
Total gross profit increased $41.2 million (315%) to $54.3 million for Fiscal
1999, from $13.1 million for Fiscal 1998. As a percentage of revenues, total
gross profit margin increased to 32.7% for Fiscal 1999 from 6.8% for Fiscal
1998. The increase was attributable to improved gross profit margins in the
Consumer Products Segment.
Consumer Products gross profit increased $41.2 million to $42.4 million for
Fiscal 1999, compared to $1.2 million for Fiscal 1998. As a percentage of
revenues, Consumer Products gross profit margin increased to 31% for Fiscal 1999
from 1% for Fiscal 1998. The improvement in gross profit margin was primarily
attributable to a change in the product mix toward more profitable formats, a
price increase in January 1999, the Company's ability to enter into licensing
17
<PAGE>
agreements with more favorable terms to the Company and reduced manufacturing,
distribution and pre-production costs. This improvement was partially offset by
unfavorable capacity utilization in the Manufacturing Facility until its sale in
November 1999.
Entertainment gross profit increased $0.3 million (3%) to $11.9 million for
Fiscal 1999 compared to $11.6 million for Fiscal 1998, respectively. As a
percentage of revenues, the gross profit margin increased to 48% for Fiscal 1999
compared to 40% for Fiscal 1998. The increase is primarily related to decreased
expenses related to television licensing.
Until the sale of the Manufacturing Facility as noted above, the Commercial
Products Segment utilized the Company's manufacturing facility and third party
manufacturers to provide printing, graphic and distribution services to both the
Company and third parties. Commercial cost of sales approximated revenues.
Selling, General and Administrative Expenses
Selling, general and administrative expenses decreased $19.3 million to $79.0
million for Fiscal 1999 compared to $98.3 million (including one-time transition
costs of $7.8 million) for Fiscal 1998. This decrease is primarily a result of
various management initiatives that have streamlined operations and reduced
overhead costs.
(Gains) Losses on Sales of Assets
(Gains) losses on sale of assets of ($7.3) million in Fiscal 1999 was comprised
of: (i) the sale of the Company's Coffeyville Distribution Center for
approximately $2.2 million, which resulted in a gain of approximately $1.5
million, (ii) the sale of the Company's operating facility in Canada for
approximately $1.9 million, which resulted in a gain of approximately $1.9
million, (iii) the sale of the Company's Adult Publishing business for
approximately $10.8 million, which resulted in a gain of approximately $1.7
million and (iv) the sale of the Company's music publishing business for
approximately $2.7 million, which resulted in a gain of $2.2 million. (Gains)
losses on sales of assets in Fiscal 1998 resulted from a loss of $1.8 million
associated with the sale of the Fayetteville facility.
Write-off of Assets
Write-off of assets of $15.3 million in Fiscal 1998 was comprised of: (i) $9.2
million associated with the write-down of the Company's Manufacturing Facility
due to recurring losses by the Company's Children's Publishing business
primarily due to reduced level of sales, high operating costs (including an
unfavorable lease agreement and disadvantageous union contracts) and the
underutilization of the facility's capacity, (ii) $1.4 million related to the
acceleration of the amortization period of one of the Company's entertainment
productions and (iii) $4.7 million principally consisting of a write-off of
leasehold improvements associated with the Company's reduction of office space
in connection with their New York lease agreement.
Reorganization Items
Reorganization items related to the Chapter 11 proceedings in Fiscal 1999 of
$21.3 million were comprised of: i) $8.8 million loss on the sale of the
Company's Manufacturing Facility, (ii) $8.8 million in professional fees, (iii)
$1.3 million related to the settlement of a class-action lawsuit and (iv) $2.7
million in other costs, partially offset by $0.3 million in interest income.
Fresh-Start Valuation
The Company recorded $77.0 million in "Fresh-Start" income in relation to the
Company's emergence from Chapter 11 reorganization at December 25, 1999,
primarily attributable to the valuation of identifiable intangible assets and
the establishment of excess reorganizational value.
18
<PAGE>
Interest Income
Interest income for Fiscal 1999 decreased approximately $1.5 million to $0.2
million from $1.7 million for Fiscal 1998. The decrease in interest income was
attributable to lower cash and cash equivalent balances throughout the period.
Interest Expense
Interest expense for Fiscal 1999 decreased by $23.5 million to $5.2 million, as
compared to $28.7 million (including the distributions on the guaranteed
preferred beneficial interest in the Company's and Golden Books Publishing's
Convertible Debentures) for Fiscal 1998. The Company stopped recording interest
expense relating to its debt facilities effective February 26, 1999 in
accordance with the requirements of SOP 90-7.
Income Taxes
The income tax benefit recorded in Fiscal 1999 results primarily from the
favorable settlement and conclusion of the Internal Revenue Service's
examination of the Company's tax returns through its year ended January 28,
1995. The Company's reorganization and the associated implementation of
fresh-start accounting gave rise to significant items of income for financial
reporting purposes that will not be treated as income for tax purposes. The
income tax benefit recorded in Fiscal 1998 primarily relates to current year
losses of the Company's wholly owned Canadian subsidiary which files separately
in that jurisdiction. These losses offset income previously recognized by that
subsidiary.
As of the Effective Date, the Company generated approximately $354.0 million of
Net Operating Loss ("NOL") carryforwards with expiration dates of between 2011
and 2019. However, these NOLs were reduced substantially, to approximately
$203.0 million as a result of the discharge and cancellation of various
prepetition liabilities under the Company's Amended Joint Plan of
Reorganization. In addition, the NOLs remaining after the application of the
cancellation of indebtedness rules are subject to certain
limitation-on-utilization rules. The federal income tax code imposes limitations
on the utilization of such loss carryforwards after certain changes of ownership
of a loss company (as defined in Internal Revenue Code Section 382), and the
Company is deemed a loss company for tax purposes.
Management has concluded based on available data that no change of ownership has
occurred prior to the Effective Date. However, as a result of the Amended Joint
Plan of Reorganization a change of ownership did occur on the Effective Date and
use of the Company's remaining NOL carryforwards became limited. The tax rules
governing utilization of these NOLs are complex and depend on certain factors,
some of which are presently unknown.
Ordinarily, an ownership change would result in a significant limitation on the
Company's ability to utilize its net operating loss carryforwards following the
ownership change. However, pursuant to the so-called "Section 382(l)(5)
bankruptcy exception," provided the Company's reorganization resulted in the
ownership of 50% or more of the Company's stock by "qualifying creditors" and
pre-change stockholders, the general limitations imposed by Section 382 will not
apply, but the Company's net operating loss carryforwards will be reduced by
certain interest paid or accrued on indebtedness converted into stock pursuant
to the Plan. The Company has calculated the reduction needed under this
provision to be $28.0 million; thus reducing the available NOLs as of the
Effective Date to approximately $175.0 million.
If the Section 382(l)(5) bankruptcy exception applies and the Company undergoes
another ownership change within two years after the ownership change resulting
form its Chapter 11 reorganization, the Company would not be entitled to use any
net operating loss carryforwards that accrued prior to such subsequent ownership
change to offset taxable income earned following such ownership change.
The Company's Management believes that qualifying creditors have received
ownership of more than 50% of the Company's stock pursuant to the
Reorganization. However, this determination is not yet finalized. If the Company
determines that it cannot qualify under the Section 382(l)(5) bankruptcy
exception, or if there is a significant
19
<PAGE>
possibility that the Company will undergo another ownership change within the
two-year period following the ownership change resulting from its Chapter 11
reorganization, the Company may elect to be subject to the annual limitation
rules under Section 382(l)(6) of the Internal Revenue Code (the "Section
382(l)(6) election"). Under this provision, the Company's ability to utilize net
operating loss carryforwards in the future will generally be subject to an
annual limitation (the "Section 382(1)(6) limitation") determined by multiplying
the applicable federal long term tax-exempt rate of 6.45% as of January, 2000 by
the fair market value of the equity of the Company immediately after the
ownership change. Thus, based on the value of the equity of the Company as the
Effective Date of the Amended Joint Plan of Reorganization of $49.75 million,
the Company could use approximately $3.2 million of its NOLs each year until
they expire. If the Section 382(l)(6) election is made, the Company's net
operating loss carryforwards will not be subject to the reductions mandated by
the Section 382(l)(5) bankruptcy exception, nor will there be a complete
prohibition on the use of net operating loss if the Company undergoes another
ownership change within the two-year period described above.
While it is anticipated the Section 382(l)(5) bankruptcy exception would be most
advantageous, the Company has until September 17, 2001 to decide on whether or
not to make the Section 382(l)(6) election.
There can be no assurance that the Company will be able to utilize these NOLs
due to the complex nature of the applicable tax code and the differences that
may exist between Management's interpretation of the code an that of the
Internal Revenue Service. As a result of the risks associated with NOLs,
management has established a 100% valuation allowance to offset the associated
deferred tax asset.
Pursuant to SOP 90-7 the income tax benefit, if any, of any future realization
of the remaining NOL carryforwards existing as of the Effective Date will be
applied first as a reduction to Excess Reorganization Value, then to Other
Intangible Assets until exhausted and thereafter be reported as a direct
addition to paid in capital.
Extraordinary Item-Gain on Early Retirement of Debt
The Company recognized a gain of $152.0 million related to debt discharged in
the Company's emergence from Chapter 11 reorganization.
Net Income (Loss)
The net income (loss) for Fiscal 1999 was $185.8 million, or $6.53 per basic and
diluted common share, compared to a net loss of $(128.6) million, or $(4.89) per
basic and diluted common share, for Fiscal 1998. The changes were due to the
factors described above.
Fiscal Year Ended December 26, 1998 Compared to Fiscal Year Ended December 27,
1997
Revenues
Total revenues for Fiscal 1998 decreased $49.3 million (20.2%) to $194.2 million
compared to $243.5 million for Fiscal 1997. Excluding the 20.9 million in
revenues from the Cambridge printing facility which was sold during Fiscal 1997,
revenues decreased $28.4 million (12.8%) to $194.2 million for the Fiscal 1998
compared to $222.7 million for Fiscal 1997 due to the factors described below.
Consumer revenues decreased $21.0 million (12.2%) to $150.7 million for Fiscal
1998 compared to $171.7 million for Fiscal 1997. The decline for Fiscal 1998 is
primarily due to lower electronic and education categories sales, higher returns
in Fiscal 1998, and a temporary reduction in buying by certain major retailers,
including K-Mart and Zellers during the first half of Fiscal 1998. This decline
was partially offset by revenue increases in the Company's strategically priced
Merrigold line, improvements in the trade and novelty category, and increased
sales with certain major retailers including Target and other key distributors.
20
<PAGE>
Entertainment revenues decreased $0.3 million (1%) to $29.0 million for Fiscal
1998 compared to $29.3 million for Fiscal 1997. The decrease for Fiscal 1998 was
primarily due to a decline in video sales of approximately $3.6 million offset
by increases in television distribution and merchandising revenues of $2.5
million and $0.7 million, respectively.
Commercial Products revenues for Fiscal 1998 (excluding the 20.9 million in
revenues from the Cambridge printing facility which was sold during Fiscal 1997)
decreased $7.1 million (32.9%) to $14.5 million compared to $21.6 million for
Fiscal 1997. The overall decline for Fiscal 1998 was primarily due to the new
manufacturing facility in Sturtevant, WI, which did not become fully operational
until the second quarter of 1998.
Gross Profit
Total gross profit (excluding gross profit of $3.5 million in Fiscal 1997 from
the sale of the Cambridge Printing Facility that was sold as described above and
one-time transition costs of $4.4 million in Fiscal 1998 related to outsourcing
premiums) decreased $46.3 million to $17.5 million (72.6)% for Fiscal 1998, from
$63.8 million for Fiscal 1997 due to the factors described below. As a
percentage of revenues, total gross profit margin (excluding the items noted
above) decreased to 9.0% for Fiscal 1998 from 28.9% in Fiscal 1997.
Consumer gross profit decreased $42.3 million (87.8)% to $5.9 million for Fiscal
1998, compared to $48.2 million for Fiscal 1997. As a percentage of revenues,
the Consumer gross profit margin decreased to 3.9% for Fiscal 1998 from 28.1%
for Fiscal 1997. The decrease in gross profit for Fiscal 1998 was primarily due
to higher manufacturing costs, higher royalty rates associated with the Disney
and Mattel license arrangements, an increased provision for royalty guarantees,
higher inventory obsolescence reserves for inventory relating to expired license
agreements, unprofitable product, and increased warehousing and shipping costs.
Entertainment gross profit decreased $4.0 million (25.6)% to $11.6 million for
Fiscal 1998 compared to $15.6 million for Fiscal 1997. As a percentage of
revenues, the gross profit margin decreased to 40.0% for Fiscal 1998 compared to
53.1% for Fiscal 1997. The decrease is mainly attributable to lower margins
related to Home Video sales due to lower overall sales and an increased
provision for returns. This decrease was partially offset by favorable gross
profit related to television distribution and merchandising sales.
The Commercial Products segment utilizes the Company's manufacturing facility
and third-party manufacturers to provide printing, graphic and distribution
services to both the Company and third parties. During Fiscal 1997, the Company
sold its primary third party printing operation (Cambridge) which had
contributed a gross profit of $3.5 million for Fiscal 1997. During Fiscal 1998,
the Company's manufacturing facility was utilized primarily for internal
production. Such internal production costs were allocated to the Consumer
Products segment.
Selling, General and Administrative Expenses
Selling, general and administrative expenses (before consideration of one-time
transition costs described below) decreased $9.4 million to $90.5 million for
Fiscal 1998 compared to $99.9 million for Fiscal 1997. The decrease was
primarily attributable to lower advertising, editorial and design costs, and a
general reduction of overhead costs which were partially offset by an increase
in the Company's general bad debt reserve.
One-time transition costs of $7.8 million in Fiscal 1998 was comprised primarily
of costs related to the move to the new manufacturing facility in Sturtevant,
WI. One-time transition costs of $11.4 million in Fiscal 1997 was comprised of
$3.1 million of moving costs associated with the new facilities, $3.5 million
for outsourcing the information technology department, $4.5 million in
consulting services associated with implementing the Company's Strategic Plan
and $0.3 million in other costs.
21
<PAGE>
(Gains) Losses on Sales of Assets
(Gains) losses on sales of assets in Fiscal 1998 was due to a loss of $1.8
million associated with the sale of the Fayetteville facility. (Gains) losses on
sales of assets of $(10.8 million) in Fiscal 1997 was comprised primarily of a
gain on the sale of the Company's Cambridge commercial printing operations.
Write-off of Assets
Write-off of assets of $15.3 million in Fiscal 1998 was comprised of: (i) $9.2
million associated with the write-down of the Company's Manufacturing Facility
due to recurring losses by the Company's Children's Publishing business
primarily due to reduced level of sales, high operating costs (including an
unfavorable lease agreement and disadvantageous union contracts) and the
underutilization of the Manufacturing Facility's capacity, (ii) $1.4 million
related to the acceleration of the amortization period of one of the Company's
entertainment productions and (iii) $4.7 million principally consisting of a
write-off of leasehold improvements associated with the Company's reduction of
office space in connection with their New York lease agreement.
Interest Income
Interest income for Fiscal 1998 decreased $3.9 million to $1.7 million from $5.6
million for Fiscal 1997. The decrease in interest income was attributable to
decreased investment income as a result of lower cash and cash equivalent
balances throughout the year.
Interest Expense
Interest expense (including the distributions on the TOPrS) for Fiscal 1998
increased by $6.7 million to $28.7 million, as compared to $22.0 million for
Fiscal 1997 due to increased debt levels primarily associated with the
NationsCredit Revolving Credit Facility which was entered into in June 1998.
Total average outstanding debt (including the TOPrS) was $281.3 million for
Fiscal 1998 and $265.0 million for Fiscal 1997.
Income Taxes
The income tax benefit recorded in Fiscal 1998 primarily relates to current year
losses of the Company's Canadian Subsidiary, which files separately in that
jurisdiction. These losses are expected to offset income already recognized by
that Subsidiary. In Fiscal 1997, the tax provision primarily related to various
state and local income taxes imposed on the Company.
At December 26, 1998, the Company has net operating loss carryforwards of
approximately $301 million with expiration dates between 2011 and 2018.
Utilization of such losses in the future could be significantly limited should
there have been an ownership change (as defined in Internal Revenue code Section
382). Further, there are specific modifications which may be required to be made
to the net operating loss carryforwards of the Company as a result of the
Chapter 11 bankruptcy proceedings. At such time as the Company emerges from
bankruptcy, it is likely there will be an ownership change for tax purposes
which would result in a Section 382 limitation on future utilization of net
operating losses. Since there are a number of variables which could affect the
Company it was possible to determine whether the Company's net operating loss
carryforwards will produce tax benefits in the future. Benefit was not provided
for these loss carryforwards at December 26, 1998.
Net Loss
The net loss for Fiscal 1998 was $(128.6) million, or $(4.89) per basic common
share, compared to a net loss of $(49.7) million , or $(2.18) per basic common
share, for the year ended December 27, 1997. The changes were due to the factors
described above.
22
<PAGE>
Financial Condition, Liquidity and Capital Resources
In February 1999, the Company reached an agreement with its major creditors
pursuant to which its then existing long-term debt would be significantly
reduced and its existing trade obligations would be paid in full. In accordance
with that agreement, the Company, as well as Golden Books Publishing and Golden
Books Home Video, Inc. filed petitions for reorganization under Chapter 11 of
the United States Bankruptcy Code on February 26, 1999. Under an order dated
September 24, 1999, the Bankruptcy Court confirmed the Company's Amended Joint
Plan of Reorganization (the "Amended Joint Plan of Reorganization"). Significant
components of the Amended Joint Plan of Reorganization were approved by the
Bankruptcy Court on December 22, 1999. On January 27, 2000, the Company formally
emerged from protection under the Bankruptcy Code upon the consummation of the
Amended Joint Plan of Reorganization. The Company has applied the reorganization
and fresh-start accounting adjustments as required by SOP 90-7 to the
consolidated balance sheet as of December 25, 1999.
The following is a summary of the Amended Joint Plan of Reorganization:
o The Senior Notes of $150.0 million were converted into (i) new Senior
Secured Notes (as hereinafter defined) in the principal amount of $87.0
million due 2004, with interest at the rate of 10.75%, if paid in cash,
or, at the Company's option for the first two years, 14.25% payable in
kind, and (ii) 42.5% of the Successor Company's common stock issued post
recapitalization, prior to dilution (4,250,000 shares). The Senior Secured
Notes are secured by the existing collateral which had already been
granted to the holders of the Senior Notes as well as certain additional
collateral.
o The Trust Originated Preferred Securities (the "TOPrS") indebtedness of
$109.8 million was converted into 50% of the Successor Company's common
stock issued post recapitalization, prior to dilution (5,000,000 shares).
o The Golden Press Holdings, L.L.C. loan facility in the amount of $10.0
million was converted into 5% of the Successor Company's common stock
issued post recapitalization, prior to dilution (500,000 shares).
o The existing employment agreement with Richard E. Snyder (the Predecessor
and Successor Company's Chairman of the Board and Chief Executive
Officer), was terminated and Mr. Snyder received, in consideration of his
executing a new employment agreement and surrendering certain claims and
rights under his then effective employment agreement, 2 1/2% of the
Successor Company's common stock issued post recapitalization, prior to
dilution in the form of restricted stock (250,000 shares), among other
things.
Upon the consummation of the Amended Joint Plan of Reorganization, the Successor
Company entered into a revolving credit and term loan agreement consisting of a
revolving credit facility of up to $50.0 million and a term loan in the amount
of $10.0 million (the "Revolving Credit and Term Loan Agreement"). The proceeds
from the Revolving Credit and Term Loan Agreement were utilized to repay all of
the then outstanding amounts under the Company's Debtor-in-Possession Loan, with
additional proceeds being available for working capital and general corporate
purposes.
The revolving portion of the Revolving Credit and Term Loan Agreement in the
amount of $50.0 million for the revolving credit portion of the Revolving Credit
Agreement matures on December 31, 2002 together will all accrued and unpaid
interest thereon. Such due date may be extended for one year periods. Interest
on the revolving credit portion of the Revolving Credit and Term Loan Agreement
is payable monthly in arrears on the first day of each month commencing February
1, 2000 at a rate equal to the Prime Rate plus 1.75%. The Successor Company is
required to pay an unused line of credit fee in the amount of 1/2 of 1% per
annum monthly in arrears on the last day of each month commencing January 31,
2000. The Successor Company is also required to pay a termination fee of: (i) 3%
through December 31, 2000, (ii) 2% through December 31, 2001 and (iii) 1%
through December 31, 2002, multiplied by the total maximum amount available
above the then outstanding amount reduced by any payments made under the term
loan portion of the Revolving Credit and
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<PAGE>
Term Loan Agreement if the revolving credit portion of the Revolving Credit and
Term Loan Agreement is paid in full prior to December 31, 2002. Such percentages
would be reduced to 1%, .5% and .25% respectively, if the termination is a
result of the sale of the Successor Company or the offering of debt or equity
realizing gross proceeds of not less than $200.0 million.
The term loan portion of the Revolving Credit and Term Loan Agreement in the
amount of $10.0 million is payable in installments by the Successor Company over
its three year term with all remaining principal together with all accrued and
unpaid interest thereon due in full on December 31, 2002. Interest on the term
loan portion of the Revolving Credit and Term Loan Agreement is payable monthly
in arrears on the first day of each month commencing February 1, 2000 at a rate
equal to the Prime Rate plus 1.75%.
The Revolving Credit and Term Loan Agreement requires the Successor Company to
maintain compliance with certain financial and non-financial covenants,
including minimum EBITDA and limitations on: (i) dividends, distributions and
prepayment, (ii) incurences of additional indebtedness and (iii) capital
expenditures (all as defined in the Revolving Credit and Term Loan Agreement),
among others. The minimum EBITDA covenant requires the achievement of
approximately $1.0 million in EBITDA for Fiscal 2000. While the Company's budget
projects EBITDA in excess of this amount, the Company has not achieved this
level of EBITDA in recent years. The Successor Company has approximately $15.4
million and $6.8 million outstanding under the revolving credit and term loan
portions, respectively of the Revolving Credit and Term Loan Agreement as of
December 25, 1999. At March 17, 2000, the Successor Company had available
borrowings of $19.3 million under the revolving credit portion of the Revolving
Credit and Term Loan Agreement.
Upon consummation of the Amended Joint Plan of Reorganization, the Successor
Company entered into an indenture agreement (the "Indenture") governing the
terms of the senior secured notes in the principal amount of $87.0 million (the
"Senior Secured Notes") due in full on December 31, 2004 together with all
accrued and unpaid interest thereon. Interest at the rate of 10.75% per annum
commencing January 1, 2000 is payable semi-annually on June 30th and December
31st of each year of the term of the Senior Secured Notes. Interest may be paid
in the form of additional Senior Secured Notes at a rate of 14.25% per annum in
lieu of cash at the Successor Company's option for all interest payments due on
or prior to December 31, 2002. The Senior Secured Notes are secured by the
existing collateral which had been granted to the holders of the Predecessor
Company's senior notes as well as certain additional collateral. The Indenture
requires the Successor Company to maintain compliance with certain financial and
non-financial covenants, including minimum EBITDA and limitations on: (i)
restricted payments, (ii) incurences of additional indebtedness and (iii)
capital expenditures (all as defined in the Indenture), among others. The
Successor Company has outstanding $87.0 million in Senior Notes as of December
25, 1999.
In accordance with the Amended Joint Plan of Reorganization, the Company is in
the process of paying all pre-petition trade creditors with undisputed claims
all amounts due with interest at 4.25% and working to resolve all disputed
claims of pre-petition trade creditors in the Bankruptcy Court.
Cash Flow for Fiscal 1999 utilized cash of approximately $8.8 million compared
to cash utilized of approximately $42.1 million for Fiscal 1998. The improvement
in cash flow is primarily attributable to the Company's reduction in operating
loss and the cash proceeds from the sale of assets of approximately $14.9
million during Fiscal 1999. Reorganization costs were $21.3 million for Fiscal
1999. Additionally, the acquisition of property, plant and equipment decreased
to approximately $2.3 million during Fiscal 1999, as compared to approximately
$13.4 million in Fiscal 1998 and additions to the Company's film library
decreased to approximately $0.8 million during Fiscal 1999 as compared to
approximately $4.7 million during Fiscal 1998.
Working capital deficiency of the Successor Company at December 25, 1999 was
approximately $(4.6) million as compared to working capital deficiency of
approximately $(268.0) million at December 26, 1998. The improvement resulted
primarily from the discharge of liabilities subject to compromise as a result of
the Company's emergence from Chapter 11 proceedings which had been classified as
current liabilities at December 26, 1998.
24
<PAGE>
On December 12, 1998, the Company signed an amended license agreement with
Disney (the "Amended Disney License Agreement"). The Amended Disney License
Agreement superseded a prior agreement signed on September 26, 1997 that ran
through December 31, 2001. The Amended Disney License Agreement commenced on
December 12, 1998 and ends December 31, 2000 with a possible extension through
September 30, 2001 under certain conditions. Royalty rates under the Amended
Disney License Agreement vary by product. The Amended Disney License Agreement
contains minimum royalty guarantees.
On March 21, 2000, the Company announced that the Amended Disney License
Agreement would not be renewed and will thus expire on December 31, 2000 (the
"Expiration Date"). In accordance with the rights and obligations of the Company
under the Amended Disney License Agreement, commencing on the Expiration Date,
the Company will have a 13 month period, expiring on January 31, 2002 (the
"Sell-off Period") in which it can continue to sell Disney licensed product
manufactured by the Company until the Expiration Date. Until the Amended Disney
License Agreement expires, all rights and obligations of the Company will remain
in effect and the Company will continue to honor all terms of the Amended Disney
License Agreement through the Sell-off Period. In Fiscal 1999, the sales of
Disney licensed product accounted for slightly less than 20% of the Company's
net sales. The Company believes the termination of the Amended Disney License
Agreement will enable it to continue its change toward more profitable product.
The Company does not believe that the expiration of the Amended Disney License
Agreement will have a negative impact in Fiscal 2000. While the Company is
currently evaluating the long-term impact of the expiration of the Amended
Disney License Agreement, the Company believes that anticipated lost revenues
due to the expiration of this agreement can be mitigated over time from
increased revenues generated from other licensed products as well as increased
sales of proprietary product.
In connection with the sale of the Manufacturing Facility, the Company entered
into a printing services agreement, which commenced in November 1999 and
terminates at the end of December 2004. Under the printing services agreement,
the Company is obligated to purchase a substantial portion of the Company's
existing product from the buyer and maintain certain minimum purchase levels.
The Company is required to meet minimum contractual payments in effect at
December 25, 1999 of approximately $40.0 million in Fiscal 2000 and $28.8
million in Fiscal 2001. Of the payments due in Fiscal 2000 and Fiscal 2001, a
significant portion is comprised of two obligations (i) the minimum purchase
levels under the printing services agreement and (ii) the minimum royalty
guarantees under the Amended Disney License Agreement. The Company believes that
its cash on hand, cashflows from operations and borrowing availability under the
revolving portion of the Company's Revolving and Term Loan Agreement will be
sufficient to satisfy existing commitments and plans, including those described
above. However, there can be no assurance that the Company will be able to make
planned borrowings, that the Company's business will generate sufficient cash
from operations, or that future borrowings will be available in an amount to
enable the Company to service its debt and to make necessary capital or other
expenditures.
Legal Proceedings
The Company is currently involved in various litigation as described under "Item
3. Legal Proceedings." While it is not feasible to predict or determine the
outcome of the proceedings, it is the opinion of Management that their outcomes
have been adequately reserved for.
25
<PAGE>
Year 2000 Compliance
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. In late 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company
expensed or capitalized, as appropriate, approximately $2.1 million during 1999
in connection with remediating its systems. The Company is not aware of any
material problems resulting from Year 2000 issues, either with its products, its
internal systems, or the products and services of third parties. The Company
will continue to monitor its mission critical computer applications and those of
its suppliers and vendors throughout the year 2000 to ensure that any latent
Year 2000 matters that may arise are addressed promptly.
Seasonality
The Company has historically experienced significant fluctuations in quarterly
operating results. The children's publishing business in general is seasonal and
depends to a significant extent on the Christmas selling season, generally
resulting in a disproportionately higher percentage of revenues in the Company's
third fiscal quarter. The Company's quarterly operating results also will
fluctuate based on the timing of the introduction of products that utilize
licensed characters, which, in the case of characters appearing in movies, will
be dependent upon the period in which costs and expenses attributable to the
development and introduction of such products are incurred.
Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standard's Board issued Statement of
Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities which was amended by Statement of Financial Accounting
Standards No. 137 ("SFAS No. 137"), which is effective for all quarters of
fiscal years beginning after June 15, 2000. SFAS No. 137 requires that an entity
recognize all derivatives as either assets or liabilities and measure those
instruments at fair value. Unless the entity can treat the derivative as a hedge
according to certain criteria, the entity may be required to deduct any changes
in the derivative's fair value from its operating income. The adoption of SFAS
137 is not expected to have a material effect on the Company's Consolidated
Financial Statements.
For a discussion on the Company's market rate exposure, see Item 7A
26
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company has operations in Canada and the United Kingdom. In the normal
course of business, these operations are exposed to fluctuations in currency
values. Management does not consider the impact of currency fluctuations to
represent a significant risk. The Company does not generally enter into
derivative financial instruments in the normal course of business, nor are such
instruments used for speculative purposes.
Market risks relating to the Company's operations result primarily from changes
in interest rates. The Company's Senior Note bears interest at a fixed rate.
However, the fair market value of the fixed rate debt is sensitive to changes in
interest rates. The Company is subject to the risk that market interest rates
will decline and the interest rates under the fixed rate debt will exceed the
then prevailing market rates. Under its current policies, the Company does not
utilize any interest rate derivative instruments to manage its exposure to
interest rate changes.
The Company's Revolving Credit and Term Loan facility of $22.1 million at
December 25, 1999 bears interest at a variable rate. A 15% increase or decrease
in the average cost of the Company's variable rate debt under the facility would
not have significant impact on the Company's results of operations.
27
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by Item 8 of Part II is incorporated herein by
reference to the Consolidated Financial Statements filed with this report; see
Item 14 of Part IV.
CONSOLIDATED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(In Thousands, Except For Per Share Data)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
1999
<S> <C> <C> <C> <C>
Total revenues $ 34,769 $ 31,855 $ 42,445 $ 56,702
Gross profit 10,262 9,916 15,302 18,870
Net income (loss) (1) (11,296) (8,600) (9,396) 215,131
Net income (loss) per common share
- basic and diluted (0.45) (0.30) (0.33) 7.60
Weighted average number of common
shares - basic and diluted 28,167 28,299 28,299 28,299
1998
Total revenues $ 46,534 $ 43,145 $ 52,020 $ 52,527
Gross profit 9,559 1,313 6,589 (4,376)
Net loss (2) (20,872) (30,642) (18,850) (58,235)
Net loss per common share - basic (0.85) (1.21) (0.71) (2.10)
and diluted
Weighted average number of common
shares - basic and diluted 27,077 27,165 27,525 27,965
</TABLE>
(1) Includes reorganization expenses of $21.3 million, fresh -start
adjustments of $77.0 million and an extraordinary gain of $152.0 million.
(2) Includes a charge of $9.2 million relating to a writedown of long-lived
assets at the Sturtevant, WI facility during the fourth quarter.
28
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to Executive Officers required by this item is
included in Part I of the Company's Annual Report on Form 10-K.
On January 27, 2000, the Successor Company appointed a new Board of Directors to
replace the Predecessor Company's Board of Directors.
Directors of Registrant
Successor Company
James D. Bennett
Director since: January 27, 2000
Age: 45
Mr. Bennett is the President of Bennett Management Corporation, a manager of
private investment funds which invests primarily in the securities of companies
in reorganization, bankruptcies, and special situations. Previously, Mr. Bennett
was President of R.D. Smith & Company, Inc., a broker/dealer specializing in the
securities of troubled companies. Prior to joining R.D. Smith, Mr. Bennett
worked in the Corporate Finance Department of Kidder, Peabody & Co. and with
Price Waterhouse. Mr. Bennett received a B.A. from Yale University in 1976 and
an M.B.A. from Harvard Business School in 1980.
Thomas R. Cochill
Director since: January 27, 2000
Age: 60
Mr. Cochill is the founding partner and serves as Chief Executive Officer of
Ingenium, LLC a crisis and transition management consulting firm. Mr. Cochill
served as President, Chief Executive Officer and Chairman of the Board of
Webcraft Technologies, Inc. ("Webcraft") from 1992 to 1998. Webcraft specializes
in the printing of direct mail products, fragrance samplers, specialized
government forms and complex commercial printed products. He serves as Vice
Chairman of the Board of American Rice, Inc., an international marketer and
miller of branded rice products and serves as a member of the Board of Directors
of Grand Union Company, a grocery chain in the Northeast, Harvard Industries,
Inc. an OEM manufacturer of products for the automotive and industrial markets,
and Goss Graphic Systems, Inc., a manufacturer of newspaper, insert and
commercial printing press systems. From 1981 to 1992, Mr. Cochill was employed
by The Lehigh Press, Inc., a private printing company, where he was President,
commercial Products Group, a minority partner, member of the Board of Directors,
and member of the Executive Committee.
Richard Intrator
Director since: January 27, 2000
Age: 47
Mr. Intrator is Executive Vice President of Imax, Ltd. and President of Imax
Enterprises. Mr. Intrator has worked in the media, entertainment and
communications sector for over 20 years as an investment and merchant banker
with PaineWebber, Kidder Peabody and The Lodestar Group, operating executive
with ABC and Coca Cola Entertainment
29
<PAGE>
(Columbia Pictures), and management consultant with Booz Allen & Hamilton. Mr.
Intrator is currently Vice Chairman of the Board of The Lighthouse International
and a director of .Com Distribution, Inc. Mr. Intrator earned his MBA from
Harvard Business School and BS in Economics from the Wharton School of the
University of Pennsylvania.
Michael A. Kramer
Director since: January 27, 2000
Age: 31
Mr. Kramer has been employed by the investment banking firm of Houlihan Lokey
Howard & Zukin, Inc. since 1990, where he currently holds the position of
Managing Director. Mr. Kramer also serves as a Director for Ascent Assurance
Corporation and MFN Financial Corporation.
Eugene Linden
Director since: January 27, 2000
Age: 53
Mr. Linden is an independent author and consultant focusing on business and the
environment. He has written numerous books including The Future in Plain Sight:
Nine Clues to the Coming Instability and The Parrot's Lament: And Other True
Tales of Animal Intrigue, Intelligence and Ingenuity. Mr. Linden has written for
Time magazine, The Wall Street Journal and Fortune magazine among others. Mr.
Linden is also a Director of RARE (Center for Tropical Conservation)
Richard Nevins
Director since: January 27, 2000
Age: 52
Mr. Nevins has served as Managing Director of Jefferies & Company, Inc., an
investment banking firm since July 1998. From 1992 to July 1998, Mr. Nevins
served as President of Richard Nevins & Associates, a financial advisory firm.
Mr Nevins has served as a director of Kevco, Inc. since November 1996. Mr.
Nevins served as a director of Fruehauf Trailer Corporation from 1995 until
October 1996. On October 7, 1996, Fruehauf filed for relief under Chapter 11.
During 1996, Mr. Nevins served as acting Chief Operating Officer and Chief
Restructuring Officer for Sun World International, a California agricultural
firm. From 1995 to 1996, Mr. Nevins served as a director of Ampex Corporation
and from 1993 to 1995 he served as a director of The Actava Group (now
Metromedia International Group). Mr. Nevins received his B. A. in Economics from
the University of California, Riverside and his MBA from Stanford Graduate
School of Business.
Richard E. Snyder
Director since: May 8, 1996
Age: 66
Mr. Snyder has been Chairman of the Board of Directors and Chief Executive
Officer of the Company since May 8, 1996. Mr. Snyder was President of the
Company from January 31, 1996 to May 8, 1996. Prior to that time, Mr. Snyder
had, since 1994, been an independent business consultant and investor. He was
the Chairman and Chief Executive Officer of Simon & Schuster from 1975 to 1994.
Mr. Snyder is a director of Reliance Group Holdings, Inc. and HSN, Inc.
30
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the aggregate compensation paid or accrued by the
Company during Fiscal 1999 to (i) its Chief Executive Officer and (ii) its
executive officers, other than the Chief Executive Officer, who were serving as
executive officers at December 25, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards
------------------------------------------------ ------------------------------------------
Other Securities
Name and Annual Restricted Underlying All Other
Principal Compensation Stock Options (#) Compensation
Position Year (1) Salary ($) Bonus ($) ($) Awards ($) (2) ($)
- ----------------------- -------- ---------- --------- --- ---------- --- ---
<S> <C> <C> <C> <C> <C> <C>
Richard E. Snyder FY99 $950,00 $950,000 $428,772(3) -- -- $1,722 (4)
Chairman and Chief FY98 949,985 -- 403,099(2) -- 293,210 1,722
Executive Officer FY97 937,885 500,000 442,147 -- 1,271,089 1,722
Philip Galanes FY99 $366,346 $406,346 -- -- $1,722(4)
Chief Administrative FY98 319,107 -- -- -- 240,000 --
Officer FY97 236,925 -- -- -- 62,243 --
Richard Collins FY99 $300,000 $340,000 $ 16,365(5) -- $1,722(4)
Chief Operating FY98 317,852 -- -- -- 65,000 --
Officer FY97 94,490 -- -- -- 57,350 --
Colin Finkelstein FY99 $250,000 $278,000 $1,722(4)
Chief Financial Officer
</TABLE>
(1) The three years reported upon in the table are the fiscal years ended
December 27, 1997 ("FY97"), December 28, 1998 ("FY98") and December 25,
1999 ("FY99").
(2) Upon consummation of the Amended Joint Plan of Reorganization, all
outstanding options of the Predecessor Company were cancelled pursuant to
and in accordance with the Amended Joint Plan of Reorganization.
(3) Includes $340,851 of imputed income with respect to the non-recourse note
issued by Mr. Snyder to the Company in connection with his purchase of
incentive stock in January 1996. Pursuant to the Amended Joint Plan of
Reorganization, Mr. Snyder's obligations under the non-recourse note to
the Predecessor Company were satisfied.
(4) Represents payments made by the Company with respect to life insurance
premiums.
(5) Includes payments made by the Company totaling $15,000 with respect to a
car allowance.
31
<PAGE>
Pursuant to and in accordance with the Amended Joint Plan of
Reorganization on January 27, 2000, the then current employment agreement of
Richard E. Snyder was canceled and terminated, and on such date in accordance
with the Amended Joint Plan of Reorganization, the Successor Company and Mr.
Snyder entered into a new employment agreement. The new employment entered into
by the Successor Company and Mr. Snyder commenced immediately on such date and
terminates on May 8, 2003. Under his employment agreement, Mr. Snyder is
entitled to receive an annual base salary of $750,000 until the third
anniversary of the commencement date and, thereafter an annual base salary of
$850,000. In addition, Mr. Snyder is eligible to receive an annual bonus
pursuant to the bonus plan of the Successor Company of up to 200% of his annual
base salary, subject to the attainment of certain goals, with a target bonus of
100% of his annual base salary. In the event that the Successor Company
terminates Mr. Snyder's employment for any reason other than cause or Mr. Snyder
terminates his employment for good reason, the Successor Company will be
required to pay him, in addition to accrued obligations, an amount equal to the
product of (1) (a) three, if such termination is before May 8, 2000, or (b) two,
if such termination is on or after May 8, 2001, times, (2) the sum of his annual
base salary and that portion of his annual bonus earned but not yet paid.
Pursuant to and in consideration for the execution of his employment agreement,
Mr. Snyder was issued 250,000 restricted shares of the Successor Company's
common stock under the Amended Joint Plan of Reorganization and was granted
233,889 restricted shares of the Successor Company's common stock under the
Successor Company's 1999 Equity Award Plan. Not less than two-thirds of such
restricted shares vest on the second anniversary of commencement date of the
employment agreement and the remaining shares vest on the third anniversary
date, provided that Mr. Snyder has been continuously employed by the Successor
Company through each applicable vesting date. All shares of restricted stock,
options and other stock-based compensation shall become immediately exercisable
or vested, as the case may be if there is a change in control of the Company.
In accordance with the Amended Joint Plan of Reorganization on January 27,
2000, the Successor Company entered into an amended employment agreement with
Mr. Collins, commencing on such date and continuing through December 31, 2002.
Under his employment agreement as amended, Mr. Collins is entitled to receive an
annual base salary of $350,000 for each year of the term. In addition, Mr.
Collins is eligible to receive an annual bonus pursuant to the bonus plan of the
Successor Company of up to 200% of his annual base salary, subject to the
attainment of certain goals, with a target bonus of 100% of his annual base
salary. In the event the Successor Company terminates Mr. Collins' employment
for any reason other than cause or Mr. Collins terminates his employment for
good reason, the Successor Company will be required to pay him, in addition to
accrued obligations, his annual base salary for the longer of (a) two years or
(b) the duration of the term of the agreement, to be offset by any new
compensation earned over the balance of such period by Mr. Collins. Pursuant to
his amended employment agreement, Mr. Collins was granted, under the Successor
Company's 1999 Equity Award Plan, options to acquire 116,944 shares of the
Successor Company's common stock at an exercise price of $1.92. Such options
have a term of seven years from the date of grant and become exercisable in
equal parts on each of the first three consecutive anniversaries of the date of
grant, provided that Mr. Collins has been continuously employed by the Successor
Company through each applicable vesting date.
On January 27, 2000 in accordance with the Amended Joint Plan of
Reorganization, the Successor Company entered into an amended employment
agreement with Philip Galanes, commencing on such date and continuing through
May 6, 2002. Under the agreement, Mr. Galanes is entitled to receive an annual
base salary of $350,000 for the first year of the term, $357,000 for the second
year of the term, and $400,000 for the third and fourth years of the term. In
addition, Mr. Galanes is eligible to receive an annual bonus pursuant to the
bonus plan of the Successor Company of up to 200% of his annual base salary,
subject to the attainment of certain goals, with a target bonus of 100% of his
annual base salary. In the event the Successor Company terminates Mr. Galanes'
employment for any reason other than cause or Mr. Galanes' terminates is
employment for good reason (including upon a change of control), the Company
will be required to pay him, in addition to accrued obligations, his annual base
salary and target bonus for two years. Pursuant to his employment agreement, Mr.
Galanes was granted, under the Successor Company's 1999 Equity Award Plan,
options to acquire 116,944 shares of the Successor Company's common stock at an
exercise price of $1.92. Such options have a term of seven years from the date
of grant and become exercisable in equal parts on each of the first four
consecutive anniversaries of the date of grant, provided that Mr. Galanes has
been continuously employed by the Successor Company through each applicable
vesting date.
32
<PAGE>
In accordance with the Amended Joint Plan of Reorganization on January 27,
2000, the Successor Company entered into an amended employment agreement with
Mr. Finkelstein, commencing on such date and continuing through December 31,
2002. Under his employment agreement as amended, Mr. Finkelstein is entitled to
receive an annual base salary of $300,000 for each year of the term. In
addition, Mr. Finkelstein is eligible to receive an annual bonus pursuant to the
bonus plan of the Successor Company of up to 200% of his annual base salary,
subject to the attainment of certain goals, with a target bonus of 100% of his
annual base salary. In the event the Successor Company terminates Mr.
Finkelstein's employment for any reason other than cause or Mr. Finkelstein
terminates his employment for good reason (including upon a change of control),
the Successor Company will be required to pay him, in addition to accrued
obligations, his annual base salary for one year other than in the case of a
change of control, and for two years in the case of a change of control.
Pursuant to his amended employment agreement, Mr. Finkelstein was granted, under
the Successor Company's 1999 Equity Award Plan, options to acquire 116,944
shares of the Successor Company's common stock at an exercise price of $1.92.
Such options have a term of seven years from the date of grant and become
exercisable in equal parts on each of the first three consecutive anniversaries
of the date of grant, provided that Mr. Finkelstein has been continuously
employed by the Successor Company through each applicable vesting date.
COMPENSATION OF DIRECTORS.
Each director who is not an employee of the Company is paid $20,000
annually for his or her services as a director and is eligible to participate in
the Company's 1999 Equity Award Plan. On February 8, 2000, each non-employee
director was granted immediately exercisable options to purchase 10,000 shares
of the Successor Company's common stock at an exercise price of $1.92 per share.
In addition, each non-employee director is entitled to be granted additional
options to purchase 1000 shares of the Successor Company's common stock each
year thereafter, provided such non-employee director is a director on such date.
33
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL STOCKHOLDERS AND
SHARE OWNERSHIP BY MANAGEMENT
Pursuant to the Amended Joint Plan of Reorganization, on January 27, 2000 the
shares of the Old Company Stock were cancelled. Holders of Old Company Stock
received under the Amended Joint Plan of Reorganization warrants to purchase an
aggregate of 525,000 of the Successor Company's common stock at an exercise
price of $23.03 per share, allocated two-thirds to the holders of preferred
stock and one-third to the holder of common stock. On January 27, 2000, shares
of the Successor Company's common stock were issued and distributed pursuant to
the Amended Joint Plan of Reorganization. See "Item 1. Business -- Recent
Events" for a more complete description of the events and transactions.
The following table sets forth certain information regarding the beneficial
ownership of the Successor Company's common stock as of March _, 2000 (except as
set forth in notes 2 and 3 below), based upon 10,233,889 shares of Successor
Company common stock outstanding on such date, by (a) each person or group known
by the Successor Company to be the beneficial owner of more than 5% of such
class of capital stock, (b) each of the Successor Company's Directors, (c) the
Successor Company's Chief Executive Officer and the other executive officers of
the Successor Company named in the Summary Compensation Table and (d) the
Directors and executive officers of the Successor Company as a group.
Beneficial Ownership (1)
------------------------
Name and Address of Beneficial Owner Number of Shares of Percentage of
- ------------------------------------ Common Stock Common Stock(1)
------------------- --------------
5% Holders
Principal Life Insurance Company 1,218,333(2) 11.9%
Principal Capital Management, LLC
[Address]
................
Directors and Executive Officers
James D. Bennett 1,785,610(3) 17.4%
Thomas R. Cochill 10,000 *
Richard Intrator 10,000 *
Michael A. Kramer 10,000 *
Eugene Linden 15,402 *
Richard Nevins 10,000 *
Richard Collins -- --
Colin Finkelstein -- --
Philip Galanes -- --
Richard E. Snyder 483,889(5) 4.7%
Directors and executive officers of the
Successor Company as a group 483,889 4.7%
- ----------
* Less than one percent.
34
<PAGE>
(1) Except where otherwise indicated, the Company believes that all parties
named in the table, based on information provided by such persons, have
sole voting and dispositive power over the securities beneficially owned
by them, subject to community property laws, where applicable. For
purposes of this table, a person or group of persons is deemed to be the
"beneficial owner" of any shares that such person has the right to acquire
within 60 days. For purposes of computing the percentage of outstanding
shares held by each person or group of persons named in the table on a
given date, any security that such person or persons has the right to
acquire within 60 days of March 20, 2000 is deemed to be outstanding
(including by way of exercise of options), but shares that any other
person may acquire during such 60-day period are not deemed to be
outstanding for the purpose of computing the percentage ownership of any
other person.
(2) Represents shares of the Successor Company's common stock issued to the
holder on January 27, 2000 pursuant to the Amended Joint Plan of
Reorganization and assumed to be beneficially owned by the holder as a
result of such issuance.
(3) Includes 1,775,610 shares of the Successor Company's common stock the
beneficial ownership of which was reported in Amendment No. I to the
holders Schedule 13G filed on February 10, 2000, and non-qualified options
to purchase 10,000 shares of the Successor Company's common stock granted
on February 8, 2000 pursuant to the Successor Company's 1999 Equity Award
Plan, which are presently exercisable. Mr. Bennett is deemed to
beneficially own 1,775,610 shares of the Successor Company's common stock
by virtue of his control of the investment manager of Bennett Offshore
Restructuring Fund Inc. and the general partner of Bennett Restructuring
Fund, L.P. Mr. Bennett is the holder of non-qualified options to purchase
10,000 shares of the Successor Company's common stock granted on February
8, 2000.
(4) Includes non-qualified stock options to purchase 10,000 shares of the
Successor Company's common stock granted pursuant to the Successor
Company's 1999 Equity Award Plan and 5,402 shares of the Successor
Company's common stock issued to the holder on January 27, 2000 pursuant
to the Amended Joint Plan of Reorganization.
(5) Consists of 250,000 restricted shares of the Successor Company's common
stock issued to Mr. Snyder on January 27, 2000 pursuant to the Amended
Joint Plan of Reorganization and 233,889 restricted shares of the
Successor Company's common stock issued to Mr. Snyder pursuant to his new
employment agreement entered into with the Company in accordance with the
Amended Joint Plan of Reorganization. Mr. Snyder controls the Snyder 1996
Family Limited Partnership, an equity investor in Golden Press Holdings,
L.L.C. ("GPH"). GPH is a stockholder of the Successor Company and was a
stockholder of the Predecessor Company beneficially owning more than 5% of
the Predecessor Company's common stock and all of the outstanding shares
of Predecessor Company's preferred stock. Mr. Snyder disclaims beneficial
ownership of the shares of Successor Company's common stock owned by GPH.
35
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Bennett is the President of Bennett Management Corporation, a manager of
private investment funds, including Bennett Offshore Restructuring Fund Inc. and
Bennett Restructuring Fund, L.P., which invests primarily in the securities of
companies in reorganization, bankruptcies, and special situations. Mr. Bennett
through these funds was the beneficial owner of 554,455 shares of the
Predecessor Company's TOPrS securities and $15,640,000 principal amount of the
Predecessor Company's senior notes.
Mr. Linden was the beneficial owner of 200 shares of the Predecessor Company's
TOPrS securities and $30,000 principal amount of the Predecessor Company's
senior notes.
Mr. Kramer is a Managing Director of the investment banking firm Houlihan Lokey
Howard & Zukin, Inc, which acted as the financial advisor to the members of the
Informal Senior Note Committee with respect to the Predecessor Company's
restructuring.
Mr. Nevins is a Managing Director of the investment banking firm Jefferies &
Company, Inc., acted as the financial advisor to the members of the Informal
TOPrS Committee with respect to the Predecessor Company's restructuring.
36
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
Exhibits
Financial Statements. See Index to Consolidated Financial Statements and
Schedules which appears on Page F-1 herein.
2.1 Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy
Code, dated May 13, 1999 (incorporated by reference to Exhibit 2.1 to the
Registrant's Form 8-K filed on May 20, 1999).
2.2 Amended Disclosure Statement pursuant to Section 1125 of the Bankruptcy Code
for the Joint Plan of Reorganization of the Golden Books Family Entertainment,
Inc., Golden Books Publishing Company, Inc., and Golden Books Home Video, Inc.,
dated May 13, 1999 (incorporated by reference to Exhibit 2.2 to the Registrant's
Form 8-K filed on May 20, 1999).
3.1* Amended and Restated Certificate of Incorporation of the Registrant dated
January 27, 2000.
3.2* By-laws of the Registrant.
4.1* Form of certificate for shares of the Registrant's Common Stock.
4.2* Warrant Agreement by and between Golden Books Family Entertainment, Inc.
and The Bank of New York, as Warrant Agent, dated as of January 25, 2000.
4.3* Form of warrant certificate (included in Exhibit A to the Warrant Agreement
above).
4.4* Indenture governing the 10 3/4% Senior Secured Notes due 2004 issued by
Golden Books Publishing Company, Inc., dated as of January 25, 2000, among
Golden Books Publishing Company, Inc., the Guarantors named therein and HSCB
Bank USA, as Indenture Trustee (incorporated by reference to Exhibit Form T3/A
filed by the Golden Books Publishing Company, Inc. on January 26, 2000).
4.5* Form of 10 3/4% Senior Secured Notes (included in Exhibit A to the Senior
Note Indenture above.)
10.1* Golden Comprehensive Security Program, as amended.
10.2* Golden Retirement Savings Program, as amended.
10.3 Western Publishing Company, Inc.'s Executive Medical Reimbursement Plan
dated January 1, 1991 (incorporated by reference to Exhibit 10.73 to the
Registrant's Annual Report on Form 10-K for fiscal year 1991).
10.4 Golden Books Family Entertainment, Inc. Executive Officer Bonus Plan
(incorporated by reference to Appendix VII to the 1996 Proxy).
10.5 Employment Agreement, dated as of July 28, 1997 between Golden Books
Publishing Company, Inc. and Richard Collins (incorporated by reference to
Exhibit 10.20 to the Registrant's Annual Report on Form 10-K for fiscal year
1997 (the "1997 Form 10-K")).
10.6 Employment Agreement dated May 7, 1998 between Golden Books Family
Entertainment, Inc. and Philip Galanes (incorporated by reference to Exhibit
10.21 to the Registrant's Annual Report on Form 10-K for fiscal year 1998 (the
"1998 Form 10-K")).
37
<PAGE>
10.7 Licensed Book Publishing Agreement between Disney Licensed Publishing and
Golden Books Publishing Company, Inc., dated September 26, 1997 (incorporated by
reference to exhibit 10.01 to the 10-Q/A filed on November 17, 1997).
10.8 Licensed Book Publishing Agreement between Disney Licensed Publishing and
Golden Books Publishing Company, Inc., dated December 12, 1998 (incorporated by
reference to Exhibit 10.26 to the 1998 Form 10-K).
10.9 Revolving Credit and Term Loan Agreement, dated as of January 25, 2000,
among Golden Books Publishing Company, Inc., the Lenders named therein and The
CIT Group/Business Credit, Inc., as Agent, and Foothill Capital Corporation, as
Co-Agent (incorporated by reference to Exhibit 99.2 to the Registrant's Form 8-K
filed on February 2, 2000).
10.10* 1999 Equity Award Plan.
10.11* Registration Rights Agreement, dated as of January 25, 2000, between
Golden Books Family Entertainment, Inc. and the Holders named therein.
10.12* Employment Agreement, dated as of January 27, 2000, between Golden Books
Family Entertainment, Inc. and Richard E. Snyder.
10.13* Amendment No. 1 to Richard Collins' Employment Agreement, dated as of
September 1, 1998.
10.14* Amendment No. 2 to Richard Collins' Employment Agreement, dated as of
January 27, 2000.
10.15* Employment Agreement, dated September 9, 1996, between Golden Books
Family Entertainment, Inc. and Colin Finkelstein.
10.16* Amendment No. 1 to Colin Finkelstein's Employment Agreement, dated as of
January 27, 2000.
10.17* Amendment No. 1 to Philip Galanes' Employment Agreement, dated as of
January 25, 2000.
10.18* Printing Services Agreement by and between Golden Books Publishing
Company, Inc. and Artech Capital Corporation, dated November 29, 1999.
21.1 * List of Subsidiaries.
27.1 * Financial Data Schedule.
* Filed electronically herewith.
Reports on Form 8-K filed during the three months ended December 25, 1999: Form
8-K filed October 18, 1999
38
<PAGE>
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
March 24, 2000 GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
/s/ Richard. E. Snyder
Richard E. Snyder
Chairman of the Board of Directors and
Chief Executive Officer
/s/ Colin Finkelstein
Colin Finkelstein
Chief Financial Officer
(Principal financial and accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed by the following persons in the capacities and on the dates
indicated.
Name Title Date
/s/ Richard E. Snyder Chairman of the Board and March 24, 2000
- ----------------------------- Chief Executive Officer
Richard E. Snyder
/s/ James Bennett Director March 24, 2000
- -----------------------------
James Bennett
/s/ Thomas R. Cochill Director March 24, 2000
- -----------------------------
Thomas R. Cochill
/s/ Richard Intrator Director March 24, 2000
- -----------------------------
Richard Intrator
/s/ Michael A Kramer Director March 24, 2000
- -----------------------------
Michael A. Kramer
/s/ Richard Nevins Director March 24, 2000
- -----------------------------
Richard Nevins
/s/Eugene Linden Director March 24, 2000
- -----------------------------
Eugene Linden
39
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
40
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Page
Report of Independent Auditors...............................................F-2
Consolidated Financial Statements:
Consolidated Balance Sheets at December 25, 1999 (Successor) and
December 26, 1998 (Predecessor)..............................................F-3
Consolidated Statements of Operations and Comprehensive Income (Loss)
for the years ended December 25, 1999, December 26, 1998 and
December 27, 1997 (Predecessor)..............................................F-5
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
for the years ended December 25, 1999, December 26, 1998 and
December 27, 1997 (Predecessor)..............................................F-6
Consolidated Statements of Cash Flows for the years ended
December 25, 1999 December 26, 1998 and December 27, 1997
(Predecessor)................................................................F-7
Notes to Consolidated Financial Statements...................................F-9
Schedule I - Condensed Financial Information of Registrant...................S-1
Schedule II - Valuation and Qualifying Accounts..............................S-5
All other schedules have been omitted because the information is not applicable
or is not material or because the information required is included in the
consolidated financial statements or the notes thereto.
F-1
<PAGE>
Report of Independent Auditors Report of Independent Auditors
To the Board of Directors and Stockholders
Golden Books Family Entertainment, Inc.
We have audited the accompanying consolidated balance sheets of Golden Books
Family Entertainment, Inc. and Subsidiaries (the "Company") as of December 25,
1999 (Successor Company consolidated balance sheet) and December 26, 1998
(Predecessor Company consolidated balance sheet), and the related consolidated
statements of operations and comprehensive income (loss), stockholders' equity
(deficit) and cash flows for each of the three years in the period ended
December 25, 1999. Our audits also included the financial statement schedules
listed in the Index at Item 14(a). These financial statements and schedules are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
As more fully described in Note 2 to the consolidated financial statements,
effective January 27, 2000, the Company emerged from protection under Chapter 11
of the U.S. Bankruptcy Code pursuant to an Amended Joint Plan of Reorganization
of which certain significant components were approved by the Bankruptcy Court on
December 22, 1999. Accordingly, the accompanying December 25, 1999 consolidated
balance sheet has been prepared in conformity with American Institute of
Certified Public Accountants' Statement of Position 90-7 "Financial Reporting
for Entities in Reorganization Under the Bankruptcy Code," for the Successor
Company as a new entity with assets, liabilities and a capital structure having
carrying values not comparable with prior periods as described in Note 3.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Golden
Books Family Entertainment, Inc. and Subsidiaries at December 25, 1999
(Successor Company consolidated balance sheet) and December 26, 1998
(Predecessor Company consolidated balance sheet), and the consolidated results
of their operations and their cash flows for the three years in the period ended
December 25, 1999, in conformity with accounting principles generally accepted
in the United States. Also, in our opinion, the related financial statement
schedules, when considered in relation to the basic financial statements taken
as a whole, present fairly in all material respects the information set forth
therein.
ERNST & YOUNG LLP
New York, New York
March 22, 2000
F-2
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
Successor | Predecessor
Company | Company
|
December 25, | December 26,
1999 | 1998
---- | ----
CURRENT ASSETS |
<S> <C> | <C>
Cash and cash equivalents $ 6,544 | $ 15,330
|
Accounts receivable 54,089 | 41,411
|
Inventories 26,169 | 33,068
|
Royalty advances 3,264 | 17,198
|
Other current assets 5,403 | 14,246
-------- | --------
|
Total current assets 95,469 | 121,253
-------- | --------
|
OTHER ASSETS |
|
Accounts receivable - long term 3,346 | 4,127
|
Other noncurrent assets 14,822 | 14,367
-------- | --------
|
Total other assets 18,168 | 18,494
|
PROPERTY PLANT AND EQUIPMENT, net of accumulated depreciation |
and amortization of $37,946 as of December 26, 1998 17,522 | 29,955
|
|
GOODWILL, net of accumulated amortization of $2,805 as of |
December 26, 1998 -- | 29,391
|
EXCESS REORGANIZATION VALUE 36,319 | --
|
|
OTHER INTANGIBLE ASSETS, net of accumulated amortization of |
$7,849 as of December 26, 1998 122,520 | 55,858
|
-------- | --------
|
|
TOTAL ASSETS $289,998 | $254,951
======== | ========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except for Per Share Data)
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Successor | Predecessor
Company | Company
|
December 25, | December 26,
1999 | 1998
---- | ----
CURRENT LIABILITIES |
<S> <C> | <C>
Accounts payable $ 28,591 | $ 26,002
|
Accrued compensation and fringe benefits 6,790 | 4,977
|
Revolving credit and term loan agreement 15,384 | --
|
Revolving credit facility -- | 21,637
|
Loan facility -- | 10,000
|
Long term debt in default - Senior notes -- | 150,000
|
Guaranteed preferred beneficial interests in the Company's and |
Golden Book Publishing Company, Inc.'s convertible debentures -- | 115,000
|
Other current liabilities 49,345 | 61,634
-------- | ---------
|
Total current liabilities 100,110 | 389,250
-------- | ---------
|
NONCURRENT LIABILITIES |
Revolving credit and term loan agreement 6,750 | --
|
Senior secured notes 87,000 | --
|
Accumulated post-retirement benefit obligation 30,806 | 29,609
Deferred compensation and other deferred liabilities 15,582 | 25,173
-------- | ---------
|
Total noncurrent liabilities 140,138 | 54,782
|
STOCKHOLDERS' EQUITY (DEFICIT): |
|
Convertible Preferred Stock - Series B, 13,000 shares authorized, -- | 65,000
no par value, 13,000 shares issued and outstanding as of December |
26, 1998 |
|
Common Stock, $.01 par value, 30,000,000 and 60,000,000 shares |
authorized 10,233,889 and 27,899,047 shares issued as of 102 | 279
December 25, 1999 and 26, 1998, respectively |
|
Additional paid in capital 50,131 | 128,956
|
Accumulated deficit -- | (379,390)
|
Accumulated other comprehensive loss -- | (1,104)
-------- | ---------
50,233 | (186,259)
|
Less: Cost of common stock in treasury - 208,800 shares as of -- | 2,822
December 26, 1998 |
|
Unearned compensation on restricted stock 483 | --
-------- | ---------
|
Total stockholders' equity (deficit) 49,750 | (189,081)
-------- | ---------
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $289,998 | $ 254,951
======== | =========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(In Thousands, Except for Per Share Data)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Predecessor Company
Year Ended
-------------------------------------------------
December 25, December 26, December 27,
1999 1998 1997
---- ---- ----
Revenues:
<S> <C> <C> <C>
Net sales $ 165,259 $ 193,573 $ 242,481
Royalties and other income 512 653 1,080
--------- --------- ---------
Total revenues 165,771 194,226 243,561
--------- --------- ---------
Costs and Expenses:
Cost of sales 111,421 181,141 176,238
Selling, general and administrative 79,041 98,293 111,307
(Gains) losses on sales of assets (7,300) 1,762 (10,786)
Write-off of assets -- 15,309 --
--------- --------- ---------
Total costs and expenses 183,162 296,505 276,759
--------- --------- ---------
Loss Before Interest Income, Distributions on (17,391) (102,279) (33,198)
Guaranteed Preferred Beneficial Interests in the
Company's and Golden Books Publishing Company,
Inc.'s Convertible Debentures, Interest Expense,
Reorganization Items, Fresh-Start Valuation,
(Benefit) Provision for Income Taxes and
Extraordinary Item
Interest Income 189 1,700 5,579
Distributions on Guaranteed Preferred Beneficial (1,628) (10,282) (10,282)
Interest in the Company's and Golden Books
Publishing Company, Inc.'s Convertible Debentures
(Contractual distributions of $9,667 for the year
ended December 25, 1999)
Interest Expense (Contractual interest expense of (3,555) (18,404) (11,742)
$14,646 for the year ended December 25, 1999) --------- --------- ---------
Loss Before Reorganization Items, Fresh-Start (22,385) (129,265) (49,643)
Valuation, (Benefit) Provision For Income Taxes
and Extraordinary Item
Reorganization Items (21,329) -- --
Fresh-Start Valuation 77,007 -- --
--------- --------- ---------
Income (Loss) Before (Benefit) Provision for Income 33,293 (129,265) (49,643)
Taxes and Extraordinary Item
(Benefit) Provision For Income Taxes (590) (666) 37
--------- --------- ---------
Income (Loss) Before Extraordinary Item 33,883 (128,599) (49,680)
Extraordinary Item - Gain on Debt Discharge 151,956 -- --
--------- --------- ---------
Net Income (Loss) 185,839 (128,599) (49,680)
Other Comprehensive Income (Loss): Foreign Currency 160 394 (159)
Translation --------- --------- ---------
Comprehensive Income (Loss) $ 185,999 $(128,205) $ (49,839)
========= ========= =========
Net Income (Loss) per Basic and Diluted Common Share
Before Extraordinary Item
$ 1.15 $ (4.89) $ (2.18)
Net Income per Basic and Diluted Common Share -
Extraordinary Item 5.38 -- --
--------- --------- ---------
Net Income (Loss) per Basic and Diluted Common Share 6.53 $ (4.89) $ (2.18)
========= ========= =========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
(In thousands, Except for Shares and Per Share Data)
<TABLE>
<CAPTION>
Convertible
Common Stock Preferred Stock - Series B Additional
------------------- -------------------------- Paid-In
Shares Amounts Shares Amount Capital
------ ------- ------ ------ -------
PREDECESSOR COMPANY
<S> <C> <C> <C> <C> <C>
Balances, December 28, 1996 25,964,711 $ 259 13,000 $ 65,000 $ 120,376
Net loss -- -- -- -- --
Common stock issued as dividend 780,000 8 -- -- (8)
on Preferred Stock - Series B
Exercise of stock options 142,602 2 -- -- 1,554
Issuance of warrants -- -- -- -- 6,611
Currency translation adjustment -- -- -- -- --
----------- ----- ------ -------- ---------
Balances, December 27, 1997 26,887,313 269 13,000 65,000 128,533
Net loss -- -- -- -- --
Common stock issued as dividend 585,000 6 -- -- (6)
on Preferred Stock - Series B
Exercise of stock options 17,501 -- -- -- 183
Common stock issued as contribution 409,233 4 -- -- 539
to Company 401(K) Plan
Dividends accrued on Preferrred Stock - Series B -- -- -- -- (293)
Currency translation adjustment -- -- -- -- --
----------- ----- ------ -------- ---------
Balances, December 26, 1998 27,899,047 279 13,000 65,000 128,956
Net income -- -- -- -- --
Common stock issued 400,387 4 -- -- 5,201
Dividends accrued on Preferrred Stock - Series B+A59 (2,123)
Currency translation adjustment -- -- -- -- --
----------- ----- ------ -------- ---------
Balances, December 25, 1999 28,299,434 283 13,000 65,000 132,034
Fresh-Start adjustments (28,299,434) (283) (13,000) (65,000) (132,034)
Issuance of Successor Company common stock 9,750,000 97 -- -- 49,653
Issuance of Successor Company common stock - restricted 250,000 3 247
Employee stock plan 233,889 2 -- -- 231
----------- ----- ------ -------- ---------
SUCCESSOR COMPANY
Balances, December 25, 1999 10,233,889 $ 102 -- $ -- $ 50,131
=========== ===== ====== ======== =========
Accumulated
Other Treasury Stock
Accumulated Comprehensive ------------------- Unearned Compensation
Deficit Loss Shares Amount On Restricted Stock
------- ---- ------ ------ -------------------
PREDECESSOR COMPANY
<S> <C> <C> <C> <C> <C>
Balances, December 28, 1996 $(201,111) $(1,339) 208,800 $(2,822) $ --
Net loss (49,680) -- -- -- --
Common stock issued as dividend -- -- -- -- --
on Preferred Stock - Series B
Exercise of stock options -- -- -- -- --
Issuance of warrants -- -- -- -- --
Currency translation adjustment -- (159) -- -- --
--------- ------- -------- ------- -----
Balances, December 27, 1997 (250,791) (1,498) 208,800 (2,822) --
Net loss (128,599) -- -- -- --
Common stock issued as dividend -- -- -- -- --
on Preferred Stock - Series B
Exercise of stock options -- -- -- -- --
Common stock issued as contribution -- -- -- -- --
to Company 401(K) Plan
Dividends accrued on Preferrred Stock - Series B -- -- -- -- --
Currency translation adjustment -- 394 -- -- --
--------- ------- -------- ------- -----
Balances, December 26, 1998 (379,390) (1,104) 208,800 (2,822) --
Net income 185,839 -- -- -- --
Common stock issued -- -- -- -- --
Dividends accrued on Preferrred Stock - Series B+A59
Currency translation adjustment -- 160 -- -- --
--------- ------- -------- ------- -----
Balances, December 25, 1999 (193,551) (944) 208,800 (2,822) --
Fresh-Start adjustments 193,551 944 (208,800) 2,822 --
Issuance of Successor Company common stock -- -- -- -- --
Issuance of Successor Company common stock - restricted (250)
Employee stock plan -- -- -- -- (233)
--------- ------- -------- ------- -----
SUCCESSOR COMPANY
Balances, December 25, 1999 $ -- $ -- -- $ -- $(483)
========= ======= ======== ======= =====
</TABLE>
F-6
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
Predecessor Company
Year Ended
-------------------------------------------------
December 25, December 26, December 27,
1999 1998 1997
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net income (loss) $ 185,839 $(128,599) $(49,680)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Extraordinary item - gain on debt discharge (151,956) -- --
Fresh-start valuation (77,007) -- --
Reorganization items 21,329 -- --
Depreciation and amortization 6,108 7,895 6,732
Amortization of intangibles 7,824 4,685 4,482
Provision for losses on accounts receivable 3,086 3,734 3,608
(Gains) losses on sales of assets (7,300) 1,762 (10,786)
Write-off of assets -- 15,309 --
Loss on sale of equipment -- 4,692 --
Other 337 1,320 --
Changes in assets and liabilities, net of effect of
dispositions:
(Increase) decrease in accounts receivable (17,456) 11,556 (15,392)
(Increase) decrease in inventories 588 1,591 (7,051)
(Increase) decrease in net assets held for sale -- (213) 1,755
Increase in other current assets and royalty (421) (12,894) (3,215)
advances
Increase in accounts payable 8,611 4,548 3,199
Increase (decrease) in accrued compensation and 2,153 (910) 100
fringe benefits
Other 7,585 21,307 (12,970)
--------- --------- --------
Net cash used in operating activities before (10,680) (64,217) (79,218)
reorganization items
Reorganization items, net of sale of Manufacturing (21,497) -- --
Facility
--------- --------- --------
Net cash used in operating activities (23,177) (64,217) (79,218)
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits and other 1,869 (211) (3,497)
Acquisitions of property, plant and equipment (2,260) (13,400) (20,386)
Additions to film library (816) (4,668) (6,348)
Proceeds from sales of assets, including sale of 14,941 7,667 22,712
Manufacturing Facility --------- --------- --------
Net cash provided by (used in) investing activities 13,734 (10,612) (7,519)
</TABLE>
F-7
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In Thousands)
<TABLE>
<CAPTION>
Predecessor Company
Year Ended
-------------------------------------------------
December 25, December 26, December 27,
1999 1998 1997
---- ---- ----
CASH FLOWS FROM FINANCING ACTIVITIES:
<S> <C> <C> <C>
Net proceeds from DIP Loan 14,634 -- --
Repayments under DIP Loan (14,634) -- --
Net proceeds from Revolving Credit Facility -- 21,637 --
Repayments of Revolving Credit Facility (21,637) -- --
Net proceeds from Revolving Credit and Term Agreement 22,134 -- --
Proceeds from Municipal Government Grants -- -- 3,000
Net proceeds from Loan Facility -- 10,000 --
Proceeds from sale of Common Stock -- -- 1,556
Common Stock Transactions - Other -- 728 --
--------- --------- ---------
Net cash provided by financing activities 497 32,365 4,556
EFFECT OF EXCHANGE RATE CHANGES ON CASH 160 383 (94)
--------- --------- ---------
NET DECREASE IN CASH AND CASH EQUIVALENTS (8,786) (42,081) (82,275)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 15,330 57,411 139,686
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 6,544 $ 15,330 $ 57,411
========= ========= =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest and distributions on Guaranteed Preferred
Beneficial Interests in the Company's and Golden
Books Publishing Company, Inc.'s Convertible
Debentures $ 1,480 $ 15,235 $ 21,553
========= ========= =========
Income taxes, net of refunds received $ (2,332) $ (108) $ (416)
========= ========= =========
Non-cash activity:
Receipt of preferred shares in connection with the sale 2,700 $ -- $ --
of the Manufacturing Facility
========= ========= =========
Stock conversion on Guaranteed Preferred Beneficial 5,205 -- --
Interests in the Company's and Golden Books Publishing ========= ========= =========
Company, Inc.'s Convertible Debentures
Issuance of warrants in connection with the Disney -- -- 6,611
License Agreement
========= ========= =========
</TABLE>
See notes to consolidated financial statements
F-8
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
1. Nature of Business, Organization and Basis of Presentation
Golden Books Family Entertainment, Inc. and Subsidiaries (the "Company") is a
publisher of children's books and family related entertainment products
primarily in the North American retail market. The Company, through its Consumer
Products division creates, publishes and markets an extensive range of
children's entertainment products, including "Little Golden Books" and other
storybooks, coloring / activity books, electronic storybooks, puzzles,
educational workbooks, reference books and novelty book formats. The Company has
published its flagship product line, "Little Golden Books," for over 50 years.
The Company's Golden Books Entertainment Group ("Golden Books Entertainment")
consists of an extensive library of character-based family entertainment
properties. The Golden Books Entertainment division's library is comprised of
copyrights, distribution rights, trademarks and licenses relating to characters,
television programs and motion pictures, both animation and live action, and
includes individual specials and multiple episode series.
Until its sale in November 1999, the Company, through the Commercial Printing
Division of its wholly owned subsidiary, Golden Books Publishing Company, Inc.
("Golden Books Publishing"), provided creative, printing and publishing services
to third parties. The Company grouped these activities into three business
categories: graphic art services and commercial printing; educational kit
manufacturing; and custom publishing services (see Note 2 for additional
information).
In February 1999, the Company reached an agreement with its major creditors
pursuant to which its then existing long term debt would be significantly
reduced and its existing trade obligations would be paid in full. In accordance
with that agreement, the Company, as well as Golden Books Publishing and Golden
Books Home Video, Inc. (collectively, the "Debtors") filed petitions for
reorganization under Chapter 11 of the United States Bankruptcy Code
("Bankruptcy Code") (see Note 2 for additional information). Accordingly, the
consolidated financial statements of the Company during the bankruptcy
proceedings (the "Predecessor Company financial statements") are presented in
accordance with American Institute of Certified Public Accountants' Statement of
Position 90-7 "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code" ("SOP 90-7"). Significant components of the Amended Joint Plan
of Reorganization (as hereinafter defined) were approved by the Bankruptcy Court
on December 22, 1999. On January 27, 2000, the Company formally emerged from
protection under the Bankruptcy Code upon the consummation of the Amended Joint
Plan of Reorganization. The Company has applied the reorganization and
fresh-start reporting adjustments as required by SOP 90-7 to the consolidated
balance sheet as of December 25, 1999 (the "Effective Date") (see Note 2 for
additional information).
Under fresh start reporting, a new reporting entity is deemed to be created and
the recorded amounts of assets and liabilities are adjusted to reflect their
estimated fair values at the Effective Date. A black line has been drawn to
separate the Successor Company's consolidated balance sheet from that of the
Predecessor Company to signify that they are different reporting entities and
such consolidated balance sheets have not been prepared on the same basis.
As used herein, Successor Company refers to Golden Books Family Entertainment,
Inc. and Subsidiaries from the Effective date and Predecessor Company refers to
Golden Books Family Entertainment, Inc. and Subsidiaries prior to the Effective
Date.
F-9
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
2. Amended Joint Plan of Reorganization
The Company experienced liquidity difficulties as a result of operating losses,
working capital deficiencies and negative operating cash flows. These
difficulties hampered the Company's ability to fund day-to-day operations. In
February 1999, the Company reached an agreement with its major creditors
pursuant to which its then existing long term debt would be significantly
reduced and its existing trade obligations would be paid in full. As a result,
on February 26, 1999 the Debtors filed petitions for reorganization under the
Bankruptcy Code. The petitions were filed in the United States Bankruptcy Court
for the Southern District of New York (the "Bankruptcy Court"). The agreement in
principle regarding the terms of the Company's restructuring and the filing of
the Disclosure Statement and the Amended Disclosure Statement with the
Bankruptcy Court occurred on February 26, 1999 and May 13, 1999, respectively.
Under an order dated September 24, 1999, the Bankruptcy Court confirmed the
Company's Amended Joint Plan of Reorganization (the "Amended Joint Plan of
Reorganization"). Significant components of the Amended Joint Plan of
Reorganization (as herein defined) were approved by the Bankruptcy Court on
December 22, 1999. On January 27, 2000, the Company formally emerged from
protection under the Bankruptcy Code upon the consummation of the Amended Joint
Plan of Reorganization. The Company has applied the reorganization and
fresh-start reporting adjustments as required by SOP 90-7 to the consolidated
balance sheet as of December 25, 1999.
The following is a summary of the Amended Joint Plan of Reorganization:
o The Senior Notes of $150.0 million (as hereinafter defined) were converted
into (i) new Senior Secured Notes (as hereinafter defined) in the
principal amount of $87.0 million due 2004, with interest at the rate of
10.75%, if paid in cash, or, at the Company's option for the first two
years, 14.25% payable in kind, and (ii) 42.5% of the Successor Company's
common stock issued post recapitalization, prior to dilution (4,250,000
shares). The Senior Secured Notes are secured by the existing collateral
which had already been granted to the holders of the Senior Notes as well
as certain additional collateral.
o The TOPrS indebtedness of $109.8 million (as hereinafter defined) was
converted into 50% of the Successor Company's common stock issued post
recapitalization, prior to dilution (5,000,000 shares).
o The Golden Press Holdings, L.L.C. Loan Facility (as hereinafter defined) in
the amount of $10.0 million was converted into 5% of the Successor
Company's common stock issued post recapitalization, prior to dilution
(500,000 shares).
o The existing employment agreement with Richard E. Snyder (the Predecessor
and Successor Company's Chairman of the Board and Chief Executive Officer),
was terminated and Mr. Snyder received, in consideration of his executing a
new employment agreement and surrendering certain claims and rights under
his then effective employment agreement, 2 1/2% of the Successor Company's
common stock issued post recapitalization, prior to dilution in the form of
restricted stock (250,000 shares), among other things.
Existing preferred and common shareholders surrendered their stock in exchange
for warrants to purchase 5% of the Successor Company's common stock at an
exercise price of $23.03 per warrant, allocated two-thirds to the preferred and
one-third to the common shareholders, issued post recapitalization, prior to
dilution (525,000 warrants). The restructuring also provided for the 1999 Equity
Award Program for an amount of Successor Company's common stock equal to 10% of
the Successor Company's common stock issued on the Effective Date of the Amended
Joint Plan of Reorganization on a fully diluted basis (1,169,444 shares). Of
that amount, one-half (5%) was allocated to senior management upon the Effective
Date of the Amended Joint Plan of Reorganization with the balance being made
available for other management personnel and for future grants.
F-10
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
On the Effective Date of the Amended Joint Plan of Reorganization, the Successor
Company entered into the Revolving Credit and Term Loan agreement (as
hereinafter defined) consisting of a revolving credit facility of up to $50.0
million and a term loan of $10.0 million. The proceeds from the Revolving and
Term Loan were utilized to repay all of the then outstanding amounts under the
Dip Loan (as hereinafter defined), with additional proceeds being available for
working capital and general corporate purposes (see Note 11 for additional
information).
Until November 1999, the Company had manufactured the majority of its Children's
Publishing products at its manufacturing facility in Sturtevant, WI (the
"Manufacturing Facility"), with additional components and services obtained from
third party vendors in the United States and abroad. As a result of the decline
in the revenues of the Children's Publishing division, the Manufacturing
Facility exceeded the Company's existing needs. Additionally, the Company was
burdened by high operating costs due to its inability to utilize the full
capacity of the Manufacturing Facility. Accordingly and in anticipation of the
Company's emergence from Bankruptcy, in November 1999 the Company sold the
Manufacturing Facility (including the Commercial Products Division) to a third
party resulting in a loss of approximately $8.8 million being included as a
reorganization item the consolidated statement of operations and comprehensive
income (loss) for the year ended December 25, 1999. Simultaneous with the sale
of the Manufacturing Facility, the Company and the buyer entered into a printing
services agreement. Pursuant to the terms of the printing services agreement,
the Company is obligated to purchase a substantial portion of the Company's
existing product from the buyer.
On the Effective Date of the Amended Joint Plan of Reorganization, the value of
the Senior Secured Notes and the Successor Company's common stock was less than
the value of the liabilities subject to compromise of the Predecessor Company,
accordingly, the Predecessor Company recorded an extraordinary gain of
approximately $152.0 million related to the discharge of liabilities subject to
compromise in the consolidated statement of operations and comprehensive income
(loss) for the year ended December 25, 1999. The consolidated financial
statements at December 25, 1999 (Successor Company) gives effect to the issuance
of the Senior Secured Notes and the Successor Company's common stock in
accordance with the Amended Joint Plan of Reorganization.
The extraordinary gain recorded by the Predecessor Company was determined as
follows (in thousands):
Liabilities subject to compromise at the Effective Date Debt:
Loan facility $ 10,000
Senior Notes 150,000
Guaranteed preferred beneficial interests in the
Company's and Golden Books Publishing Company,
Inc.'s Convertible Debentures 109,795
-----------
Total debt 269,795
Other long-term liabilities (principally interest expense) 18,911
-----------
Total long-term liabilities subject to compromise 288,706
Less:
Value of Senior Secured Notes 87,000
Value of Successor Company's common stock 49,750
-----------
Extraordinary gain on debt discharge $ 151,956
===========
F-11
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
In accordance with SOP 90-7, the Company has recorded all transactions incurred
as a result of the Bankruptcy filing separately as reorganization items.
Accordingly, reorganization items included in the consolidated statement of
operations and comprehensive income (loss) for the year ended December 25, 1999
includes the following (in thousands):
Professional fees $ 8,808
Shareholder lawsuit 1,250
Loss on sale of manufacturing facility 8,832
Other costs 2,691
Interest income (252)
----------
Total $ 21,329
==========
3. Fresh-Start Reporting
As indicated in Note 1, the Company adopted the requirements of fresh-start
reporting as of December 25, 1999. In adopting fresh-start reporting, the
Company was required to determine its enterprise value, which represents the
fair value of the entity before considering its liabilities. The financial
advisors to the Company determined the Company's enterprise value of $157.0
million and the reorganization equity value of $50.0 million.
The adjustments to reflect the adoption of fresh-start accounting, including the
adjustments to record (i) inventories, (ii) other current assets, (iii) other
assets, (iv) other intangible assets, (v) other current liabilities, (vi)
accumulated post-post retirement benefit obligation and (vii) deferred
compensation and other deferred liabilities at their fair market values, have
been reflected in the following consolidated balance sheet reconciliation as of
December 25, 1999 as fresh-start adjustments. In addition, the Successor
Company's consolidated balance sheet was further adjusted to eliminate existing
liabilities subject to compromise and equity and to reflect the aforementioned
$157.0 million enterprise value, which includes the establishment of $36.3
million of reorganization value in excess of amounts allocable to net
identifiable assets ("Excess Reorganization Value"). The Excess Reorganization
Value is being amortized using the straight-line method over a 10-year useful
life.
Reconciliation of the Predecessor Company's consolidated balance sheet as of
December 25, 1999 to that of the Successor Company showing the adjustments
thereto to give effect to the reorganization debt and fresh-start adjustments
(as described above) is as follows (in thousands):
F-12
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Predecessor Fresh-Start Successor
Company Reorganization Adjustments Company
------- -------------- ----------- -------
ASSETS
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 6,544 $ -- $ -- $ 6,544
Accounts receivable 54,089 -- -- 54,089
Inventories 26,115 -- 54 26,169
Royalty advances 3,264 -- -- 3,264
Other current assets 8,373 -- (2,970) 5,403
--------- --------- --------- --------
Total current assets 98,385 -- (2,916) 95,469
Other assets 17,995 -- 173 18,168
Property, plant and equipment 17,522 -- -- 17,522
Other intangible assets 52,901 -- 69,619 122,520
Goodwill 28,103 -- (28,103) --
Excess reorganization value -- -- 36,319 36,319
--------- --------- --------- --------
Total assets $ 214,906 $ -- $ 75,092 $289,998
========= ========= ========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 28,591 $ -- $ -- $ 28,591
Accrued compensation and fringe benefits 6,790 -- -- 6,790
Revolving credit and term loan agreement -- 15,384 -- 15,384
DIP Loan 22,134 (22,134) --
Other current liabilities 47,019 -- 2,326 49,345
--------- --------- --------- --------
Total current liabilities 104,534 (6,750) 2,326 100,110
Revolving credit and term loan agreement -- 6,750 -- 6,750
Senior secured notes -- 87,000 -- 87,000
Accumulated post-retirement benefit obligation 29,044 -- 1,762 30,806
Deferred compensation and other deferred liabilities 21,589 -- (6,007) 15,582
Liabilities subject to compromise 288,706 (288,706) -- --
Total noncurrent liabilities
Stockholders' equity (deficit)
Convertible preferred stock 65,000 -- (65,000) --
Common stock 283 102 (283) 102
Additional paid-in capital 132,034 50,131 (132,034) 50,131
Accumulated deficit (422,518) 151,956 270,562 --
Accumulated other comprehensive loss (944) -- 944 --
--------- --------- --------- --------
(226,145) 202,189 74,189 50,233
Less: Cost of common stock in treasury (2,822) -- 2,822 --
Unearned compensation on restricted stock -- (483) -- 483
--------- --------- --------- --------
Total stockholders' equity (deficit) (228,967) 201,706 77,011 49,750
Total liabilities and stockholders' equity (deficit) $ 214,906 $ -- $ 75,092 $289,998
========= ========= ========= ========
</TABLE>
F-13
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
4. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements include the accounts of the Predecessor or
Successor Company and all its wholly owned subsidiaries. All material
intercompany items and transactions have been eliminated in consolidation.
Certain amounts in 1998 and 1997 have been reclassified to conform to the 1999
presentation.
Cash and Cash Equivalents
The Company considers all highly liquid debt investments purchased with
maturities of three months or less to be cash equivalents. Cash equivalents
consist of investments in high grade commercial paper. Accordingly, these
investments are subject to minimal credit and market risk. At December 25, 1999
and December 26, 1998, all of the Company's cash equivalents are classified as
held to maturity and their carrying amounts approximate fair value.
At December 25, 1999 and December 26, 1998, the Company has placed approximately
$1.9 million and $3.7 million, respectively in certificates of deposit primarily
to collateralize lease obligations associated with the Company's corporate
headquarters located in New York City. Such amounts are included in other
non-current assets on the accompanying consolidated balance sheets.
Income Taxes
The Company accounts for income taxes in accordance with the liability method.
Under this method, deferred income taxes are provided for differences between
the book and tax bases of the Company's assets and liabilities.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosures of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates. The principal areas of
judgment relate to provision for returns and other sales allowances, allowance
for doubtful accounts, slow moving and obsolete inventories, reserve for royalty
guarantees and advances, film forecast ultimates, long-term asset impairment and
taxes.
Property, Plant and Equipment
Property, plant and equipment of the Predecessor Company is stated at cost and
was depreciated / amortized on the straight-line method over the following
estimated useful lives:
Classification Estimated Life (Years)
-------------- ----------------------
Building and improvements 10 - 20
Machinery and equipment 3 - 10
Expenditures which significantly increased the value or extended the useful
lives of assets were capitalized, while maintenance and repairs were expensed as
incurred. The cost and related accumulated depreciation / amortization of
assets, replaced, retired or disposed of were eliminated from their respective
property, plant and equipment accounts, and any gain or loss was reflected in
consolidated statements of operations.
F-14
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
Costs related to the development of information systems that were expected to
benefit future periods were capitalized and amortized over the estimated useful
lives of the systems.
As a result of the recurring losses by the Children's Publishing business
primarily due to a reduced level of sales, high operating costs (including an
unfavorable lease agreement and disadvantageous union contracts) and the under
utilization of manufacturing capacity at their Manufacturing Facility, during
the fourth quarter of 1998, management evaluated the ongoing value of the
property, plant and equipment associated with its Manufacturing Facility. Based
on this evaluation, the Company determined that assets with a carrying value of
$19.2 million were impaired and wrote them down by approximately $9.2 million to
their estimated fair value. Fair value was based upon estimates by management
using current market values from vendors and appraisals. Such amount has been
included in write-off of assets in the accompanying consolidated statement of
operations and comprehensive income (loss) for the year ended December 26, 1998.
The Manufacturing Facility was sold in November 1999 (see Note 2 for additional
information).
The Successor Company maintains the policies concerning transactions affecting
property, plant and equipment as noted above.
Revenue Recognition
Sales are recorded upon shipment of products. Sales made on a returnable basis
are recorded net of provisions for estimated returns and allowances. These
estimates are revised, as necessary, to reflect actual experience and market
conditions. Revenue from the sale of film rights, principally for the home video
and domestic and foreign syndicated television markets, is recognized when the
film is available for showing or exploitation. Income from licensing is recorded
at the time characters are available to the licensee and collections are
reasonably assured. Receivables due more than one year beyond the consolidated
balance sheet date are discounted to their present value.
Income (Loss) Per Common Share
Net income (loss) per basic common share for the Predecessor Company was based
on the net income (loss) for the period plus preferred dividend requirements
divided by the weighted average number of basic common shares outstanding for
the period. Shares issuable upon the exercise of all common stock equivalents
consisting primarily of stock options and warrants were not included in the
computations since their effect was antidilutive.
Pursuant to SOP 90-7, the common stock of the Successor Company was restated to
reflect the capitalization of the Successor Company as of the Effective Date of
the Amended Joint Plan of Reorganization.
Net income per basic and diluted common share for the Predecessor Company on a
proforma basis for the equity structure of the Successor Company was based on
the net income for the period less any preferred dividend requirements divided
by the weighted average number of basic and diluted common shares outstanding
for the period. Shares issuable upon the issuance of warrants were not included
in the computation since the effects of the warrants would be antidilutive. A
reconciliation of the number of shares used for calculating basic and diluted
earnings per share common share follows (in thousands) (see Note 20):
Average number of common shares outstanding 10,234
Effect of stock options 703
------
10,937
======
F-15
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
Inventories
Inventories of the Predecessor Company were valued at the lower of cost or
market value. Cost was determined by the last-in, first-out ("LIFO") method for
substantially all domestic inventories, except for the Entertainment division's
inventory which were valued using the first-in, first-out method. Inventories of
international operations were valued using the first-in, first-out method. At
December 26, 1998, approximately 75% of total inventories were valued under the
LIFO method.
Pursuant to SOP 90-7, inventories were restated at their approximate fair value
at December 25, 1999.
Foreign Currency Translation
Foreign currency assets and liabilities are translated into United States
dollars at end of period rates of exchange, and income and expense accounts are
translated at the weighted average rates of exchange for the period of the
Predecessor Company. The gains and losses resulting from the translation
adjustments have been accumulated as a separate component of common
stockholders' equity (deficit). During the year ended December 26, 1998, the
Company recorded a translation charge of approximately $777,000 relating to the
wind-down of the United Kingdom operations. Such amount was included in selling,
general and administrative expenses in the consolidated statement of operations
and comprehensive income (loss) for the year ended December 26, 1998.
Pursuant to SOP 90-7, foreign currency translation was restated to zero at
December 25, 1999.
Advertising Costs
The Company expenses advertising costs related to their operations as they are
incurred. Advertising expenses for the years ended December 25, 1999, December
26, 1998 and December 27, 1997 amounted to approximately $2.4 million, $2.4
million and $3.6 million, respectively.
Other Intangible Assets
Other intangible assets of the Predecessor Company consisted primarily of the
film library and the associated costs of acquiring the film library, costs of
additional licenses and television production costs, which were stated at the
lower of unamortized costs or net realizable value. The costs were being
amortized using the film-forecast method which amortized such costs in the same
ratio that current revenues bore to anticipated total revenues. Under this
method, the useful lives did not exceed 20 years in duration. The liabilities
for various profit participations and residuals were accrued in the proportion
which revenue for a period bore to ultimate revenue.
During the fourth quarter of 1998, the Predecessor Company recorded a non-cash
charge of approximately $1.4 million as a component of write-off of assets in
the consolidated statement of operations and comprehensive income (loss) due to
the acceleration of the amortization period of one of the Predecessor Company's
entertainment productions.
In adopting the requirements of fresh-start reporting, the Successor Company was
required to obtain an independent valuation of its identifiable intangible
assets as of December 25, 1999. Accordingly, the Successor Company's other
intangible assets are stated at fair market value and are being amortized on the
straight-line basis over the following estimated useful lives except for the
film library which is being amortized using the film-forecast method as utilized
by the Predecessor Company with useful lives which do not exceed 20 years in
duration.
F-16
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
Classification Estimated Life (Years)
-------------- ----------------------
Trademarks and tradenames 25
Film library 20
Publishing works and education brands 20
Other 4 - 5
Goodwill and Long Lived Assets
Goodwill of the Predecessor Company consisted of the cost in excess of net
assets acquired in connection with the acquisition of substantially all the
assets of Broadway Video Entertainment, L.P. of approximately $32.2 million,
which was being amortized on a straight-line basis over a 25-year period.
Excess Reorganization Value
The financial advisors of the Company determined the Company's enterprise value
of $157.0 million and the reorganization equity value of $50.0 million. The
Successor's Company consolidated balance sheet was adjusted to eliminate the
existing liabilities subject to compromise and equity and to reflect the
aforementioned $157.0 million enterprise value, which includes the establishment
of $36.3 million of Excess Reorganization Value. Excess Reorganization Value is
being amortized using the straight-line basis over 10 years.
It is the Company's policy to account for excess reorganization value at the
lower of amortized cost or estimated realizable value. As part of an ongoing
review of the valuation and amortization of excess reorganization value and long
lived assets of the Company and its subsidiaries, management assesses the
carrying value of excess reorganization value and long lived assets if facts and
circumstances suggest that there may be impairment. If this review indicates
that excess reorganization value and long lived assets will not be recoverable
as determined by a non-discounted cash flow analysis of the operating results
over the remaining amortization period, the carrying value of the excess
reorganization value and long lived assets would be reduced to estimated
realizable value.
Deferred Financing Fees
The Successor Company has incurred and will continue to incur certain fees in
connection with entering into the Revolving Credit and Term Loan Agreement.
These deferred financing fees are included in other noncurrent assets in the
Successor Company's consolidated balance sheet and will be amortized on a
straight-line basis over the life of the Revolving Credit and Term Loan
Agreement (3 years).
Statement Accounting Bulletin No. 101 - Revenue Recognition in Financial
Statements
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"),
which will be effective for the Company in the first quarter of 2000. SAB 101
clarifies certain existing accounting principles for the recognition and
classification of revenues in financial statements. The Successor Company has
not yet completed its review of SAB 101, but does not anticipate that its
adoption will have a material effect on the consolidated financial statements.
F-17
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
Proposed Changes to Film Accounting Standards
In October 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants ("AcSEC") issued an exposure draft of
a proposed Statement of Position, "Accounting by Producers and Distributors of
Films" (the "SOP"). The proposed rules would establish new accounting standards
for producers and distributors of films, including changes in revenue
recognition and accounting for advertising, development and overhead costs. The
provisions of the SOP are still being deliberated by AcSEC and could change
prior to the issuance of the final standard, which is expected to occur by the
end of the second quarter of 2000. The SOP is expected to be effective for
calendar-year companies on January 1, 2001, with early application encouraged.
The Successor Company does not expect that the adoption of the provisions of the
SOP will have a material effect on the Successor Company's consolidated
statement of operations and comprehensive income (loss).
5. (Gains) Losses on Sales of Assets, Write-off of Assets and Net Assets Held
for Sale
During 1997, the Predecessor Company sold its printing operations in Cambridge,
Maryland, the building which had housed its main plant in Racine, and disposed
of other assets. On December 1, 1997, the Cambridge commercial printing
operation was sold for approximately $20.2 million in cash, subject to a working
capital adjustment which resulted in a gain of approximately $10.2 million
recorded in the consolidated statement of operations and comprehensive income
(loss) for the year ended December 27, 1997. The results of the operations of
the Cambridge facility are included in the Predecessor Company's consolidated
results of operations until its date of disposition. The facilities results of
operations for the year ended December 27, 1997 were as follows (in thousands):
Predecessor Company
Period from December 29, 1996 to
December 1, 1997
(date of disposition)
---------------------
Revenues $25,552
Gross profit 3,656
Income before interest expense and
provision for income taxes 1,952
Additionally, the sales of the Racine plant and other assets each resulted in
gains of $0.3 million for the year ended December 27, 1997. In connection with
the Predecessor Company's strategic plan, the Predecessor Company incurred
approximately $11.4 million in one time transition costs during 1997 consisting
of: (i) $3.1 million of moving costs associated with new facilities, (ii) $3.5
million for outsourcing of the information technology department, (iii) $4.5
million in consulting services associated with implementing the strategic plan,
and (iv) $0.3 million in other costs. These one time transition costs are
included in selling, general and administrative expenses in the accompanying
consolidated statement of operations and comprehensive income (loss) for the
year ended December 27, 1997.
F-18
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
During 1998, the Company continued its restructuring with the sale of its
facility in Fayetteville, North Carolina and a reduction of its office space in
New York (see Note 16). The Fayetteville facility was sold for approximately
$7.2 million in cash which resulted in a loss of approximately $1.8 million,
which was recorded as (gains) losses on sale of assets in the consolidated
statement of operations and comprehensive income (loss) for the year ended
December 26, 1998. The Predecessor Company recorded a charge of approximately
$4.7 million principally composed of a write-off of leasehold improvements
associated with the Predecessor Company's reduction of office space in
connection with their New York lease agreement as write-off of assets in the
consolidated statement of operations and comprehensive income (loss) for the
year ended December 26, 1998. Additionally, in 1998, the Predecessor Company
incurred approximately $12.2 million in one-time transition costs, consisting
of: (i) $4.4 million in outsourcing premiums and (ii) $7.8 million in costs
associated with the Predecessor Company's move to the new manufacturing facility
in Sturtevant, WI facility. These one time transition costs are included in: (i)
cost of sales and (ii) selling, general and administrative expenses,
respectively, in the accompanying consolidated statement of operations and
comprehensive income (loss) for the year ended December 26, 1998.
During 1999, the Predecessor Company continued its disposition of non-core
assets with the sale of its: (i) Coffeyville Distribution Center, (ii) operating
facility in Canada, (iii) Adult Publishing business and (iv) McSpadden-Smith
music publishing division. The Coffeyville Distribution Center was sold for
approximately $2.2 million, which resulted in a gain of approximately $1.5
million. The operating facility in Canada was sold for approximately $1.9
million, which resulted in a gain of approximately $1.9 million. The Canadian
operation relocated to a leased facility after the sale. The Adult Publishing
business was sold for approximately $11.0 million, which resulted in a gain of
approximately $1.7 million. The McSpadden-Smith music publishing division was
sold for approximately $2.8 million, which resulted in a gain of approximately
$2.2 million. These gains have been recorded as (gains) losses on the sales of
assets in the accompanying consolidated statements of operations and
comprehensive income (loss) for the year ended December 25, 1999.
As of December 25, 1999, substantially all of the facility closing and severance
costs, except for approximately $424,000 (which is contractually obligated),
have been paid.
As of December 26, 1998, net assets held for sale (included in other current
assets in the consolidated balance sheet) totaling approximately $1.3 million
included the Company's, (i) Creative Center and (ii) Coffeyville Distribution
Center, both facilities of Golden Books Publishing.
The Successor Company adopted the requirements of fresh-start reporting as of
December 25, 1999. The adjustments to reflect the adoption of fresh-start
reporting include adjustments to record net assets held for sale at their fair
market value. Accordingly, the Successor Company recorded a fresh-start
valuation adjustment to reduce the value of the Creative Center to zero as of
December 25, 1999.
F-19
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
6. Accounts Receivable
Accounts receivable consisted of the following (in thousands):
Successor Company Predecessor Company
December 25,1999 December 26, 1998
---------------- -----------------
Accounts receivable $ 94,072 $ 79,165
Allowance for doubtful accounts (5,963) (6,800)
Allowance for sales discount and (30,674) (26,827)
returns -------- --------
57,435 45,538
Less: long term portion (3,346) (4,127)
-------- --------
$ 54,089 $ 41,411
======== ========
7. Inventories
Inventories consisted of the following (in thousands):
Successor Company Predecessor Company
December 25,1999 December 26, 1998
---------------- -----------------
Raw materials $ 250 $ 1,911
Work-in-process 819 2,914
Finished goods 22,920 24,993
Film library 2,180 3,250
-------- --------
$ 26,169 $ 33,068
======== ========
At December 26, 1998, the replacement cost of inventories valued using LIFO
exceeded the net carrying amount of such inventories by approximately $3.2
million. For the years ended December 25, 1999 and December 26, 1998 the
liquidation of LIFO inventories decreased cost of sales by approximately $1.0
million and $1.4 million, respectively. For the year ended December 27, 1997
there was no LIFO liquidation and therefore, no impact on the consolidated
financial statements.
Pursuant to SOP 90-7, inventories were restated at their approximate fair value
at December 25, 1999, which resulted in the elimination of the Predecessor
Company's LIFO layers.
F-20
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
8. Property, Plant and Equipment
Property, plant and equipment consisted of the following (in thousands):
Successor Company Predecessor Company
December 25,1999 December 26, 1998
---------------- -----------------
Land $ 393 $ 393
Building and improvements 8,060 9,265
Machinery and equipment 8,130 56,162
Construction in progress 939 2,081
-------- --------
17,522 67,901
Less accumulated depreciation and -- (37,946)
amortization -------- --------
$ 17,522 $ 29,955
======== ========
9. Other Intangible Assets
Other intangible assets consisted of the following (in thousands):
Successor Company Predecessor Company
December 25,1999 December 26, 1998
---------------- -----------------
Trademark and tradename $ 31,800 $ --
Film library 41,420 63,707
Publishing works and education brands 46,000 --
Other 3,300 --
-------- --------
122,520 63,707
Less: accumulated amortization -- (7,849)
-------- --------
$122,520 $ 55,858
======== ========
F-21
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
10. Other Current Liabilities
Other current liabilities consisted of the following (in thousands):
Successor Company Predecessor Company
December 25,1999 December 26, 1998
---------------- -----------------
Royalties payable $ 23,265 $ 17,426
Accrued interest 562 12,958
Accrued worker's compensation 3,155 3,524
Reorganizational items 6,232 620
Restructuring costs 424 --
Other 15,707 27,106
-------- --------
$ 49,345 $ 61,634
======== ========
11. Debt
Debt consisted of the following (in thousands):
Successor Company Predecessor Company
December 25,1999 December 26, 1998
---------------- -----------------
Senior secured notes $ 87,000 $ --
Revolving credit and term loan 22,134 --
agreement
Senior notes -- 150,000
Revolving credit facility -- 21,637
Loan facility -- 10,000
-------- --------
109,134 181,637
Less long-term portion (93,750) --
-------- --------
$ 15,384 $181,637
======== ========
F-22
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
Debt - Successor Company
Senior Secured Notes
On the Effective Date of the Amended Joint Plan of Reorganization, the Successor
Company entered into an indenture agreement in the principal amount of $87.0
million (the "Senior Secured Notes") due in full on December 31, 2004 together
with all accrued and unpaid interest thereon. Interest at the rate of 10.75% per
annum is payable semi-annually on June 30th and December 31st of each year of
the term of the Senior Secured Notes commencing January 1, 2000. Interest may be
paid in the form of additional Senior Secured Notes at a rate of 14.25% per
annum in lieu of cash at the Successor Company's option for all interest
payments due on or prior to December 31, 2002. The Senior Secured Notes are
secured by the existing collateral which had been granted to the holders of the
Senior Notes as well as certain additional collateral. The Senior Secured Notes
requires the Successor Company to maintain compliance with certain financial and
non-financial covenants, including minimum EBITDA and limitations on: (i)
restricted payments, (ii) incurance on additional indebtedness and (iii) capital
expenditures (all as defined in the Senior Secured Notes agreement), among
others. The Successor Company has outstanding $87.0 million under the Senior
Secured Notes agreement as of December 25, 1999.
Revolving Credit and Term Loan Agreement
On the Effective Date of the Amended Joint Plan of Reorganization, the Successor
Company entered into a revolving credit and term loan agreement consisting of a
revolving credit facility of up to $50.0 million and a term loan in the amount
of $10.0 million (the "Revolving Credit and Term Loan Agreement"). The proceeds
from the Revolving Credit and Term Loan Agreement were utilized to repay all of
the then outstanding amounts under the DIP Loan (as hereinafter defined), with
additional proceeds being available for working capital and general corporate
purposes.
The Successor Company maintains a Borrowing Base (as defined) of up to $50.0
million for the revolving credit portion of the Revolving Credit and Term Loan
Agreement, with such outstanding amounts being due on a current basis with all
remaining outstanding amounts being due in full on December 31, 2002 together
will all accrued and unpaid interest thereon. Such due date may be extended for
one year periods. Interest on the revolving credit portion of the Revolving
Credit and Term Loan Agreement is payable monthly in arrears on the first day of
each month commencing February 1, 2000 at a rate equal to the Prime Rate plus
1.75%. The Successor Company is required to pay an unused line of credit fee in
the amount of 1/2 of 1% per annum monthly in arrears on the last day of each
month commencing January 31, 2000. The Successor Company is also required to pay
a termination fee of: i) 3% through December 31, 2000, ii) 2% through December
31, 2001 and iii) 1% through December 31, 2002, multiplied by the total maximum
amount available above the then outstanding amount reduced by any payments made
under the term loan portion of the Revolving Credit and Term Loan Agreement if
the revolving credit portion of the Revolving Credit and Term Loan Agreement is
paid in full prior to December 31, 2002. Such percentages would be reduced to
1%, .5% and .25% respectively, if the termination is a result of the sale of the
Successor Company or the offering of debt or equity realizing gross proceeds of
not less than $200.0 million.
The term loan portion of the Revolving Credit and Term Loan Agreement in the
amount of $10.0 million is payable in installments by the Successor Company over
its three year term with all remaining principle together with all accrued and
unpaid interest thereon due in full on December 31, 2002. Interest on the term
loan portion of the Revolving Credit and Term Loan Agreement is payable monthly
in arrears on the first day of each month commencing February 1, 2000
F-23
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
at a rate equal to the Prime Rate plus 1.75%.
The Revolving Credit and Term Loan Agreement requires the Successor Company to
maintain compliance with certain financial and non-financial covenants,
including minimum EBITDA and limitations on: (i) dividends, distributions and
prepayments, (ii) incurences on additional indebtedness and (iii) capital
expenditures (all as defined in the Revolving Credit and Term Loan Agreement),
among others. The minimum EBITDA covenant requires the achievement of
approximately $1.0 million in EBITDA for Fiscal 2000. While the Company's budget
projects EBITDA in excess of this amount, the Company has not achieved this
level of EBITDA in recent years. The Successor Company has approximately $15.4
million and $6.8 million outstanding under the revolving credit and term loan
portions, respectively of the Revolving Credit and Term Loan Agreement as of
December 25, 1999. At March 17, 2000 the Company had available borrowings of
$19.3 million under the Revolving Credit and Term Loan Agreement.
Principal maturities of the Successor Company's debt over the next five years as
of December 25, 1999 are as follows (in thousands):
2000 $ 15,384
2001 3,250
2002 3,500
2003 --
2004 87,000
Debt - Predecessor Company
DIP Loan
On March 25, 1999, the Bankruptcy Court gave final approval to a $55.0 million
debtor-in-possession financing facility consisting of a $45.0 million credit
facility and a $10.0 million term facility (the "DIP Loan"). The DIP Loan was
for an initial period of two years with annual renewals thereafter with interest
rates ranging from the Prime Rate plus 1/8th of 1% to 5/8th of 1%. The DIP Loan
contained various financial covenants that the Predecessor Company was required
to maintain on a quarterly basis. The DIP Loan was secured by certain property,
receivables and inventory of the Predecessor Company. The Predecessor Company
utilized the proceeds from the DIP Loan to repay all outstanding amounts under
their then existing Revolving Credit Facility (as hereinafter defined) with the
remainder being utilized to fund operations through the Effective Date of the
Amended Joint Plan of Reorganization. On the Effective Date of the Amended Joint
Plan of Reorganization all outstanding amounts under the DIP Loan were paid in
full with the proceeds from the Revolving Credit and Term Loan Agreement.
Other Debt
The following descriptions of the financing arrangements of the Predecessor
Company is based on the original contractual terms and maturities of the related
financial instrument. As a result of operating losses, working capital
deficiencies and negative operating cash flow and the resulting Bankruptcy
filing, the Predecessor Company breached covenants in all of its then existing
debt agreements. All amounts outstanding were classified as current liabilities
at December 26, 1998.
F-24
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
Senior Notes
The Predecessor Company had outstanding $150.0 million principal amount of 7.65%
Senior Notes due 2002 (the "Senior Notes"). Interest was payable semiannually on
September 15th and March 15th. The Senior Notes contained certain provisions
limiting subsidiary indebtedness, guarantees, liens and the payment of cash
dividends on Predecessor Company's preferred and common stock. At December 26,
1998, the Predecessor Company had outstanding borrowings under the Senior Notes
totaling $150.0 million. On the Effective Date of the Amended Joint Plan of
Reorganization, the Senior Notes were converted into (i) the Senior Secured
Notes and (ii) 42.5% of the Successor Company's common stock issued post
recapitalization, prior to dilution (4,250,000 shares).
Revolving Credit Facility
On June 3, 1998, the Predecessor Company entered into a $30.0 million three-year
revolving credit facility ("Revolving Credit Facility"). Borrowings under the
Revolving Credit Facility bore interest at the prime rate. The Revolving Credit
Facility was secured by certain receivables and inventory of Golden Books
Publishing. As a result of entering into the Revolving Credit Facility, Golden
Books Publishing amended the Senior Notes to, among other things, (i) permit
Golden Books Publishing to secure up to $30.0 million of borrowings and related
obligations under the Revolving Credit Facility, (ii) grant to the holders of
the Senior Notes a security interest in certain assets of Golden Books
Publishing, (iii) add a guarantee from the Predecessor Company and (iv) add
additional covenants and amend certain existing covenants. At December 26, 1998,
the Predecessor Company had outstanding borrowings under the Revolving Credit
Facility totaling approximately $21.6 million. During 1999, the Predecessor
Company utilized a portion of the proceeds from the DIP Loan to repay all of the
then outstanding amounts under the Revolving Credit Facility.
Loan Facility
On September 4, 1998, the Predecessor Company entered into a $25.0 million loan
facility with GP Holdings (the "Loan Facility"). The Loan Facility permitted
Golden Books Publishing to borrow at its option, but subject to certain
conditions, up to $25.0 million. Borrowings under the Loan Facility were
guaranteed by the Predecessor Company and secured by certain assets. All
outstanding amounts under the Loan Facility were due, together with accrued and
unpaid interest, on September 9, 1999 or earlier under certain conditions,
including if certain assets of the Predecessor Company were sold. Interest was
due monthly and was set at an initial rate of 5% per annum increasing to 7% in
February 1999, but the payment of interest may have been deferred at the
Predecessor Company's option until maturity. At December 26, 1998, the
Predecessor Company had outstanding borrowings under the Loan Facility totaling
$10.0 million. On the Effective Date of the Amended Joint Plan of
Reorganization, the Loan Facility was converted into 5% of the Successor
Company's common stock issued post recapitalization, prior to dilution (500,000
shares).
F-25
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
12. Preferred Securities ("TOPrS")
The Predecessor Company raised a total of $115.0 million through a private
placement of Preferred Securities under Rule 144A under the Securities Act of
1933, as amended (the "Preferred Securities"). The Preferred Securities were
issued by the Golden Books Trust (the "Trust"), a Delaware business trust
financing vehicle. The Predecessor Company owned all of the common securities of
the Trust. The net proceeds of such offering, after commissions and expenses,
were approximately $110.8 million. The Preferred Securities paid quarterly
distributions at an annual distribution rate of 8 3/4% (subject to deferral of
interest payments on the Preferred Securities by the Predecessor Company and
Golden Books Publishing), had an aggregate liquidation preference of $115.0
million and were convertible at the option of their holders into Convertible
Debentures, which were immediately convertible into Predecessor Company common
stock at an initial conversion price of $13.00 per share. In January 1999,
certain holders of the Preferred Securities converted $5.2 million worth of
Preferred Securities for 400,003 shares of the Predecessor Company's common
stock. The Convertible Debentures were due to mature on August 20, 2016, and
were redeemable, in whole or in part, at any time after the occurrence of a Tax
Event or on Investment Company Event (both as defined). Effective January 10,
1997, the Predecessor Company registered the Preferred Securities with the
Securities and Exchange Commission.
F-26
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
The Predecessor Company and its subsidiary, Golden Books Publishing, were joint
and several obligor's of the Preferred Securities and they fully and
unconditionally guaranteed the Trust's obligations under the Preferred
Securities. Separate financial statements of Golden Books Publishing were not
presented in their entirety as the separate financial statements would not be
materially different from the consolidated financial statements of the
Predecessor Company. Summarized financial statements of Golden Books Publishing
were as follows (in thousands):
Predecessor
Company
December 26,
1998
----
Current assets $116,931
Non current assets 126,804
--------
Total Assets $243,735
========
Current liabilities $498,683
Noncurrent liabilities 46,854
--------
Total Liabilities 545,537
Preferred Securities --
Stockholders' Deficit (301,802)
--------
Total Liabilities and Stockholders' Deficit $243,735
========
<TABLE>
<CAPTION>
Predecessor Company
Year Ended
-------------------------------------------------
December 25, December 26, December 27,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Revenues $ 165,771 $ 194,226 $ 243,561
Gross profit 54,350 13,085 67,323
Loss before interest expense, interest income, reorganizational (19,019) (103,317) (32,136)
items, fresh start valuation, (benefit) provision for income
taxes and extraordinary item
Extraordinary item-gain on discharge of debt 149,541 -- $ --
--------- --------- ---------
Net income (loss) $ 173,100 $(138,750) $ (57,347)
========= ========= =========
</TABLE>
On the Effective Date of the Amended Joint Plan of Reorganization, the TOPrS
were converted into 50% of the Successor Company's common stock issued post
recapitalization, prior to dilution (5,000,000 shares).
F-27
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
13. Preferred Stock
On May 8, 1996, the Predecessor Company completed the sale, for net proceeds of
$58.8 million after giving effect to $6.2 million of transaction costs, of a
significant equity interest to Golden Press Holdings, LLC ("GPH Holding" or
"GPH") whereby the then existing Series A Convertible Preferred Stock was
retired at its face value plus accrued dividends and the Predecessor Company
issued to GPH Holding, for an aggregate purchase price of $65.0 million, (i)
13,000 shares of the Predecessor Company's Series B Convertible Preferred Stock,
no par value, each of which shares was convertible into shares of the
Predecessor Company's Common Stock at an initial conversion price of $10 per
share, and (ii) a warrant to purchase 3,250,000 shares of the Predecessor
Company's Common Stock at an initial exercise price of $10.00 per share (the
"Warrant"). The Series B Preferred Stock voted on an as-converted basis with the
Predecessor Company's Common Stock on all matters submitted to a vote of the
stockholders of the Predecessor Company, including the election of directors.
The Warrant became exercisable beginning on May 8, 1998, subject to acceleration
upon certain circumstances. The Warrant was exercisable until May 8, 2003.
The Series B Preferred Stock entitled GPH to receive a 12% annual dividend
payable (i) during each of the first four years following issuance in an amount
equal to approximately 195,000 shares of the Predecessor Company's Common Stock
per fiscal quarter of the Predecessor Company, subject to certain adjustments,
and (ii) thereafter, when and as declared out of legally available funds, in
cash at the rate of $150 per share, compounded quarterly, all of which dividends
were cumulative from the initial issuance. In addition, the Certificate of
Designation governing the Series B Preferred Stock prevented the Predecessor
Company from paying dividends or making other distributions on the Predecessor
Company's Common Stock until all dividends owed on the Series B Preferred Stock
were paid in full. On November 5, 1998, the Predecessor Company with the consent
of the holders of its Series B Preferred Stock stated that the dividend due on
November 1, 1998 would not be declared or paid. Prior to the Effective Date of
the Amended Joint Plan of Reorganization, the Predecessor Company had cumulative
preferred dividends payable of 195,000 shares of Common Stock and approximately
$2.4 million in cash which had been accrued for. Such shares and accruals were
exchanged for warrants to purchase shares of the Successor Company's common
stock on the Effective Date of the Amended Joint Plan of Reorganization (see
below).
The Series B Preferred Stock was subject to optional redemption by the
Predecessor Company at a redemption price of $5,000 per share, plus an amount
equal to any accrued and unpaid dividends, at any time on or after May 8, 2000.
The Predecessor Company was not required to mandatorily redeem the Series B
Preferred Stock and the Series B Preferred Stock was not the subject of any
sinking fund requirement.
The Series B Preferred Stock was convertible, at the option of the holders of
the Series B Preferred Stock, into shares of Predecessor Company's Common Stock,
at the exchange rate of 500 shares of the Predecessor Company's Common Stock for
each share of Series B Preferred Stock, representing a conversion price of
$10.00 per share of Series B Preferred Stock. The number of shares of the
Predecessor Company's Common Stock for which the Series B Preferred Stock would
have been converted was subject to antidilution adjustments pursuant to the
Certificate of Designations to prevent dilution on the occurrence of certain
events as described in the Certificate of Designations.
On the Effective Date of the Amended Joint Plan of Reorganization, the holders
of the Series B Preferred Stock surrendered their stock in exchange for warrants
with an exercise price of $23.03 per share to purchase 350,000 shares of the
Successor Company's common stock, issued post recapitalization, prior to
dilution. The warrants were recorded at a zero value in connection with the
application of SOP 90-7.
F-28
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
14. Employee Stock Options
Employee Stock Options - Successor Company
On the Effective Date of the Amended Joint Plan of Reorganization, the Successor
Company entered into the 1999 Equity Award Program which provided for an amount
of common stock equal to 10% of the Successor Company's common stock issued on
the Effective Date of the Amended Joint Plan of Reorganization on a fully
diluted basis (1,169,444 shares).
Of that amount, one half (5%) was allocated to senior management on the
Effective Date of the Amended Joint Plan of Reorganization, consisting of: i)
233,889 shares of the Successor Company's common stock being issued to Richard
E. Snyder in the form of restricted stock to vest two-thirds (2/3rd) on the
second anniversary of the Effective Date of the Amended Joint Plan of
Reorganization and one-third (1/3rd) to vest on the third anniversary of the
Effective Date of the Amended Joint Plan of Reorganization and ii) 350,832
options to purchase an equal amount of the Successor Company's common stock
which vest ratably over a three year period and are exercisable over a ten year
period commencing with the Effective Date of the Amended Joint Plan of
Reorganization. The Successor Company will incur a future charge of $233,889 in
the form of compensation on restricted stock over the next three years. The
Successor Company will not incur a future charge related to the issued options
as these options were issued at the then fair market value of the Successor
Company's common stock.
Of the remaining amount (5%), 60,000 options to purchase an equal amount of the
Successor Company's common stock was issued to non-employee Board of Directors
and 292,361 options to purchase an equal number of the Successor Company's
common stock was issued to management. The options are exercisable over a ten
year period and vest ratably over a three year period commencing on the
Effective Date of the Amended Joint Plan of Reorganization. The Successor
Company will not incur a future charge related to the issued options as these
options were issued at the then fair market value of the Successor Company's.
The remaining 231,362 options to purchase an equal number of shares of the
Successor Company's common stock are subject to future grants.
The Successor Company has elected to follow APB 25 and related interpretations
in accounting for its employee stock options. The Successor Company has also
adopted the disclosure only provisions of SFAS 123. The disclosure provisions of
SFAS 123 have not been included herein, as the disclosure would not provide
meaningful results.
Employee Stock Options - Predecessor Company
In December 1995, the Predecessor Company adopted a stock option plan, which as
amended and restated as of March 11, 1997 (the "1995 Plan"), provided for the
granting of options to purchase up to 5,750,000 shares of the Predecessor
Company's Common Stock to employees of the Predecessor Company and its
subsidiaries. As of December 26, 1998 options to purchase 4,292,310 shares of
the Predecessor Company's Common Stock had been granted under the 1995 Plan. In
March 1986, the Predecessor Company adopted a stock option plan which, as
amended, provided for the granting of options to purchase up to 2,100,000 shares
of Predecessor Company's Common Stock through 1996 to employees of the
Predecessor Company and its subsidiaries.
Prior to February 3, 1990, one half of these options granted generally became
exercisable two years after the date of grant and the remaining one-half of such
options three years after the date of grant. Options granted between
F-29
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
February 4, 1990 and January 29, 1994 generally became exercisable in their
entirety five years after the date of grant. Options granted between January 30,
1994 and February 28, 1995 generally became exercisable as follows: (i)
one-third of the options granted on the date of grant, (ii) one-third of such
options one year after the date of grant and (iii) the remaining one-third of
such options two years after the date of grant. Options granted subsequent to
February 28, 1995 generally became exercisable over various periods in
accordance with the terms of the individual awards.
On the Effective Date of the Amended Joint Plan of Reorganization, all
outstanding exerciseable and unexercised stock options, warrants and similar
rights were canceled.
The following table of data is presented in connection with the stock option
plans for both the Predecessor and Successor Company:
<TABLE>
<CAPTION>
Option Price Per Weighted Average
Shares Share Exercise Price
------ ----- --------------
PREDECESSOR COMPANY
<S> <C> <C> <C>
Outstanding at December 28, 1996 3,511,389
Exercised (47,500) $8.25 - $11.75 $10.61
Canceled (441,300) $9.88 - $16.75 $12.79
Granted 1,559,721 $8.50 - $12.75 $9.64
----------
Outstanding at December 27, 1997 4,582,310
Exercised (8,339) $11.06 $11.06
Canceled (1,010,453) $4.63 - $14.25 $10.72
Granted at December 26, 1998 1,243,000 $3.94 - $11.63 $8.04
----------
Outstanding at December 26, 1998 4,806,518
Exercised -- -- --
Canceled (1,867,245) $3.94 - $13.38 $8.11
Granted -- -- --
----------
Outstanding at December 25, 1999 2,939,273
Fresh-Start adjustments (2,939,273)
Issuance of options under the --
Successor Company option plan 703,193 $1.92 $1.92
----------
SUCCESSOR COMPANY
Outstanding at December 25, 1999 703,193
==========
</TABLE>
F-30
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
The weighted average fair value of options was $1.92, $5.53 and $5.90 for the
years ended December 25, 1999, December 26, 1998 and December 27, 1997,
respectively. Options to purchase 1,414,892 shares were exercisable at December
26, 1998, respectively.
The Predecessor Company elected to follow Accounting Principles Board Opinion
No. 25, Accounting for Stock Issued to Employees ("APB 25") and related
interpretations in accounting for its employee stock options. The Predecessor
Company adopted the disclosure only provisions of Statement of Financial
Standards No. 123 ("SFAS 123"). Pro forma information regarding net income and
earnings per share is required by SFAS 123, which also requires that the
information be determined as if the Predecessor Company had accounted for its
employee stock options granted subsequent to December 31, 1994 under the fair
value method described in SFAS 123. For purposes of SFAS 123 pro forma
disclosures, the estimated fair value of the options is amortized to expense
over the option's vesting period. Had compensation cost for the stock option
plans been determined based on the fair value at the grant date for awards under
the stock option plans consistent with the methodology prescribed under SFAS
123, the Predecessor Company's pro forma net income (loss) and net income (loss)
per basic common share would have been approximately $183.0 million or $6.48 per
basic common share and $(136.0) million and $(4.96)per basic common share for
the years ended December 25, 1999 and December 26, 1998, respectively.
The fair value for each option grant was estimated at the date of grant using
the Black Scholes option pricing model with the following assumptions for the
various grants made during 1998: risk free interest rate of 5.6%; expected
volatility of 66.1%; no dividend yield; no forfeiture rate and expected lives of
7 years. The Black Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, the option valuation models require
input of highly subjective assumptions including the expected stock price
volatility. Because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion the existing models do
not necessarily provide a reliable single measure of the fair value of employee
stock options.
F-31
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
15. Stockholders' Equity (Deficit)
In connection with the GP Holding Transaction, 13,000 shares of the Predecessor
Company's Series B Preferred Stock were issued for an aggregate purchase price
of $65.0 million. Net proceeds associated with the transaction were
approximately $58.8 million, after giving effect to approximately $6.2 million
of transaction costs. For the first four years, the Series B Preferred Stock
provided for dividends to be paid equally amounting to approximately 195,000
shares of the Predecessor Company's Common Stock per fiscal quarter.
On September 26, 1997, the Predecessor Company entered into a licensed book
publishing agreement (the "Agreement") with Disney Licensed Publishing
("Disney"). In connection with the Agreement, Disney received warrants to
purchase 1.1 million shares of the Predecessor Company's Common Stock (valued at
approximately $6.6 million) at a per share price of $11.375 exercisable
beginning on the earlier of (i) 90 days after the expiration of the Agreement or
(ii) 30 days after the announcement by either Disney or the Predecessor Company
(a) that they will be entering into a new license agreement or (b) that they
will not be entering into a new license agreement, and expiring on March 31,
2008. See Note 22 - Subsequent Events for additional information.
On the Effective Date of the Amended Joint Plan of Reorganization, the holders
of the Predecessor Company's preferred and common stock surrendered their stock
in exchange for warrants with an exercise price of $23.03 to purchase 5% of the
Successor Company's common stock allocated two-thirds to the preferred and
one-third to the common shareholders, to be issued post recapitalization, prior
to dilution (525,000 warrants) and all existing warrants, outstanding
exerciseable and unexerciseable stock options and similar rights of the
Predecessor Company were canceled. Additionally, the Successor Company adopted
the Amended and Restated Certificate of Incorporation which authorized the
Successor Company to issue 30,000,000 shares of the Successor Company's common
stock at $.01 per share. Accordingly, the Successor Company's outstanding common
stock as of December 25, 1999 is composed of the following:
Shares of Common Stock
----------------------
Senior secured notes holders 4,250,000
TOPrS holders 5,000,000
Loan facility holders 500,000
Senior management - restricted stock 483,889
---------
10,233,889
=========
Shares of Common Stock Reserved
for future issuance
-------------------
Common stock reserved for issuance-1999
Equity Awards Program 935,555
Warrants-Predecessor Company preferred
and common shareholders 525,000
---------
1,460,555
=========
F-32
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
16. Commitments and Contingencies
The Successor Company leases certain facilities, machinery and vehicles under
various noncancellable operating lease agreements over periods of one to fifteen
years. Future minimum lease payments required under such leases in effect at
December 25, 1999 and thereafter are as follows (in thousands):
2000 $ 3,254
2001 2,946
2002 2,458
2003 2,512
2004 2,676
and thereafter 23,931
Total rent expense charged to operations was approximately $5.6 million, $5.8
million and $5.7 million for the years ended December 25, 1999, December 26,
1998 and December 27, 1997, respectively. In January 1998, the Predecessor
Company reduced their New York office space from six floors to three floors. In
connection with such reduction, the Predecessor Company recorded a non-cash
charge of approximately $3.1 million as a component of write-off of assets in
the consolidated statement of operations and comprehensive income (loss) for the
year ended December 26, 1998
The Company is required to meet certain contractual payments under contracts in
effect at December 25, 1999 and thereafter, as follows (in thousands):
2000 $39,960
2001 28,802
2002 26,008
2003 22,295
2004 19,993
Contingencies
See Note 22 Subsequent Events for additional information.
On February 26, 1999, the Successor Company and certain of its subsidiaries
filed petitions for reorganization under the Bankruptcy Code, and emerged
therefrom on January 27, 2000. In accordance with the Amended Joint Plan of
Reorganization, the Successor Company is in the process of paying all
pre-petition trade creditors with undisputed claims all amounts due with
interest, and is working to resolve all disputed claims of pre-petition trade
creditors in the Bankruptcy Court.
On August 12, 1998, a class action complaint was filed in the United States
District Court for the Southern District of New York on behalf of all persons
who purchased the Common Stock of the Company between May 1997 and August
F-33
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
1998, inclusive. On October 7, 1998, holders of the Company's TOPrS filed a
class-action complaint based on substantially identical allegations, which
complaints were subsequently consolidated. On October 12, 1999, the Court
approved a settlement of the consolidated actions. The Company has admitted no
wrongdoing but paid $1,250,000 toward the settlement.
The Company and Penn Corporation ("Penn") have been informed by the United
States Environmental Protection Agency (the "EPA") and/or state regulatory
agencies that they may be potentially responsible parties ("PRPs") and face
liabilities under the Comprehensive Environmental Response, Compensation, and
Liability Act (commonly known as "CERCLA" or "Superfund") and/or similar state
laws. Although the Company divested Penn in December 1996, the Company has
agreed to indemnify Peacock Papers, Inc. against certain of Penn's environmental
liabilities, including the Cork Street Landfill and Fulford Street Property
sites discussed herein. In all cases except those described below, the Company
has resolved its liability or is in the process of resolving its liability for
amounts that are not material.
On October 2, 1996, the Company received notice from the City Attorney of
Kalamazoo, Michigan that Beach Products, a division of Penn, will be asked to
participate in the remediation of the Cork Street Landfill site located in
Kalamazoo which was allegedly used by Beach Products. Current cost estimates for
the remediation required at the site are as high as $24,000,000. More than 70
entities will be requested to provided financial contribution to the
remediation.
On November 14, 1996, the Michigan Department of Environmental Quality requested
that corrective actions be taken at the Company's former Fulford Street Property
site located in Kalamazoo, Michigan as a result of the discovery on November 8,
1996 of a leaking underground storage tank system. Recent sampling results taken
pursuant to the corrective action plan for this site indicated the presence of
groundwater contamination at levels exceeding the Michigan Department of
Environmental Quality standards in one of six groundwater samples. Additional
sampling will be undertaken to determine the source of the contamination.
Current estimates indicate that future costs associated with this release are
not expected to exceed $200,000. However, in the event that the contamination
has migrated off the site, these costs could increase.
At the Hunt's Landfill site in Racine County, Wisconsin, the Company's liability
pursuant to the terms of a consent decree is limited to approximately 4% of the
total remedial costs. Although the last phase of remediation activities was
completed in 1996, the Company and the other PRPs are obligated to fund the
operation and maintenance of the site for the next 20-30 years. The current
estimate of the total costs of such operation and maintenance is approximately
$5 million. In accordance with the consent decree, the Company has established a
reserve for its share of the probable clean-up costs.
In 1991 the EPA issued a unilateral administrative order (the "1991 Order") to
the Company and four other PRPs, requiring the Company and the other PRPs to
perform a remedial design and remedial action at the Hertel Landfill Superfund
Site in Plattekill, New York. The Company did not agree to comply with the
Order. The EPA subsequently sued the Company and other PRPs seeking recovery of
its costs at this site. Various PRPs in the litigation brought claims for
contribution against each other and the Company. The Company settled its
liability to the United States for noncompliance with the 1991 Order and agreed
to comply with the 1991 Order by implementing the remedy at the site, which is
now estimated to cost up to $4.9 million, excluding potential groundwater
remediation costs. On July 9, 1998, the Company and other PRPs entered into a
consent decree with the United States and the State of New York to resolve their
alleged liability for past response costs and formalize their agreement to
perform the remedy at the site. Under the consent decree, the Company and the
other settling parties are jointly and severally obligated to perform the remedy
and reimburse certain governmental past and future costs. The Company has paid
approximately $1.7 million toward
F-34
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
remedial costs since 1996 and has completed construction of the landfill cap.
The Company's share of future costs for operation and maintenance of the cap and
landfill monitoring are expected to be less than $500,000. The Company's share
of the government's future costs is expected to be $170,000.
The Company also has been identified as a PRP at a site located in Poughkeepsie,
New York. The Company and eight other PRPs received a notice letter in 1995 from
the State of New York regarding this site. The State of New York sought recovery
of its past oversight costs of more than $600,000 plus future oversight and
maintenance costs associated with this site, estimated by the State of New York
to be $830,000. The Company has received no further communications from the
State of New York with respect to this site but believes that the construction
phase of the remedy has been completed.
In addition to these environmental matters, the Company is party to the
following legal proceedings.
Live Entertainment, Inc. (Artisan Entertainment, Inc.) filed an action in
December 1998 in the California Superior Court against the Company to recover
damages in excess of $2.3 million as a result of the Company allegedly breaching
certain of its obligations under a licensing agreement. The Company has filed an
answer and cross complaint alleging breaches of the licensing agreement by Live
Entertainment, Inc. and seeking recission of the agreement.
The Company filed an action in 1994 in the United States District Court, Eastern
District of Wisconsin captioned as Western Publishing Company, Inc. v.
MindGames, Inc. seeking a declaration of rights in regard to the Company's
alleged breach of various of its obligations under its licensing agreement with
the defendant for distribution through 1994 of the adult board game known as
"Clever Endeavor." The District Court has granted the Company's motion for
summary judgment with respect to MindGames, Inc.'s claims to recover
approximately $2.4 million in lost profits and other losses. MindGames, Inc. has
agreed to dismiss its remaining claim to recover approximately $120,000 of
unpaid royalties in order to appeal the District Court's ruling. Although the
parties have filed initial briefs with the 7th Circuit Court of Appeals, the
appeal was stayed during the Company's bankruptcy proceeding.
In consideration of the aforementioned matters, the Successor Company has
recorded accruals in the "deferred compensation and other deferred liabilities"
account of approximately $8.3 million in the consolidated balance sheet at
December 25, 1999.
While it is not feasible to predict or determine the outcomes of these
aforementioned proceedings, it is the opinion of management that they maintain
adequate reserves in the consolidated balance sheet.
The Successor Company and its subsidiaries are parties to certain other legal
proceedings which are incidental to their ordinary business, none of which the
Successor Company believes are material to the Successor Company and its
subsidiaries taken together as a whole.
F-35
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
17. Income Taxes
Income tax expense calculated in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," consisted of the
following (in thousands):
<TABLE>
<CAPTION>
Predecessor Company
Year Ended
-------------------------------------------------
December 25, December 26, December 27,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Current payable (benefit):
Federal $(1,764) $ -- $ --
State 82 25 59
Local 1,092 (691) (22)
------ ------- ------
(590) (666) 37
Deferred:
Federal -- -- --
State -- -- --
Foreign -- -- --
------ ------- ------
$ (590) $ (666) $ 37
====== ======= ======
</TABLE>
Income (loss) before income tax expense of Golden Books Publishing's Canadian
subsidiary was approximately $2,841,000, $(3,067,000) and $(669,000) for the
years ended December 25, 1999, December 26, 1998 and December 27, 1997 ,
respectively.
A reconciliation of the statutory United States Federal income tax rate to the
Predecessor Company's effective income tax rate follows:
<TABLE>
<CAPTION>
Predecessor Company
Year Ended
-------------------------------------------------
December 25, December 26, December 27,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
State income taxes, net of Federal benefit 0.2 5.0 5.0
Valuation allowance, net of refundable amounts 48.4 (42.0) (38.5)
Permanent differences relating to the sale
of Division/Subsidiaries -- -- (0.6)
Fresh-start valuation (81.2) -- --
Other - net (4.2) 2.6 (1.0)
------ ------ ------
(1.8)% 0.6% (0.1)%
====== ====== ======
</TABLE>
F-36
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
The income tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 25, 1999 and
December 26, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
December 25, December 26,
1999 1998
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts and returns $12,442 $11,704
Property, plant & equipment
Accrued expenses 27,116 5,164
Post retirement benefits 11,618 11,843
Net operating loss carryforwards 74,255 126,519
Other - net 2,692 28,874
--------- ---------
Total deferred tax assets 128,123 184,104
Valuation allowance (96,480) (182,102)
--------- ---------
Deferred tax assets, net of valuation allowance 31,643 2,002
--------- ---------
Deferred tax liabilities:
Property, plant & equipment 2,080 --
Pension contributions 662 1,661
Intangibles 28,720 --
Inventory 181 290
Other - net -- 51
--------- ---------
Total deferred tax liabilities 31,643 2,002
--------- ---------
Net deferred tax assets/(liabilities) $ -- $ --
========= =========
</TABLE>
As of the Effective Date (see Note 2), the Company generated approximately $ 354
million of Net Operating Loss (NOL) carryforwards with expiration dates of
between 2011 and 2019. However, these NOLs were reduced substantially, to
approximately $ 203 million as a result of the discharge and cancellation of
various prepetition liabilities under the Company's Joint Plan of
Reorganization. In addition, the NOLs remaining after the application of the
cancellation of indebtedness rules are subject to certain
limitation-on-utilization rules. The federal income tax code imposes limitations
on the utilization of such loss carryforwards after certain changes of ownership
of a loss company (as defined in Internal Revenue Code Section 382), and the
Company is deemed a loss company for tax purposes.
Management has concluded based on available data that no change of ownership has
occurred prior to the Effective Date. However, as a result of the Joint Plan of
Reorganization (see Note 2) a change of ownership did occur on the Effective
Date and use of the Company's remaining NOL carryforwards became limited. The
tax rules governing
F-37
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
utilization of these NOLs are complex and depend on certain factors, some of
which are presently unknown.
Ordinarily, an ownership change would result in a significant limitation on the
Company's ability to utilize its net operating loss carryforwards following the
ownership change. However, pursuant to the so-called "Section 382(l)(5)
bankruptcy exception," provided the Company's reorganization resulted in the
ownership of 50% or more of the company's stock by "qualifying creditors" and
pre-change stockholders, the general limitations imposed by Section 382 will not
apply, but the Company's net operating loss carryforwards will be reduced by
certain interest paid or accrued on indebtedness converted into stock pursuant
to the Plan. The Company has calculated the reduction needed under this
provision to be $28 million; thus reducing the available NOLs as of the
Effective Date to approximately $175 million.
If the Section 382(l)(5) bankruptcy exception applies and the Company undergoes
another ownership change within two years after the ownership change resulting
form its Chapter 11 reorganization, the Company would not be entitled to use any
net operating loss carryforwards that accrued prior to such subsequent ownership
change to offset taxable income earned following such ownership change.
The Company's Management believes that qualifying creditors have received
ownership of more than 50% of the Company's stock pursuant to the
Reorganization. However, this determination is not yet finalized. If the Company
determines that it cannot qualify under the Section 382(l)(5) bankruptcy
exception, or if there is a significant possibility that the Company will
undergo another ownership change within the two-year period following the
ownership change resulting from its Chapter 11 reorganization, the Company may
elect to be subject to the annual limitation rules under Section 382(l)(6) of
the Internal Revenue Code (the "Section 382(l)(6) election"). Under this
provision, the Company's ability to utilize net operating loss carryforwards in
the future will generally be subject to an annual limitation (the "Section
382(1)(6) limitation") determined by multiplying the applicable federal long
term tax-exempt rate of 6.45% as of January, 2000 by the fair market value of
the equity of the Company immediately after the ownership change. Thus, based on
the value of the equity of the Company as the Effective Date of the Plan of
Reorganization of $49.75 million, the Company could use approximately $3.2
million of its NOLs each year until they expire. If the Section 382(l)(6)
election is made, the Company's net operating loss carryforwards will not be
subject to the reductions mandated by the Section 382(l)(5) bankruptcy
exception, nor will there be a complete prohibition on the use of net operating
loss if the Company undergoes another ownership change within the two-year
period described above.
While it is anticipated the Section 382(l)(5) bankruptcy exception would be most
advantageous, the Company has until September 17, 2001 to decide on whether or
not to make the Section 382(l)(6) election.
There can be no assurance that the Company will be able to utilize these NOLs
due to the complex nature of the applicable tax code and the differences that
may exist between Management's interpretation of the code an that of the
Internal Revenue Service. As a result of the risks associated with NOLs,
management has established a 100% valuation allowance to offset the associated
deferred tax asset.
Pursuant to SOP 90-7 the income tax benefit, if any, of any future realization
of the remaining NOL carryforwards existing as of the Effective Date will be
applied first as a reduction to Excess Reorganization Value, then to Other
Intangible Assets (see notes 4 and 9) until exhausted and thereafter be reported
as a direct addition to paid in capital.
F-38
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
18. Pension, Post-retirement and Post-employment Benefits
Golden Books Publishing has a noncontributory defined benefit retirement plans
covering substantially all domestic hourly employees. The benefits are generally
based on a unit amount at the date of termination multiplied by the
participant's credited service. The Company's funding policy is to contribute
amounts within the limits which can be deducted for income tax purposes.
F-39
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
Defined Benefit Plans (in thousands):
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
December 25,1999 December 26, 1998
---------------- -----------------
Change in Plan Assets:
<S> <C> <C>
Fair Value of plan assets at beginning of year $23,431 $20,836
Actual return on plan assets 1,231 3,359
Benefits Paid (1,291) (764)
------- -------
Fair value of plan assets at the end of the year $23,371 $23,431
======= =======
Changes in Benefit Obligations (in thousands):
Successor Predecessor
Company Company
December 25,1999 December 26, 1998
---------------- -----------------
<S> <C> <C>
Benefit obligations at the beginning of the year $18,923 $17,184
Service Cost 319 368
Interest Cost 1,269 1,288
Plan Amendments -- 1,296
Other actuarial gains (losses) (767) (449)
Benefits Paid (1,290) (764)
Curtailments (109) --
Special termination benefits 760 --
------- -------
Benefits obligations at the end of the year $19,105 $18,923
======= =======
Funded Status Reconciliation (in thousands):
Successor Predecessor
Company Company
December 25,1999 December 26, 1998
---------------- -----------------
<S> <C> <C>
Funded Status $4,266 $4,508
Unrecognized prior amounts:
Prior service costs -- 2,713
Net gains (losses) 350 (3,069)
------- -------
Total 350 (356)
------- -------
Prepaid benefit recognized in consolidated balance sheet
at the end of the year $4,616 $4,152
======= =======
</TABLE>
F-40
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
Components of Net Benefits Expense (in thousands):
Predecessor Company
<TABLE>
<CAPTION>
Predecessor Company
Year Ended
-------------------------------------------------
December 25, December 26, December 27,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Service cost $319 $368 $455
Interest cost 1,269 1,288 1,115
Expected return on plan assets (2,303) (2,052) (1,760)
Net amortization:
Transition (asset/obligation) -- -- (32)
Prior service cost 426 426 286
Prior gains (112) -- --
------ ------ ------
Total 314 426 254
Curtailment cost 2,138 -- --
Cost of special termination benefits 760 -- --
Cost of fresh start accounting (2,962) -- --
------ ------ ------
Net benefits (income) expense for the year $(465) $30 $64
====== ====== ======
</TABLE>
Other Post-retirement Benefit Plans (in thousands):
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
December 25, December 26,
1999 1998
---- ----
<S> <C> <C>
Benefit obligations at the beginning of the year $30,920 $30,065
Service cost 476 654
Interest cost 2,363 2,070
Actuarial (gains) losses 2,241 438
Net retiree benefit payments:
Benefits payments (3,600) (2,870)
Retiree contributions 742 563
------- -------
Total (2,858) (2,307)
Curtailment (2,336) --
------- -------
Benefit obligations at the end of the year $30,806 $30,920
======= =======
</TABLE>
- --------------------------------------------------------------------------------
F-41
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
Funded Status Reconciliation (in thousands):
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
December 25, December 26,
1999 1998
---- ----
<S> <C> <C>
Funded Status $30,806 $30,920
Unrecognized amounts:
Transition asset (obligation)
Prior service costs -- 2,263
Net gains (losses) -- (3,574)
------- -------
Total -- (1,311)
------- -------
Accrued benefit recognized in the consolidated
balance sheet at the end of the year $30,806 $29,609
======= =======
</TABLE>
Components of Net Benefits Expense:
<TABLE>
<CAPTION>
Predecessor Company
Year Ended
-------------------------------------------------
December 25, December 26, December 27,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Service cost $476 $654 $565
Interest cost 2,363 2,070 1,981
Net amortization
Transition (asset) obligation 328 47 5
Prior service cost (221) (221) (221)
------ ------ ------
Total 107 (174) (216)
------ ------ ------
Net benefit expense for the year $2,946 $2,550 $2,330
Net retire benefit payments (2,857) (2,307) (1,755)
One time charges 1,111 -- --
------ ------ ------
Net balance sheet recognition $1,200 $243 $575
====== ====== ======
</TABLE>
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
The weighted average actuarial assumptions utilized in determining the above
amounts for other post-retirement benefit plans as of the year were as follows:
Successor Predecessor
Company Company
December 25, December 26,
1999 1998
---- ----
Discount rate 7.5% 7%
Rate of compensation increase 4% 4%
The Company's other post-retirement benefit plans identified above provide
health and life insurance benefits to a number of existing retirees from certain
of its operations under the provision of a number of different plans.
Contributions currently required to be paid by the retirees towards the cost of
such plans range from zero to 100%. The Company also has a number of active
employees who might receive such benefits upon retirement. Relative to the above
information, the actuarial valuations assume a medical cost trend of 7% for
fiscal 1999, decreasing linearly to 5% in 2010; and remaining level thereafter.
The assumed health care trend rate has a significant effect on the amounts
reported. A one-time percentage-point change in the assumed health care trend
rate would have the following effects:
<TABLE>
<CAPTION>
1% 1%
Increase Decrease
-------- --------
<S> <C> <C>
Effect on the total of service and interest cost for 1999 $374 $ (310)
Effect on post retirement benefit obligation as of the end of the year $3,882 $ (3,266)
</TABLE>
Pension expense charged to operations for these plans and for other
multi-employer plans in which certain union employees of the Company's
subsidiaries participate was approximately $590,000, $305,000 and $326,000 for
the years ended December 25, 1999, December 26, 1998 and December 27,
respectively.
Subsidiaries of the Company also maintain defined contribution contributory
retirement plans for substantially all domestic employee groups. Under the
plans, the subsidiaries make contributions based on employee compensation and in
certain cases based upon specified levels of voluntary employee contributions.
Golden Books Publishing and its Canadian subsidiary also maintain a profit
sharing plan for certain salaried employees. Expense for these plans was
approximately $0.7 million, $0.8 million and $2.0 million for the years ended
December 25, 1999, December 26, 1998 and December 27, 1997, respectively.
F-43
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
19. Business Segments
Operating segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker(s) in deciding how to allocate resources and in
assessing performance. The Company identifies such segments based on management
responsibility within the United States and geographically for all international
units.
The Company currently has two operating segments: Consumer Products and
Entertainment. The Company previously maintained a third segment (Commercial
Products) until its sale in November 1999.
The Company's Consumer Products Segment is engaged in the creation, publication,
manufacturing, printing and marketing of story and picture books, coloring books
and other activity books, interactive electronic books and games, and products
for children as well as multimedia "entertainment" products. The Company's
foreign operations within the Consumer Products Segments consist of a sales
subsidiary in Canada and a small sales branch in the United Kingdom. The
Consumer Products segment included the Company's adult publishing division until
its sale in April 1999.
The Company's Entertainment Segment operates as Golden Books Entertainment Group
("GBEG"). GBEG's film library is comprised of copyrights, distribution rights,
trademarks or licenses relating to characters, television programs and motion
pictures, both animation and live action, and includes individual specials and
multiple episode series.
Until the sale of the Manufacturing Facility in November 1999, the Commercial
Products segment provided printing, graphic, creative and distribution services
to third parties.
Identifiable assets are those assets used specifically in the operations of each
operating segment or which are allocated when used jointly. Corporate assets are
principally comprised of cash and cash equivalents, refundable income taxes,
deferred income taxes, prepaid pension costs and certain other assets. Domestic
sales to foreign markets were less than 10% of total consolidated sales for the
years ended December 25, 1999, December 26, 1998 and December 27, 1997.
The Company evaluates performance based on several factors, of which the primary
measure is operating segment earnings before interest, taxes, depreciation and
amortization ("EBITDA"). The accounting policies of the operating segments are
the same as described in the Summary of Significant Accounting Policies (Note
4).
F-44
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
Information by industry segment is set forth below:
<TABLE>
<CAPTION>
Predecessor Company
Year Ended
-----------------------------------------------------------
December 25, 1999 December 26, 1998 December 27, 1997
------------------ ------------------ -----------------
(In millions)
Net sales:
<S> <C> <C> <C>
Consumer products $ 135.9 $ 150.7 $ 171.7
Entertainment 24.7 29.0 29.3
Commercial products 5.2 14.5 42.5
------- ------- -------
Total $ 165.8 $ 194.2 $ 243.5
======= ======= =======
Gross Profit:
Consumer $ 42.4 $ 5.9 $ 48.2
Entertainment 11.9 11.6 15.6
------- ------- -------
54.3 17.5 63.8
Commercial products -- -- 3.5
------- ------- -------
54.3 17.5 67.3
Transition costs (4.4) --
------- ------- -------
Total $ 54.3 $ 13.1 $ 67.3
======= ======= =======
SG&A
SG&A before transition costs $ 79.0 $ 90.5 $ 99.9
(Gains) losses on sales of assets (7.3) 1.8 (10.8)
Write-off of assets -- 15.3 --
------- ------- -------
71.7 107.6 89.1
Transition costs -- 7.8 11.4
------- ------- -------
Total $ 71.7 $ 115.4 $ 100.5
======= ======= =======
EBITDA
Gross profit before transition costs $ 54.3 $ 17.5 $ 67.3
SG&A before transition costs 71.7 107.6 89.1
------- ------- -------
Operating results before transition costs (17.4) (90.1) (21.8)
Depreciation and amortization 13.9 12.6 11.2
------- ------- -------
EBITDA before transition $ (3.5) $ (77.5) $ (10.6)
======= ======= =======
Operating results before transition $ (17.4) $ (90.1) $ (21.8)
Transition costs -- 12.2 11.4
------- ------- -------
Operating loss $ (17.4) $(102.3) $ (33.2)
======= ======= =======
</TABLE>
F-45
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Predecessor Company
Year Ended
-------------------------------------------------
December 25, December 26, December 27,
1999 1998 1997
---- ---- ----
(In millions)
<S> <C> <C> <C>
Depreciation and amortization:
Consumer products $4,897 $6,273 $2,959
Commercial products 568 409 3,175
Entertainment 5,098 4,817 4,591
Corporate 3,369 1.081 489
------- ------- -------
Total depreciation & amortization $13,932 $12,580 $11,214
======= ======= =======
Capital Expenditures:
Consumer products $2,139 $11,874 $5,797
Commercial products -- 1,422 4,653
Entertainment 816 4,668 6398
Corporate 121 104 9,886
------- ------- -------
Total capital expenditures $3,076 $18,068 $26,734
======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
------------ -------------------------------
December 25, December 26, December 27,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Assets:
Consumer products $182,480 $129,467 $146,969
Commercial products -- 11,051 29,846
Entertainment 67,216 102,207 113,334
Corporate 40,302 12,216 33,015
-------- -------- --------
Total assets $289,998 $254,951 $323,164
======== ======== ========
</TABLE>
For the years ended December 25, 1999, December 26, 1998 and December 27, 1997,
revenues from one single customer exceeded more than 10% of the Company's net
sales. The Company's products are primarily sold to mass market retailers
throughout the United States and to a lesser degree Canada and the United
Kingdom.
F-46
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
20. Net Income (Loss) Per Common Share
Income (loss) per basic and diluted common share for the Predecessor Company was
computed as follows:
<TABLE>
<CAPTION>
Predecessor Company
Year Ended
------------------------------------------------
December 25, December 26, December 27,
1999 1998 1997
---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C>
Net income (loss) before preferred dividend and $ 33,883 $(128,599) $(49,680)
extraordinary item
Preferred dividend requirements (1,252) (5,491) (7,849)
--------- --------- --------
Net income (loss) before extraordinary item 32,631 (134,090) (57,529)
applicable to common shares
Extraordinary item - gain on debt discharge 151,956 -- --
--------- --------- --------
Income (loss) applicable to common shares $ 184,587 $(134,090) $(57,529)
========= ========= ========
Weighted average basic and diluted common shares
outstanding 28,266 27,433 26,357
========= ========= ========
Net income (loss) before extraordinary item
applicable to basic and diluted common shares $ 1.15 $ (4.89) $ (2.18)
Extraordinary item - gain on debt discharge 5.38 -- --
--------- --------- --------
Income (loss) applicable to basic and diluted
common shares $ 6.53 $ (4.89) $ (2.18)
========= ========= ========
</TABLE>
F-47
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
Pro forma net loss per basic and diluted common share of the Predecessor Company
on a proforma basis for the equity structure of the Successor Company was
computed as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
----------------------
Successor Company Year
Ended
December 25, 1999
----------------------
<S> <C>
Net income before preferred dividend and extraordinary item $ 33,883
Preferred dividend requirements (1,252)
---------
Net income before extraordinary item applicable to common 32,631
shares
Extraordinary item - gain on debt discharge 151,956
---------
Income applicable to common shares $ 184,587
=========
Weighted average basic common shares outstanding 10,234
Weighted average diluted common share outstanding 10,937
Income per basic common share:
- ------------------------------
Net income before extraordinary item applicable to common $ 3.19
shares
Extraordinary item - gain on debt discharge 14.85
---------
Income applicable to common shares $ 18.04
=========
Income per diluted common share:
- --------------------------------
Net income before extraordinary item applicable to common $ 2.98
shares
Extraordinary item - gain on debt discharge 13.90
---------
Income applicable to common shares $ 16.88
=========
</TABLE>
21. Related Party Transactions
Board of Directors
Mr. Bennett is the President of Bennett Management Corporation, a manager of
private investment funds, including Bennett Offshore Restructuring Fund Inc. and
Bennett Restructuring Fund, L.P., which invests primarily in the securities of
companies in reorganization, bankruptcies, and special situations. Mr. Bennett
through these funds was the beneficial owner of 554,455 shares of the
Predecessor Company's TOPrS securities and $15,640,000 principal amount of the
Predecessor Company's senior notes.
Mr. Linden was the beneficial owner of 200 shares of the Predecessor Company's
TOPrS securities and $30,000 principal amount of the Predecessor Company's
senior notes.
Mr. Kramer is a Managing Director of the investment banking firm Houlihan Lokey
Howard & Zukin, Inc, which acted
F-48
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
as the financial advisor to the members of the Informal Senior Note Committee
with respect to the Predecessor Company's restructuring.
Mr. Nevins is a Managing Director of the investment banking firm Jefferies &
Company, Inc., acted as the financial advisor to the members of the Informal
TOPrS Committee which respect to the Predecessor Company's restructuring.
Georgetown Transaction
Pursuant to a letter agreement (the "Georgetown Agreement") dated as of August
1, 1996, The Georgetown Company ("Georgetown"), a corporation of which Marshall
Rose (a former director of the Predecessor Company) is the Managing Partner, has
acted as a real estate advisor to the Predecessor Company. In March 1999 the
Predecessor Company and Georgetown agreed to terminate all remaining obligations
under the Georgetown agreement. Pursuant to the Georgetown Agreement, the
Predecessor Company was obligated to make the following payments to Georgetown:
(i) $25,000 per month for the period beginning August 1, 1996 and ending July 1,
1999; and (ii) an incentive fee, payable in cash or Predecessor Company common
stock, for each completed real estate transaction during the period beginning
August 1, 1996 and ending July 3, 2000, in an amount equal to one-half of each
commission that would be paid to an outside broker representing the Predecessor
Company. To date, the Predecessor Company paid to Georgetown (i) $75,000 in
respect of a property located at 630 Fifth Avenue, New York, New York, (ii)
approximately $645,000 in respect of a property located at 888 Seventh Avenue,
New York, New York, (iii) approximately $131,000 in respect of a property
located at 850 Third Avenue, New York, New York, (iv) approximately $217,000 in
respect of a property located in Fayetteville, North Carolina, and (v)
approximately $78,000 in respect of a property located in Coffeyville, KS.
Tribeca Transaction
Pursuant to a letter agreement (the "Tribeca Agreement") dated as of July 1,
1996, the Predecessor Company was obligated to pay to Tribeca Technologies LLC
("Tribeca"), a limited liability company in which Philip E. Rowley (an former
officer of the Predecessor Company through May 1998) was a member, as
compensation for the loss by Tribeca of the exclusive services of Mr. Rowley
following his employment by the Predecessor Company, the sum of $200,000 on each
of the following dates (provided that Mr. Rowley was in the employment of the
Predecessor Company at such time); (i) July 1, 1996; (ii) July 1, 1997; and
(iii) July 1, 1998. In consideration for such payments, Tribeca was obligated to
pay the Predecessor Company one-third of the aggregate amount of any and all
distributions otherwise to be made by Tribeca to Mr. Rowley and the President of
Tribeca on or before June 30, 1999 (or such earlier time as Mr. Rowley's
employment with the Predecessor Company ceased), provided, that the maximum
amount payable to the Predecessor Company is the lesser of (i) $600,000 or (ii)
the amount paid by the Predecessor Company to Tribeca pursuant to the previous
sentence. As of December 26, 1998, the Predecessor Company had fulfilled its
obligation and made payments totaling $570,000 as follows: $200,000 in Fiscal
1996, $200,000 during June 1997, and $170,000 (paid in advance at a discounted
rate) during November 1997.
Powerhouse Transaction
On May 8, 1996, the Company and Powerhouse Entertainment Company, Inc.,
("Powerhouse"), a corporation affiliated with Richard A. Bernstein, the former
Chairman and Chief Executive Officer of the Company, entered into a software
development agreement (the "Development and Licensing Agreement") relating to
the development by Powerhouse of six interactive PC CD-ROM storybooks under the
Little Golden Books Interactive name and logo (the "Powerhouse Products") and
certain other computer software products.
F-49
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 25, 1999
- --------------------------------------------------------------------------------
Under the terms of the Development and Licensing Agreement, Powerhouse received
a fee in the amount of $1.0 million for the development of the Powerhouse
Products. All development costs were incurred by Powerhouse with the Powerhouse
Products' content, packaging and design subject to the Company's approval.
Separately, Powerhouse is paid a royalty based upon the net proceeds of sales of
the Powerhouse Products and such royalty obligation continues for the term of
copyright. The Company has paid approximately $615,000 to Powerhouse in
royalties through December 25, 1999.
There is also an agreement of even date between the parties wherein, Powerhouse,
on behalf of Company and at the Company's sole cost and expense, performed all
services relating to the manufacturing, marketing, distribution, sales and
licensing of the Powerhouse Products. To date, the Company has paid
approximately $615,000 to Powerhouse in connection with such services.
21. Subsequent Events
On December 12, 1998, the Company signed an amended license agreement with
Disney (the "Amended Disney License Agreement"). The Amended Disney License
Agreement superseded a prior agreement signed on September 26, 1997 that ran
through December 31, 2001. The Amended Disney License Agreement commenced on
December 12, 1998 and ends December 31, 2000 with a possible extension through
September 30, 2001 under certain conditions. Royalty rates under the Amended
Disney License Agreement vary by product. The Amended Disney License Agreement
contains minimum royalty guarantees.
On March 21, 2000, the Company announced that the Amended Disney License
Agreement would not be renewed and will thus expire on December 31, 2000 (the
"Expiration Date"). In accordance with the rights and obligations of the Company
under the Amended Disney License Agreement, commencing on the Expiration Date,
the Company will have a 13 month period, expiring on January 31, 2002 (the
"Sell-off Period") in which it can continue to sell Disney licensed product
manufactured by the Company until the Expiration Date. Until the Amended Disney
License Agreement expires, all rights and obligations of the Company will remain
in effect and the Company will continue to honor all terms of the Amended Disney
License Agreement through the Sell-off Period. In Fiscal 1999, the sales of
Disney licensed product accounted for slightly less than 20% of the Company's
net sales. The Company believes the termination of the Amended Disney License
Agreement will enable it to continue its change toward more profitable product.
The Company does not believe that the expiration of the Amended Disney License
Agreement will have a negative impact in Fiscal 2000. While the Company is
currently evaluating the long-term impact of the expiration of the Amended
Disney License Agreement, the Company believes that anticipated lost revenues
due to the expiration of this agreement can be mitigated over time from
increased revenues generated from other licensed products as well as increased
sales of proprietary product.
F-50
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
- --------------------------------------------------------------------------------
Condensed Balance Sheets
(In Thousands)
Predecessor
Company
December 26, 1998
-----------------
Assets
Current assets
Cash $ 1,511
Deposits 3,708
Refundable income taxes 637
Other current assets 2,166
---------
Total current assets 8,022
Other assets 3,164
Property, plant and equipment 99
Less allowances for depreciation and
amortization (69)
---------
30
Investment and advances in subsidiaries (184,796)
---------
$(173,580)
=========
Liabilities and stockholders' equity
Current liabilities
Accrued compensation and fringe benefits $ 89
Other current liabilities 7,485
---------
7,574
Deferred compensation 7,927
Stockholders' deficit
Convertible preferred stock - series B 65,000
Common stock 279
Additional paid in capital 128,956
Accumulated deficit (379,390)
Cumulative translation adjustment (1,104)
---------
(186,259)
Less common stock in treasury (2,822)
---------
(189,081)
---------
$(173,580)
=========
S-1
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(CONTINUED)
- --------------------------------------------------------------------------------
Condensed Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
Predecessor Company
Year Ended
------------------------------------------------
December 25, December 26, December 27,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net revenues (principally intercompany interest
income) $ 11,493 $ 10,055 $ 8,730
Costs and expenses:
Selling, general and administrative (1,422) (346) 1,063
Interest expense 285 250 --
--------- --------- --------
Income before provision for income taxes 12,630 10,151 7,667
Provision for income taxes -- -- --
--------- --------- --------
12,630 10,151 7,667
Income (deficit) in net income (loss) of subsidiary (173,209) (138,750) (57,347)
--------- --------- --------
Net income (loss) $(185,839) $(128,599) $(49,680)
========= ========= =========
</TABLE>
S-2
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(CONTINUED)
- --------------------------------------------------------------------------------
Condensed Statements of Operations
(In thousands)
<TABLE>
<CAPTION>
Predecessor Company
Year Ended
------------------------------------------------
December 25, December 26, December 27,
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash (used in) provided by operating activities $ (1,248) $ (18,077) $ 6,254
Investing Activities:
Purchase of property, plant and equipment -- (84) (9,885)
Deposits 1,869 (211) (3,497)
--------- --------- --------
Net cash provided by (used in) investing activities 1,869 (295) (13,382)
Financing Activities:
Proceeds from sale of Common Stock -- -- 1,556
Proceeds from Municipal Government Grants -- -- 3,000
Net loans to subsidiaries -- -- (38,109)
Common Stock Transactions - Other -- 728 (159)
--------- --------- --------
Net cash provided by (used in) financing activities -- 728 (33,712)
Net increase (decrease) in cash and cash equivalents 621 (17,644) (40,840)
Cash and cash equivalents, beginning of period 1,511 19,155 59,995
--------- --------- --------
Cash and cash equivalents, end of period $ 2,132 $ 1,511 $ 19,155
--------- --------- --------
</TABLE>
S-3
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(CONTINUED)
- --------------------------------------------------------------------------------
Notes to Condensed Financial Statements
Note A - Basis of Presentation
In the Golden Books Family Entertainment, Inc. (the "Company")-only financial
statements, the Company's investment in subsidiaries is stated at cost plus
equity in undistributed losses of subsidiaries since the date of acquisition.
Descriptions of the Company's long-term obligations, mandatory dividend and
guarantees of the Company have been separately disclosed in the Predecessor
Company's consolidated financial statements. The Company-only financial
statements should be read in conjunction with the Company's consolidated
financial statements.
On January 27, 2000, the Company formally emerged from protection under the
Bankruptcy Code upon consummation of the Amended Joint Plan of Reorganization.
The TOPrS indebtedness was converted into 50% of the Successor Company's common
stock issued post recapitalization, prior to dilution. Accordingly, the
requirement for Schedule I was relieved for the Successor Company.
S-4
<PAGE>
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 25, 1999, DECEMBER 26, 1998 AND DECEMBER 27, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Allowance
Allowance for for Sales
Doubtful Discounts and
Accounts Returns Total
-------- ------- -----
PREDECESSOR COMPANY
<S> <C> <C> <C>
BALANCES, December 28, 1996 $ 4,379 $ 16,747 $ 21,126
Additions charged to costs and expenses 3,608 13,736 17,344
Deductions - amounts written off (776) (13,426) (14,202)
Foreign currency conversion (3) (16) (19)
--------- --------- --------
BALANCES, DECEMBER 27, 1997 7,208 17,041 24,249
Additions charged to costs and expenses 2,859 35,970 38,829
Deductions - amounts written off (3,267) (26,184) (29,451)
--------- --------- --------
BALANCES, DECEMBER 26, 1998 6,800 26,827 33,627
Additions charged to costs and expenses 3,086 28,463 31,549
Deductions - amounts written off (3,923) (24,616) (28,539)
--------- --------- --------
SUCCESSOR COMPANY
BALANCES, DECEMBER 25, 1999 $ 5,963 $ 30,674 $ 36,637
========= ========= ========
</TABLE>
S-5
EXHIBIT 3.1
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
(Originally incorporated on January 4, 1984 as R.A.B. Holdings, Inc.)
The undersigned, the Chairman and Chief Executive Officer of Golden Books
Family Entertainment, Inc. (the "Corporation"), certifies that:
1. The Corporation was originally incorporated under the name R.A.B.
Holdings, Inc. and the Corporation's original certificate of incorporation was
filed with the Delaware Secretary of State on January 4, 1984.
2. The Certificate of Incorporation as heretofore amended or supplemented
is hereby restated and further amended to read in its entirety as follows:
FIRST: NAME. The name of the Corporation is Golden Books Family
Entertainment, Inc.
SECOND: ADDRESS: REGISTERED OFFICE AND AGENT. The registered office of
the corporation is c/o United Corporate Services, Inc., 15 East North Street in
the city of Dover, County of Kent, State of Delaware. The name of its registered
agent at that address is United Corporate Services, Inc.
THIRD: PURPOSES. The purpose of the Corporation is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH: OUTSTANDING CAPITAL STOCK. All shares of stock of the
Corporation issued and outstanding pursuant to the Certificate of Incorporation
of the Corporation in effect prior to the effective date of this Certificate of
Incorporation, including all options, warrants and other rights to acquire such
shares, shall be cancelled, annulled and extinguished.
FIFTH: CAPITAL STOCK. The total number of shares of stock which the
Corporation shall have the authority to issue is 30,000,000 consisting of one
class only, designated Common Stock, par value $.01 per share.
(a) Notwithstanding anything to the contrary contained herein, to the
extent, and only for so long as is, required by Section
1123(a)(6) of Title 11,
1
<PAGE>
United States Code, 11 U.S.C. ss.ss. 101 ET seq. (the "Bankruptcy
Code"), tHE Corporation shall not issue any shares of non-voting
equity securities.
(b) No stockholder of the Corporation shall by reason of his holding
of shares have any preemptive or preferential right to purchase
or subscribe to any shares of any class or series of stock of the
Corporation, now or hereafter authorized, or any securities
convertible into or carrying options or warrants to purchase any
shares of any class or series of stock of the Corporation, now or
hereafter authorized, other than such rights, if any, as the
Board of Directors, in its discretion from time to time may grant
and at such price as the Board of Directors may fix.
SIXTH: DIRECTORS; BY-LAWS. The number of directors which shall
constitute the whole Board of Directors shall be fixed by or in the same manner
provided in the by-laws of the corporation. The Corporation hereby confers the
power to adopt, amend or repeal the by-laws of the Corporation upon the
directors, subject to the power of the stockholders to adopt any by-laws or to
amend or repeal any by-laws adopted, amended or repealed by the directors.
SEVENTH: STOCKHOLDERS. Any action required or permitted to be taken at
any meeting of the stockholders may be taken without a meeting with the written
consent of the stockholders, as provided by Section 228 of the General
Corporation Law of the State of Delaware.
EIGHTH: INDEMNIFICATION.
(a) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in
the right of the Corporation) by reason of the fact that he is or
was a director, officer, employee or agent of the Corporation, or
is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against
expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by
him in connection with such action, suit or proceeding if he
acted in good faith and in a manner he reasonably believed to be
in or not opposed to the best interests of the Corporation, and,
with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
(b) The Corporation shall indemnify any person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to
procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee
2
<PAGE>
or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees) actually
and reasonably incurred by him in connection with the defense or
settlement of such action or suit if he acted in good faith and
in a manner he reasonably believed to be in or not opposed to the
best interest of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the
Court of Chancery of the State of Delaware or the court in which
such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the
court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding referred to in
paragraphs (a) and (b) of this Article EIGHTH, or in defense of
any claim, issue or matter therein, including the dismissal of an
action without prejudice, he shall, without limiting the
provisions of paragraph (a) above, be indemnified against
expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under paragraphs (a) and (b) of this Article
EIGHTH (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a
determination that indemnification of the director, officer,
employee or agent is proper in the circumstances because he has
met the applicable standard of conduct set forth in paragraphs
(a) and (b) of this Article EIGHTH. Such determination shall be
made (i) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such action, suit
or proceedings, or (ii) if such a quorum is not obtainable, or,
even if obtainable a quorum of disinterested directors so
directs, by independent legal counsel in a written opinion, or
(iii) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or
investigative action, suit or proceeding shall be paid by the
Corporation in advance of the final disposition of such action,
suit or proceeding upon receipt of an undertaking by or on behalf
of such director or officer to repay such amount if it shall
ultimately be determined that he is not entitled to be
indemnified by the Corporation pursuant to this Article EIGHTH or
as
3
<PAGE>
otherwise authorized by law. Such expenses (including attorneys'
fees) incurred by other employees and agents may be so paid upon
such terms and conditions, if any, as the board of directors
deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other paragraphs of this Article EIGHTH
shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be
entitled under any by-law, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while
holding such office.
(g) The Corporation, at its expense, may purchase and maintain
insurance on behalf of any person who is or was a director,
officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer,
employee, or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising
out of his status as such, whether or not the Corporation would
have the power to indemnify him against such liability under the
provisions of this Article EIGHTH or under the provisions of the
General Corporation Law of the State of Delaware.
(h) The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article EIGHTH shall continue as to a
person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and
administrators of such person.
(i) All rights to indemnification and advancement of expenses under
this Article EIGHTH shall be deemed to be provided by contract
between the Corporation and the director, officer, employee or
agent who serves in such capacity at any time while this
Certificate of Incorporation and other relevant provisions of the
General Corporation Law of the State of Delaware and other
applicable law, if any, are in effect.
(j) Any repeal or modification of the foregoing paragraphs by the
stockholders of the Corporation shall not adversely affect any
right or protection of a director, officer, employee or agent of
the Corporation existing at the time of such repeal or
modification.
(k) If the General Corporation Law of the State of Delaware is
amended to authorize corporate action permitting the Corporation
to further indemnify or advance expenses to directors, officers,
employees or agents, then such person, in addition to the
circumstances in which he is now entitled to
4
<PAGE>
indemnification and advancement of expenses, shall be entitled to
be indemnified and have expenses advanced to the fullest extent
permitted by the General Corporation Law of the State of
Delaware, as so amended.
(l) For purposes of this Article EIGHTH, references to "Corporation"
shall include, in addition to the resulting Corporation, any
constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its
separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees or
agents, so that any person who is or was a director, officer,
employee or agent of such constituent corporation, or is or was
serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall
stand in the same position under the provisions of this Article
EIGHTH with respect to the resulting or surviving corporation as
he would have with respect to such constituent corporation if its
separate existence had continued.
(m) For purposes of this Article EIGHTH, references to "other
enterprises" shall include employee benefit plans; references to
"fines" shall include any excise taxes assessed on a person with
respect to an employee benefit plan; and references to "serving
at the request of the Corporation" shall include any service as a
director, officer, employee or agent by the Corporation which
imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit
plan, its participants, or beneficiaries; and a person who acted
in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee
benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the Corporation," as referred to
in this Article EIGHTH.
(n) If this Article EIGHTH or any portion thereof shall be
invalidated on any ground by any court of competent jurisdiction,
then the Corporation shall nevertheless indemnify each person as
provided above as to expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement with respect to
any action, suit or proceeding, whether civil, criminal,
administrative or investigative, including a grand jury
proceeding and an action by the Corporation, to the fullest
extent permitted by any applicable portion of this Article EIGHTH
that shall not have been invalidated or by any other applicable
law.
NINTH: ARRANGEMENTS WITH CREDITORS. Whenever a compromise or
arrangement is proposed between this Corporation and its creditors or any class
of them and/or between this Corporation and its stockholders, any court of
equitable jurisdiction within the State of Delaware
5
<PAGE>
may, on the application in a summary way of this Corporation or of any creditor
or stockholder thereof or on the application of any receiver or receivers
appointed for this Corporation under the provisions of Section 291 of Title 8 of
the Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for this Corporation under the provisions of
Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders of this Corporation, as the case
may be, to be summoned in such manner as the said court directs. If a majority
in number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, agree to any compromise or arrangement and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders of this Corporation, as the case may be, and also on this
Corporation.
TENTH: LIMITATION OF LIABILITY. No director of the Corporation shall
be personally liable to the Corporation or to any of its stockholders for
monetary damages arising out of such director's breach of fiduciary duty as a
director of the Corporation, except for liability (i) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (ii) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) for unlawful payment of dividends or unlawful
stock purchase or redemption under Section 174 of the General Corporation Law of
the State of Delaware or any successor provision, or (iv) for any transaction
from which such director derived an improper personal benefit. If the General
Corporation Law of the State of Delaware is amended after the effective date of
this Amended and Restated Certificate of Incorporation to authorize corporate
action further eliminating or limiting the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the General Corporation Law of the State of
Delaware, as so amended.
Any amendment to or repeal or modification of this Article TENTH (i)
by the stockholders of the Corporation or (ii) by an amendment to the General
Corporation Law of the State of Delaware (unless such statutory amendment
specifically provides to the contrary) shall not adversely affect any right or
protection, existing at the time of such repeal or modification with respect to
any acts or omissions occurring before such repeal or modification, of a person
serving as a director at the time of such repeal or modification.
ELEVENTH: RIGHTS OF NOTEHOLDERS. Notwithstanding any other provision
of this Certificate of Incorporation or the Corporation's by-laws, so long as
any principal, interest or other amounts (whether or not due) remain unpaid
under the Indenture dated as of January 25, 2000 relating to the 10.75% Senior
Secured Notes due 2004 of the Corporation's subsidiary Golden Books Publishing
Company, Inc. (as such may be amended, restated, supplemented or otherwise
modified from time to time and all instruments evidencing any refinancing
thereof from time to time, the "Indenture" and the "Notes") or under the Notes,
(i) prior to the occurrence of a Director Event (as defined in the Indenture),
the Corporation's board of directors shall consist of seven members, and (ii)
upon the occurrence of a Director Event, the number of
6
<PAGE>
members of the Corporation's board of directors shall be increased to eight as
stated in the Indenture and the holders of the Notes shall have the right to
elect one member of the Corporation's board of directors as specified in the
Indenture and shall have all other rights and protections specified in the
Indenture. Notwithstanding Article SIXTH above and Article TWELFTH below, this
Article ELEVENTH and all other provisions of this Certificate of Incorporation
and the Corporation's by-laws that directly or indirectly implement the rights
of holders of the Notes may not be amended or modified except as provided in the
Indenture.
TWELFTH: AMENDMENTS TO CERTIFICATE OF INCORPORATION. The Corporation
reserves the right to amend, alter, change or repeal any provision contained in
this Certificate of Incorporation in the manner now or hereafter prescribed by
statute and this Certificate of Incorporation, and all rights conferred upon
stockholders herein are granted subject to this reservation.
This Amended and Restated Certificate of Incorporation was duly
adopted in accordance with the provisions of Section 303 of the General
Corporation Law of the State of Delaware pursuant to the Joint Plan of
Reorganization of the Corporation which was approved on September 1, 1999 by the
United States Bankruptcy Court for the Southern District of New York with
jurisdiction over proceedings related to the reorganization of the Corporation
pursuant to Chapter 11 of the Bankruptcy Code.
IN WITNESS WHEREOF, said Golden Books Family Entertainment, Inc. has
caused this Amended and Restated Certificate of Incorporation to be signed by
its President and attested to by its Secretary this 27th day of January, 2000.
GOLDEN BOOKS FAMILY
ENTERTAINMENT, INC.
By: /S/ RICHARD E. SNYDER
------------------------------
Richard E. Snyder
Chairman and Chief Executive Officer
[CORPORATE SEAL]
Attest:
By: /S/ PHILIP GALANES
--------------------
Philip Galanes
Secretary
7
EXHIBIT 3.2
BY-LAWS
OF
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
(As Amended and Restated as of January 25, 2000)
1. MEETINGS OF STOCKHOLDERS
1.1 ANNUAL MEETING. The annual meeting of stockholders shall be
held on the first Thursday of May in each year, or as soon thereafter as
practicable, and shall be held at a place and time determined by the board of
directors (the "Board").
1.2 SPECIAL MEETINGS. Special meetings of the stockholders may be
called by resolution of the Board or by the chairman of the board. Special
meetings of the stockholders shall be called by the chairman of the board or
secretary upon the written request (stating the purpose or purposes of the
meeting) of a majority of the directors then in office or of the holders of a
majority of the outstanding shares entitled to vote. Only business related to
the purposes set forth in the notice of the meeting may be transacted at a
special meeting.
1.3 PLACE AND TIME OF MEETINGS. Meetings of the stockholders may
be held in or outside Delaware at the place and time specified by the Board or
the officers or stockholders requesting the meeting.
1.4 NOTICE OF MEETINGS; WAIVER OF NOTICE. Written notice of each
meeting of stockholders shall be given to each stockholder entitled to vote at
the meeting, except that (a) it shall not be necessary to give notice to any
stockholder who submits a signed waiver of notice before or after the meeting,
and (b) no notice of an adjourned meeting need
1
<PAGE>
be given except when required under Section 1.5 of these by-laws or by law. Each
notice of a meeting shall be given, personally or by mail, not less than 10 nor
more than 60 days before the meeting and shall state the time and place of the
meeting, and unless it is the annual meeting, shall state at whose direction or
request the meeting is called and the purposes for which it is called. If
mailed, notice shall be considered given when mailed to a stockholder at his
address on the corporation's records. The attendance of any stockholder at a
meeting, without protesting at the beginning of the meeting that the meeting is
not lawfully called or convened, shall constitute a waiver of notice by him.
1.5 QUORUM. At any meeting of stockholders, the presence in
person or by proxy of the holders of a majority of the shares entitled to vote
shall constitute a quorum for the transaction of any business. In the absence of
a quorum, a majority in voting interest of those present or, if no stockholders
are present, any officer entitled to preside at or to act as secretary of the
meeting, may adjourn the meeting until a quorum is present. At any adjourned
meeting at which a quorum is present, any action may be taken which might have
been taken at the meeting as originally called. No notice of an adjourned
meeting need be given if the time and place are announced at the meeting at
which the adjournment is taken except that, if adjournment is for more than
thirty days or if, after the adjournment, a new record date is fixed for the
meeting, notice of the adjourned meeting shall be given pursuant to Section 1.4.
2
<PAGE>
1.6 VOTING; PROXIES. Each stockholder of record shall be entitled
to one vote for every share registered in his name. Corporate action to be taken
by stockholder vote, other than the election of directors, shall be authorized
by a majority of the votes cast at a meeting of stockholders, except as
otherwise provided by law or by Section 1.8 of these by-laws. Directors shall be
elected in the manner provided in Section 2.1 of these by-laws. Voting need not
be by ballot unless requested by a majority of the stockholders entitled to vote
at the meeting or ordered by the chairman of the meeting; however, all elections
of directors shall be by written ballot, unless otherwise provided in the
certificate of incorporation. Each stockholder entitled to vote at any meeting
of stockholders or to express consent to or dissent from corporate action in
writing without a meeting may authorize another person to act for him by proxy.
Every proxy must be signed by the stockholder or his attorney-in-fact. No proxy
shall be valid after three years from its date unless it provides otherwise.
1.7 LIST OF STOCKHOLDERS. Not less than 10 days prior to the date
of any meeting of stockholders, the secretary of the corporation shall prepare a
complete list of stockholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in his name. For a period of not less than 10 days prior to
the meeting, the list shall be available during ordinary business hours for
inspection by any stockholder for any purpose germane to the meeting. During
this period, the list shall be kept either (a) at a place specified in the
notice of the meeting which is
3
<PAGE>
within the city where the meeting is to be held or (b) at the place where the
meeting is to be held. The list shall also be available for inspection by
stockholders at the time and place of the meeting.
1.8 ACTION BY CONSENT WITHOUT A MEETING. Any action required or
permitted to be taken at any meeting of stockholders may be taken without a
meeting, without prior notice and without a vote, if a consent in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voting. Prompt notice of the taking of any such
action shall be given to those stockholders who did not consent in writing.
2. BOARD OF DIRECTORS.
2.1 NUMBER, QUALIFICATION, ELECTION AND TERM OF DIRECTORS. The
business of the corporation shall be managed by the entire Board, which shall
consist of no less than seven or more than thirteen directors, the exact number
to be determined from time to time by a vote of the majority of the entire Board
of Directors or as provided in Article ELEVENTH of the corporation's Certificate
of Incorporation. The Board of Directors shall initially be composed of seven
members as follows: three directors selected by the Senior Note Committee, three
directors selected by the Informal TOPrS Committee, and the Chief Executive
Officer of the corporation (all capitalized terms not defined in these by-laws
have the meanings given to them in the Joint Plan of Reorganization approved on
September 1, 1999 by the United States Bankruptcy Court for the Southern
District of New York). The number of directors may be changed by resolution of a
majority of the Board or by a majority
4
<PAGE>
of the stockholders, but no decrease may shorten the term of any incumbent
director. Directors shall be elected at each annual meeting of stockholders by a
plurality of the votes cast and shall hold office until the next annual meeting
of stockholders and until the election and qualification of their respective
successors, subject to the provisions of Section 2.9. As used in these by-laws,
the term "entire Board" means the total number of directors which the
corporation would have if there were no vacancies on the Board.
2.2 QUORUM AND MANNER OF ACTING. A majority of the entire Board
shall constitute a quorum for the transaction of business at any meeting, except
as provided in Section 2.10 of these by-laws. Action of the Board shall be
authorized by the vote of a majority of the directors present at the time of the
vote if there is a quorum, unless otherwise provided by law or these by-laws. In
the absence of a quorum a majority of the directors present may adjourn any
meeting from time to time until a quorum is present.
2.3 PLACE OF MEETINGS. Meetings of the Board may be held in or
outside Delaware.
2.4 ANNUAL AND REGULAR MEETINGS. Annual meetings of the Board,
for the election of officers and consideration of other matters, shall be held
either (a) without notice immediately after the annual meeting of stockholders
and at the same place, or (b) as soon as practicable after the annual meeting of
stockholders, on notice as provided in Section 2.6 of these by-laws. Regular
meetings of the Board may be held without notice at such times and places as the
Board determines. If the day fixed for a regular meeting is a legal holiday, the
meeting shall be held on the next business day.
5
<PAGE>
2.5 SPECIAL MEETINGS. Special meetings of the Board may be called
by the chairman of the board or by a majority of the directors.
2.6 NOTICE OF MEETINGS; WAIVER OF NOTICE. Notice of the time and
place of each special meeting of the Board, and of each annual meeting not held
immediately after the annual meeting of stockholders and at the same place,
shall be given to each director by mailing it to him at his residence or usual
place of business at least three days before the meeting, or by delivering or
telephoning or telegraphing it to him at least two days before the meeting.
Notice of a special meeting shall also state the purpose or purposes for which
the meeting is called. Notice need not be given to any director who submits a
signed waiver of notice before or after the meeting or who attends the meeting
without protesting at the beginning of the meeting the transaction of any
business because the meeting was not lawfully called or convened. Notice of any
adjourned meeting need not be given, other than by announcement at the meeting
at which the adjournment is taken.
2.7 BOARD OR COMMITTEE ACTION WITHOUT A MEETING. Any action
required or permitted to be taken by the Board or by any committee of the Board
may be taken without a meeting if all of the members of the Board or of the
committee consent in writing to the adoption of a resolution authorizing the
action. The resolution and the written consents by the members of the Board or
the committee shall be filed with the minutes of the proceeding of the Board or
of the committee.
2.8 PARTICIPATION IN BOARD OR COMMITTEE MEETINGS BY CONFERENCE
TELEPHONE. Any or all members of the Board or of any committee of the Board may
participate in a meeting of the Board or of the committee by means of a
conference telephone
6
<PAGE>
or similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such means shall
constitute presence in person at the meeting.
2.9 RESIGNATION AND REMOVAL OF DIRECTORS. A director may resign
at any time by delivering his resignation in writing to the chairman of the
board, the president or secretary of the corporation, to take effect at the time
specified in the resignation; the acceptance of a resignation, unless required
by its terms, shall not be necessary to make it effective. Any or all of the
directors may be removed at any time, either with or without cause, by majority
vote of the stockholders.
2.10 VACANCIES. Any vacancy on the Board, including one created
by an increase in the number of directors, may be filled for the unexpired term
by a majority vote of the remaining directors, though less than a quorum.
2.11 COMPENSATION. Directors shall receive such compensation as
the Board determines, together with reimbursement of their reasonable expenses
in connection with the performance of their duties. A director may also be paid
for serving the corporation, its affiliates or subsidiaries in other capacities.
2.12 RIGHTS OF NOTEHOLDERS. Notwithstanding any other provision
of these by-laws, so long as any principal, interest or other amounts (whether
or not due) remain unpaid under the Indenture dated as of January 25, 2000
relating to the 10.75% Senior Secured Notes due 2004 of the Corporation's
subsidiary Golden Books Publishing Company, Inc. (as such may be amended,
restated, supplemented or otherwise modified from time to time and all
instruments evidencing any refinancing thereof from time to time, the
"Indenture"
7
<PAGE>
and the "Notes") or under the Notes, (i) prior to the occurrence of a Director
Event (as defined in the Indenture), the Corporation's board of directors shall
consist of seven members, and (ii) upon the occurrence of a Director Event, the
number of members of the Corporation's board of directors shall be increased to
eight as stated in the Indenture and the holders of the Notes shall have the
right to elect one member of the Corporation's board of directors as specified
in the Indenture and shall have all other rights and protections specified in
the Indenture. Notwithstanding Section 7.4 below, this Section 2.12 and all
other provisions of these by-laws that directly or indirectly implement the
rights of holders of the Notes may not be amended or modified except as provided
in the Indenture.
3. COMMITTEES.
3.1 EXECUTIVE COMMITTEE. The Board, by resolution adopted by
a majority of the entire Board, may designate an Executive Committee of one or
more directors which shall have all the powers and authority of the Board,
except as otherwise provided in the resolution, section 141(c) of the Delaware
General Corporation Law, or any other applicable law. The members of the
Executive Committee shall serve at the pleasure of the Board. All action of the
Executive Committee shall be reported to the Board at its next meeting.
3.2 OTHER COMMITTEES. The Board, by resolution adopted by a
majority of the entire Board, may designate other committees of directors of one
or more directors, which shall serve at the Board's pleasure and have such
powers and duties as the Board determines.
8
<PAGE>
3.3 RULES APPLICABLE TO COMMITTEES. The Board may designate
one or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence or
disqualification of any member of a committee, the member or members present at
a meeting of the committee and not disqualified, whether or not a quorum, may
unanimously appoint another director to act at the meeting in place of the
absent or disqualified member. All action of a committee shall be reported to
the Board at its next meeting. Each committee shall adopt rules of procedure and
shall meet as provided by those rules or by resolutions of the Board.
4. OFFICERS.
4.1 NUMBER; SECURITY. The executive officers of the
corporation shall be the chairman of the board, the president, one or more vice
presidents (including one or more executive vice presidents, if the Board so
determines), a secretary and a treasurer. Any two or more offices may be held by
the same person. The Board may require any officer, agent or employee to give
security for the faithful performance of his duties.
4.2 ELECTION; TERM OF OFFICE. The executive officers of the
corporation shall be elected annually by the Board, and each such officer shall
hold office until the next annual meeting of the Board and until the election of
his successor, subject to the provisions of Section 4.4.
4.3 SUBORDINATE OFFICERS. The Board may appoint subordinate
officers (including assistant secretaries and assistant treasurers), agents or
employees, each of whom shall hold office for such period and have such powers
and duties as the Board
<PAGE>
determines. The Board may delegate to any executive officer or to any committee
the power to appoint and define the powers and duties of any subordinate
officers, agents or employees.
4.4 RESIGNATION AND REMOVAL OF OFFICERS. Any officer may
resign at any time by delivering his resignation in writing to the chairman of
the board, the president or secretary of the corporation, to take effect at the
time specified in the resignation; the acceptance of a resignation, unless
required by its terms, shall not be necessary to make it effective. Any officer
elected or appointed by the Board or appointed by an executive officer or by a
committee may be removed by the Board either with or without cause, and in the
case of an officer appointed by an executive officer or by a committee, by the
officer or committee which appointed him or by the chairman of the board.
4.5 VACANCIES. A vacancy in any office may be filled for the
unexpired term in the manner prescribed in Sections 4.2 and 4.3 of these by-laws
for election or appointment to the office.
4.6 CHAIRMAN OF THE BOARD. The chairman of the board shall
be the chief executive officer of the corporation, shall preside at all meetings
of the Board and of the stockholders, and shall have such powers and duties as
the Board assigns to him.
4.7 THE PRESIDENT. The president shall serve as the chief
operating officer of the corporation. Subject to the control of the Board, and
the chairman of the board, he shall have general supervision over the business
of the corporation and shall have such other powers and duties as presidents of
corporations usually have or as the Board assigns to him.
10
<PAGE>
4.8 VICE PRESIDENT. Each vice president shall have such
powers and duties as the Board or the chairman of the board assigns to him.
4.9 THE TREASURER. The treasurer shall be the chief
financial officer of the corporation and shall be in charge of the corporation's
books and accounts. Subject to the control of the Board, he shall have such
other powers and duties as the Board or the chairman of the board assigns to
him.
4.10 THE SECRETARY. The secretary shall be the secretary of,
and keep the minutes of, all meetings of the Board and of the stockholders,
shall be responsible for giving notice of all meetings of stockholders and of
the Board, and shall keep the seal and, when authorized by the Board, apply it
to any instrument requiring it. Subject to the control of the Board, he shall
have such powers and duties as the Board or the chairman of the board assigns to
him. In the absence of the secretary from any meeting, the minutes shall be kept
by the person appointed for that purpose by the presiding officer.
4.11 SALARIES. The Board may fix the officers' salaries, if
any, or it may authorize the chairman of the board to fix the salary of any
other officer.
5. SHARES.
5.1 CERTIFICATES. The corporation's shares shall be
represented by certificates in the form approved by the Board. Each certificate
shall be signed by the chairman of the board, the president or a vice president,
and by the secretary or an assistant secretary or the treasurer or an assistant
treasurer, and shall be sealed with the corporation's seal or a facsimile of the
seal. Any or all of the signatures on the certificate may be a facsimile.
11
<PAGE>
5.2 TRANSFERS. Shares shall be transferable only on the
corporation's books, upon surrender of the certificate for the shares, properly
endorsed. The Board may require satisfactory surety before issuing a new
certificate to replace a certificate claimed to have been lost or destroyed.
5.3 DETERMINATION OF STOCKHOLDERS OF RECORD. The Board may
fix, in advance, a date as the record date for the determination of stockholders
entitled to notice of or to vote at any meeting of the stockholders, or to
express consent to or dissent from any proposal without a meeting, or to receive
payment of any dividend or the allotment of any rights, or for the purpose of
any other action. The record date may not be more than 60 or less than 10 days
before the date of the meeting or more than 60 days before any other action. If
no such record date is fixed: (a) the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given,
or, if notice is waived, at the close of business on the day next preceding the
day on which the meeting is held; and (b) the record date of determining
stockholders for any purpose other than those specified in Section 5.3(a) shall
be at the close of business on the day on which the Board adopts the resolutions
relating thereto. When a determination of stockholders entitled to notice of or
to vote at any meeting of stockholders has been made as provided in this Section
5.3, such determination shall apply to any adjournment thereof unless the Board
fixes a new record date for the adjourned meeting.
6. INDEMNIFICATION
The corporation shall indemnify and advance litigation
expenses to the fullest extent permitted by Section 145 of the General
Corporation Law of Delaware, as amended
12
<PAGE>
from time to time and consistent with the corporation's Certificate of
Incorporation, to each person who is or was an officer or director of the
corporation and is or was a party or is threatened to be made a party to any
action, suit or proceeding by reason of the fact that such officer or director
is or was a director, officer, employee or agent of the corporation, or is or
was serving at the request of the corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise.
7. MISCELLANEOUS.
7.1 SEAL. The Board shall adopt a corporate seal, which
shall be in the form of a circle and shall bear the corporation's name and the
year and state in which it was incorporated.
7.2 FISCAL YEAR. The Board may determine the corporation's
fiscal year. Until changed by the Board, the last day of the corporation's
fiscal year shall be the last Saturday in December in each year, and the
following fiscal year shall begin on the next day.
7.3 VOTING OF SHARES IN OTHER CORPORATIONS. Shares in other
corporations which are held by the corporation may be represented and voted by
the Board, chairman of the board, the president or an executive vice president
of this corporation or by a proxy or proxies appointed by one of them. The Board
may, however, appoint some other person to vote the shares.
13
<PAGE>
7.4 AMENDMENTS. By-laws may be amended, repealed or adopted
by the stockholders or by a majority of the entire Board, but any by-law adopted
by the Board may be amended or repealed by the stockholders.
14
EXHIBIT 4.1
64488
NUMBER SHARES
COMMON STOCK
GB
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
[BOOK LOGO] [BOOK LOGO]
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
SEE REVERSE FOR CERTAIN DEFINITIONS CUSIP 380804 20 3
THIS IS TO CERTIFY THAT
IS THE OWNER OF
FULLY PAID AND NON-ASSESSABLE SHARES OF THE $.01 PAR
VALUE COMMON STOCK OF
-------GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.----------
transferable on the books of the Corporation by the
holder hereof in person or by duly authorized attorney
upon surrender of this certificate properly endorsed or
assigned. This certificate and the shares represented
hereby are issued and shall be subject to all of the
provisions of the Certificate of Incorporation and the
By-Laws of the Corporation as amended from time to time.
This certificate is not valid until countersigned and
registered by the Transfer Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the
facsimile signatures of its duly authorized officers.
[TRAIN LOGO] Dated
/s/ Philip Galanes /s/ Richard E. Snyder
PHILIP GALANES RICHARD E. SNYDER
SECRETARY CHAIRMAN
COUNTERSIGNED AND REGISTERED: [GOLDEN
THE BANK OF NEW YORK BOOKS
TRANSFER AGENT FAMILY
AND REGISTRAR ENTERTAINMENT,
INC.
BY SEAL]
AUTHORIZED SIGNATURE
<PAGE>
THE CORPORATION WILL FURNISH WITHOUT CHARGE TO EACH STOCKHOLDER WHO SO
REQUESTS, THE POWERS, DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF STOCK OR SERIES THEREOF OF THE
CORPORATION, AND THE QUALIFICATIONS, LIMITATIONS OR RESTRICTIONS OF SUCH
PREFERENCES AND/OR RIGHTS. ANY SUCH REQUEST MAY BE MADE TO THE CORPORATION OR
THE TRANSFER AGENT.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM-as tenants in common UNIF GIFT MIN ACT- Custodian
------ -----
TEN ENT-as tenants by the entireties (Cust) (Minor)
JT TEN -as joint tenants with right of under Uniform Gifts to
survivorship and not as tenants Minors Act
in common ------------
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
[ ]
-------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
-------------------------------------------------------------
-------------------------------------------------------------
SHARES
-------------------------------------------------------
OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE,
AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT
ATTORNEY
-----------------------------------------------
TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN NAMED
CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED
-----------------
----------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY
CHANGE WHATEVER.
EXHIBIT 4.2
WARRANT AGREEMENT
by and between
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
and
THE BANK OF NEW YORK
as Warrant Agent
525,000 Warrants
Dated as of January 25, 2000
<PAGE>
WARRANT AGREEMENT
THIS WARRANT AGREEMENT is made and entered into as of January 25, 2000
by and between Golden Books Family Entertainment, Inc., a Delaware corporation
(the "Company"), and The Bank of New York, as Warrant Agent (the "Warrant
Agent").
WITNESSETH:
WHEREAS, in connection with the financial restructuring of the
Company, pursuant to the Company's (i) Amended Joint Plan of Reorganization, as
confirmed by order of the Bankruptcy Court (as defined herein) entered on
September 24, 1999 (the "Plan"), and (ii) Chapter 11 Case (as defined herein),
the Company proposes to issue warrants which are exercisable to purchase up to
525,000 shares of Common Stock (as defined herein), subject to adjustment as
provided herein (the "Warrants"), to the holders of certain equity interests
(the "Claims") in satisfaction of such Claims and in accordance with the Plan;
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company and the Warrant Agent is willing to act, in connection with the
issuance, transfer, exchange, replacement and exercise of the Warrant
Certificates (as defined herein) and other matters as provided herein; and
WHEREAS, the Company desires to enter into this Agreement to set forth
the terms and conditions of the Warrants and the rights of the holders thereof;
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual agreements set forth herein, the Company and the Warrant Agent hereby
agree as follows:
ARTICLE 1
DEFINITIONS
As used herein, the following terms have the following respective
meanings:
"AFFILIATE" means with respect to any Person, any Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such Person. For purposes of this definition, (a) "control" when
used with respect to any Person means the power to direct the management and
policies of such Person, directly or indirectly, whether through the ownership
of voting Common Stock (or equivalent equity interests), by contract or
otherwise, and the terms "controlling" or "controlled" have meanings correlative
to the foregoing, and (b) a subsidiary of a Person is an Affiliate of such
Person and of each other subsidiary of that Person.
<PAGE>
"AGREEMENT" means this Warrant Agreement, as the same may be amended
or modified from time to time hereafter.
"BANKRUPTCY CODE" means title 11, United States Code.
"BANKRUPTCY COURT" means the United States Bankruptcy Court for the
Southern District of New York.
"BUSINESS DAY" means any day other than a Saturday or a Sunday or a
day on which commercial banking institutions in New York City, New York are
authorized or required by law to be closed; PROVIDED, THAT, in determining the
period within which certificates or Warrants are to be issued and delivered at a
time when shares of Common Stock (or Other Securities) are listed or admitted to
trading on any national securities exchange or in the over-the-counter market
and in determining the Fair Value of any securities listed or admitted to
trading on any national securities exchange or in the over-the-counter market,
"Business Day" shall mean any day when the principal exchange on which such
securities are then listed or admitted to trading is open for trading or, if
such securities are traded in the over-the-counter market in the United States,
such market is open for trading; and PROVIDED, FURTHER, that any reference in
this Agreement to "days" (unless Business Days are specified) shall mean
calendar days.
"CHAPTER 11 CASE" means the case under Chapter 11 of the Bankruptcy
Code concerning the Company which was commenced on February 26, 1999 before the
Bankruptcy Court.
"CLAIMS" has the meaning specified in the recitals hereto.
"COMMISSION" means the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act of 1933, as amended,
or the Exchange Act, whichever is the relevant statute for the particular
purpose.
"COMMON STOCK" means the Company's Common Stock, par value $0.01 per
share, as authorized from and after the Effective Date.
"COMPANY" has the meaning specified in the preamble hereof.
"EFFECTIVE DATE" has the meaning specified in the Plan.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, or any
successor Federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be amended and in effect at the time. Any
reference herein to a particular section of the Securities Exchange Act of 1934
shall include a reference to the comparable section, if any, of any such
successor Federal statute.
<PAGE>
"EXERCISE PERIOD" has the meaning specified in Article 3 hereof.
"EXERCISE PRICE" has the meaning specified in Section 4.1 hereof.
"FAIR VALUE" means (i) with respect to Common Stock or any Other
Security, in each case, if such security is listed on one or more stock
exchanges or quoted on the National Market System or Small Cap Market of NASDAQ
(the "NASDAQ Market"), the average of the closing or last reported sales prices
of a share of Common Stock or, if an Other Security in the minimum denomination
in which such security is traded, on the primary national or regional stock
exchange on which such security is listed or on the NASDAQ Market if quoted
thereon or (ii) if the Common Stock or Other Security, as the case may be, is
not so listed or quoted but is traded in the over-the-counter market (other than
the NASDAQ Market), the average of the closing bid and asked prices of a share
of such Common Stock or Other Security, in each case quoted for the 30 Business
Days (or such lesser number of Business Days as such Common Stock (or Other
Security) shall have been so listed, quoted or traded) next preceding the date
of measurement; PROVIDED, HOWEVER, that if no such sales price or bid and asked
prices have been quoted during the preceding 30 day period or there is otherwise
no established trading market for such security, then "Fair Value" means the
value of such Common Stock or Other Security as determined reasonably and in
good faith by the Board of Directors of the Company; and PROVIDED, FURTHER,
HOWEVER, that in the event the current market price of a share of such Common
Stock or of the minimum traded denomination of such Other Security is determined
during a period following the announcement by the Company of (x) a dividend or
distribution on the Common Stock or Other Security payable in shares of Common
Stock or in such Other Security, or (y) any subdivision, combination or
reclassification of the Common Stock or Other Security, and prior to the
expiration of 30 Business Days after the ex-dividend date for such dividend or
distribution, or the record date for such subdivision, combination or
reclassification, then, and in each such case, the "Fair Value" shall be
appropriately adjusted to take into account ex-dividend trading. Anything herein
to the contrary notwithstanding, in case the Company shall issue any shares of
Common Stock, rights, options, or Other Securities in connection with the
acquisition by the Company of the stock or assets of any other Person or the
merger of any Other Person into the Company, the Fair Value of the Common Stock
or Other Securities so issued shall be determined as of the date the number of
shares of Common Stock, rights, options or Other Securities was determined (as
set forth in a written agreement between the Company and the other party to the
transaction) rather than on the date of issuance of such shares of Common Stock,
rights, options or Other Securities.
"ORIGINAL ISSUE DATE" has the meaning specified in Section 2.2 hereof.
"OTHER SECURITIES" means any stock (other than Common Stock) and other
securities of the Company or any other Person (corporate or otherwise) that the
holders of the Warrants at any time shall be entitled to receive or shall have
received, upon the exercise of the Warrants, in lieu of or in addition to Common
Stock, or that at any time shall be issuable or shall have been issued in
exchange for or in replacement of Common Stock or Other Securities.
<PAGE>
"OTHER SHARES" has the meaning specified in Section 5.2 hereof.
"PERSON" means any individual, partnership, association, joint
venture, corporation, limited liability company, business trust, unincorporated
organization, government or department, agency or subdivision thereof, or other
person or entity.
"PLAN" has the meaning specified in the recitals hereto.
"WARRANT AGENT" has the meaning specified in the preamble hereof.
"WARRANT CERTIFICATES" has the meaning specified in Section 2.4
hereof.
"WARRANTS" has the meaning set forth in the recitals hereto.
ARTICLE 2
APPOINTMENT OF WARRANT AGENT; ISSUANCE OF WARRANTS
2.1 APPOINTMENT OF WARRANT AGENT. The Company hereby appoints the
Warrant Agent to act as agent for the Company in accordance with the
instructions set forth in this Agreement, and the Warrant Agent hereby accepts
such appointment.
2.2 INITIAL ISSUANCE. On the date hereof (the "Original Issue Date"),
which is also the Effective Date, the Company shall, pursuant to the Plan,
deliver to the Company's disbursing agent under the Plan for re-distribution to
the holders of the Claims a global certificate for an aggregate of 525,000
Warrants.
2.3 INITIAL SHARE AMOUNT. The number of shares of Common Stock
purchasable upon exercise of the Warrants shall initially be one (1) share of
Common Stock to one (1) Warrant subject to adjustments from and after the
Original Issue Date as provided in Article 5 of this Agreement.
2.4 FORM OF WARRANT CERTIFICATES. The Warrants shall be evidenced by
certificates substantially in the form attached hereto as EXHIBIT A (the
"Warrant Certificates"). Each Warrant Certificate shall be dated as of the date
on which it is countersigned by the Warrant Agent, which shall be on the
Original Issue Date or, in the event of a division, exchange, substitution or
transfer of any of the Warrants on the date of such event. The Warrant
Certificate may have such further legend and endorsements stamped, printed,
lithographed or engraved thereon as the Company may deem appropriate and as are
not inconsistent with the provisions of this Agreement, or as may be required to
comply with any law or with any rule or regulation pursuant thereto or with any
rule or regulation of any securities exchange, market or trading facility on
which the Warrants may be listed or admitted for trading.
<PAGE>
2.5 EXECUTION OF WARRANT CERTIFICATES. Warrant Certificates shall be
executed on behalf of the Company by its Chairman of the Board, Chief Executive
Officer, President, any Senior Vice President, any Vice President, Treasurer or
Secretary either manually or by facsimile signature printed thereon. In case any
such officer of the Company whose signature shall have been placed upon any
Warrant Certificate shall cease to be such officer of the Company before
countersignature by the Warrant Agent or issuance and delivery thereof, such
Warrant Certificate nevertheless may be countersigned by the Warrant Agent and
issued and delivered with the same force and effect as though such person had
not ceased to be such officer of the Company.
The term "holder" or "holder of a Warrant Certificate" as used herein
shall mean any Person in whose name at the time any Warrant Certificate shall be
registered upon the books to be maintained by the Warrant Agent for that
purpose.
2.6 COUNTERSIGNATURE OF WARRANT CERTIFICATES. Warrant Certificates
shall be manually countersigned by an authorized signatory of the Warrant Agent
and shall not be valid for any purpose unless so countersigned. Such manual
countersignature shall constitute conclusive evidence of such authorization. No
Warrant Certificate shall be valid for any purpose, and no Warrant evidenced
thereby shall be exercisable, until such Warrant Certificate has been
countersigned by the manual signature of the Warrant Agent. The Warrant Agent is
hereby authorized to countersign, in accordance with the provisions of this
Section 2.5, and deliver any new Warrant Certificates, as directed by the
Company pursuant to Section 2.1 and as and when required pursuant to the
provisions of Articles 11 and 12. Each Warrant Certificate shall, when manually
countersigned by an authorized signatory of the Warrant Agent, entitle the
registered holder thereof to exercise the rights as the holder of the number of
Warrants set forth thereon, subject to the provisions of this Agreement.
ARTICLE 3
EXERCISE PERIOD
Each Warrant shall entitle the holder thereof to purchase from the
Company one (1) Share of Common Stock (subject to the adjustments provided
herein), at any time during the period that commences on the first Business Day
that is one (1) day after the Original Issue Date, and that terminates at 5:00
p.m., New York City time on third anniversary of the Original Issue Date (the
"Exercise Period"). Any Warrant not exercised during the Exercise Period shall
become void, and all rights of the holder of the Warrant Certificate evidencing
such Warrant under the Warrant Certificate or this Agreement shall cease.
<PAGE>
ARTICLE 4
EXERCISE WARRANTS
4.1 THE EXERCISE PRICE. The exercise price of each Warrant is $23.03
per share of Common Stock (the "Exercise Price"). The Exercise Price is subject
to adjustment pursuant to Article 5 hereof.
4.2 MANNER OF EXERCISE. (a) During the Exercise Period, all or any
whole number of Warrants represented by a Warrant Certificate may be exercised
by the registered holder thereof during normal business hours on any Business
Day, by surrendering such Warrant Certificate, with the subscription form set
forth therein duly completed and executed by such holder, by hand, by overnight
courier or by mail to the Warrant Agent at its office addressed to The Bank of
New York, 101 Barclay Street, New York, New York 10286, Attention: Ralph
Chianese. Such Warrant Certificate shall be accompanied by payment in full in
respect of each Warrant that is exercised, which shall be made by certified or
official bank or bank cashier's check payable to the order of the Company, or by
wire transfer of immediately available funds to an account designated by the
Warrant Agent for the benefit of the Company, except as otherwise provided
herein. Such payment shall be in an amount equal to the product of the number of
shares of Common Stock designated in such subscription form multiplied by the
Exercise Price for the Warrants being exercised. Upon such surrender and payment
prior to the expiration of the Exercise Period, such holder shall thereupon be
entitled to receive the number of duly authorized, validly issued, registered,
fully paid and nonassessable shares of Common Stock (or Other Securities)
determined as provided in Articles 2 and 3, and as and if adjusted pursuant to
Article 5.
4.3 WHEN EXERCISE EFFECTIVE. Each exercise of any Warrant pursuant to
Section 4.2 shall be determined to have been effected immediately prior to the
close of business on the Business Day on which the Warrant Certificate
representing such Warrant, duly executed, with accompanying payment, shall have
been delivered as provided in Section 4.2, and at such time the Person or
Persons in whose name or names the certificate or certificates for Common Stock
(or Other Securities) shall be issuable upon such exercise as provided in
Section 4.4 shall be deemed to have become the holder or holders of record
thereof.
4.4 DELIVERY OF CERTIFICATE, ETC. (a) As promptly as practicable after
the exercise of any Warrant, and in any event within ten (10) Business Days
thereafter (or, if such exercise is in connection with an underwritten public
offering, concurrently with such exercise), the Company at its expense (other
than as to payment of transfer taxes which will be paid by the holder) will
cause to be issued and delivered to such holder, or as such holder may otherwise
direct in writing (subject to Article 11),
(i) a certificate or certificates for the number of shares of
Common Stock (or Other Securities) to which such holder is
entitled, and
<PAGE>
(ii) if less than all the Warrants represented by a Warrant
Certificate are exercised, a new Warrant Certificate or
Certificates of the same tenor and for the aggregate number
of Warrants that were not exercised, executed and
countersigned in accordance with Sections 2.4 and 2.5.
(b) The Warrant Agent shall countersign any new Warrant Certificate,
register it in such name or names as may be directed in writing by such holder,
and shall deliver it to the Person entitled to receive the same in accordance
with this Section 4.4. The Company, whenever required by the Warrant Agent, will
supply the Warrant Agent with Warrant Certificates executed on behalf of the
Company for such purpose.
(c) Upon any exercise of Warrants, the Warrant Agent shall, from time
to time, as promptly as practicable, advise the Treasurer of the Company or his
or her designee of (i) the number of Warrants exercised, (ii) the instruction of
each holder of the Warrant Certificates evidencing such Warrants with respect to
delivery of the Common Stock to which such holder is entitled upon such
exercise, (iii) the timing of delivery of Warrant Certificates evidencing the
balance, if any, of the Warrants remaining after such exercise, and (iv) such
other information as the Company shall reasonably require.
4.5 FRACTIONAL SHARES. No fractional shares of Common Stock (or Other
Securities) shall be issued upon the exercise of any Warrant. If more than one
Warrant Certificate shall be delivered for exercise at one time by the same
holder, the number or full shares of securities that shall be issuable upon
exercise shall be computed on the basis of the aggregate number of Warrants
exercised. As to any fraction of a share of Common Stock (or Other Securities),
the Company shall pay a cash adjustment in respect thereto in an amount equal to
the product of the Fair Value per share of Common Stock (or Other Securities) as
of the Business Day next preceding the date of such exercise multiplied by such
fraction of a share.
ARTICLE 5
ADJUSTMENT OF THE AMOUNT OF COMMON STOCK
ISSUABLE AND THE EXERCISE PRICE UPON EXERCISE
5.1 ADJUSTMENT FOR CHANGE IN CAPITAL STOCK. If the Company shall (i)
declare or pay a dividend on its outstanding shares of Common Stock or make a
distribution to holders of its Common Stock, in either case in shares of Common
Stock, (ii) subdivide its outstanding shares of Common Stock into a greater
number of shares of Common Stock, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock, or (iv) issue by
reclassification of its shares of Common Stock other securities of the Company,
then the number of shares of Common Stock issuable for each Warrant and the
Exercise Price in effect immediately prior thereto shall be adjusted so that the
holder of any Warrants thereafter exercised shall be entitled to receive the
number and kind of shares of Common Stock or other securities that the holder
would have owned or been entitled to receive after the happening of any
<PAGE>
of the events described above had such Warrants been exercised immediately prior
to the happening of such event or any record date with respect thereto. An
adjustment made pursuant to this Section 5.1 shall become effective on the date
of the dividend payment, subdivision, combination or issuance retroactive to the
record date with respect thereto, if any, for such event. Such adjustments shall
be made successively.
5.2 DISTRIBUTIONS. If after the date hereof the Company shall
distribute to all holders of its shares of Common Stock evidences of its
indebtedness, shares of another class of capital stock ("Other Shares"), assets
(excluding cash distributions made as a dividend payable out of earnings or out
of surplus legally available for dividends under the laws of the jurisdiction of
incorporation of the Company) or rights to subscribe to shares of Common Stock,
then in each such case, unless the Company elects to reserve such indebtedness,
assets, rights or shares for distribution to each holder of a Warrant upon the
exercise of the Warrants so that such holder will receive upon such exercise, in
addition to the shares of Common Stock to which such holder is entitled, the
amount and kind of such indebtedness, assets, rights or shares which such holder
would have received if such holder had, immediately prior to the record date for
the distribution of such indebtedness, assets, rights or shares, exercised the
Warrants and received Common Stock, the Exercise Price in effect immediately
prior to such distribution shall be decreased to an amount determined by
multiplying such Exercise Price by a fraction, the numerator of which is the
Fair Value of a share of the Common Stock at the date of such distribution less
the fair value of the portion of the evidences of indebtedness, Other Shares,
assets or subscription rights, as the case may be, so distributed applicable to
one share of Common Stock (as determined in good faith by the Board of Directors
of the Company, whose determination shall be conclusive, and described in a
statement filed with the Warrant Agent) and the denominator of which is the Fair
Value of a share of Common Stock at such date Notwithstanding the preceding
sentence, in the event the amount of such distribution applicable to each share
of Common Stock is equal to or greater than 100% of the then Exercise Price, (i)
adequate provision shall be made so that the holder of a Warrant shall receive
the amount by which the per share distribution exceeds the then Exercise Price,
and (ii) the Exercise Price shall be reduced to $0.01. An adjustment pursuant to
this Section 5.2 shall be made whenever any such distribution is made, and shall
become effective retroactively on the date immediately after the record date for
the determination of stockholders entitled to receive such distribution.
5.3 ADJUSTMENTS FOR MERGERS AND CONSOLIDATIONS. In case the Company,
after the date hereof, shall merge or consolidate (other than a merger or
consolidation in which the Company is the continuing corporation and which does
not result in any change in the shares of Common Stock) with another Person,
then, in the case of any such transaction, proper provision shall be made so
that upon the basis and terms and in the manner provided in this Warrant
Agreement, the holders of the Warrants, upon the exercise thereof at any time
after the consummation of such transaction (subject to the Exercise Period),
shall be entitled to receive (at the aggregate Exercise Price in effect at the
time of the transaction for all Common Stock or Other Securities issuable upon
such exercise immediately prior to such consummation), in lieu of the Common
Stock or Other Securities issuable upon such exercise prior to such
consummation, the kind and amount of securities, cash or other property to which
such holder would have been
<PAGE>
entitled as a holder of Common Stock (or Other Securities) upon such
consummation if such holder had exercised the rights represented by the Warrants
held by such holder immediately prior thereto.
5.4 NO DE MINIMIS ADJUSTMENTS; CALCULATION TO NEAREST CENT OR
ONE-HUNDREDTH OF SHARE. No adjustment in the Exercise Price shall be required
under this Article 5 unless such adjustment would require an increase or
decrease of at least one percent (1%) of such price. All calculations under this
Article 5 shall be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be.
5.5 NOTICE OF ADJUSTMENT; WARRANT AGENT'S DISCLAIMER. (a) Whenever the
Exercise Price and securities issuable shall be adjusted as provided in this
Article 5, the Company shall forthwith file with the Warrant Agent a statement,
signed by the Chairman of the Board, Chief Executive Officer, President, any
Senior Vice President, any Vice President, the Treasurer or Secretary of the
Company, stating in detail the facts requiring such adjustment, the method of
calculation thereof, the Exercise Price that will be effective after such
adjustment and the impact of such adjustment on the number and kind of
securities issuable upon exercise of the Warrants. The Company shall also cause
the Warrant Agent to mail (first class postage prepaid) a notice setting forth
any such adjustments to each registered holder of Warrants at its last address
appearing on the Warrant register.
(b) Except as provided in paragraph (a) above, the Warrant Agent shall
have no duty with respect to any statement filed with it except to keep the same
on file and available for inspection by registered holders of Warrants during
reasonable business hours. The Warrant Agent shall not at any time be under any
duty or responsibility to any holder of a Warrant to determine whether any facts
exist which may require any adjustment to the Exercise Price or securities
issuable or with respect to the nature or event of any adjustment of the
Exercise Price or securities issuable when made or with respect to the method
employed in making such adjustment. The Warrant Agent shall not be responsible
for the Company's failure to comply with any provision of this Article 5.
5.6 OTHER NOTICES. In case the Company after the date hereof shall
propose to take any action of the type described in Section 5.1 or 5.2 of this
Article 5, the Company shall give notice to the Warrant Agent and to each
registered holder of a Warrant in the manner set forth in subsection 5.5 of this
Article 5, which notice shall specify the date on which a record shall be taken
with respect to any such action. Such notice shall be given at least ten (10)
days prior to the record date with respect thereto. Failure to give such notice,
or any defect therein, shall not affect the legality or validity of any such
action. Where appropriate, such notice may be given in advance and may be
included as part of a notice required to be mailed under the provision of
subsection 5.5 of this Article 5.
5.7 NO CHANGE IN WARRANT TERMS ON ADJUSTMENT. Irrespective of any
adjustments in the Exercise Price or the number of shares of Common Stock (or
any inclusion of Other Securities) issuable upon exercise, Warrants theretofore
or thereafter issued may continue to
<PAGE>
express the same prices and number of shares as are stated in the similar
Warrants issuable initially, or at some subsequent time, pursuant to this
Agreement, and the Exercise Price and such number of shares issuable upon
exercise specified thereon shall be deemed to have been so adjusted.
ARTICLE 6
MERGER, CONSOLIDATION, ETC.
Notwithstanding anything contained herein to the contrary, the Company
will not effect a merger or consolidation unless, prior to the consummation of
such transaction, each Person (other than the Company) which may be required to
deliver any Common Stock, Other Securities, securities, cash or property upon
the exercise of this Warrant as provided herein shall assume, by written consent
delivered to the Warrant Agent, the obligations of the Company under this
Warrant Agreement and under each of the Warrants, including, without limitation,
the obligation to deliver such shares of Common Stock, Other Securities, cash or
property as may be required pursuant to Article 5 hereof.
ARTICLE 7
NO DILUTION OR IMPAIRMENT
The Company will not, by amendment of its certificate of incorporation
or through any consolidation, merger, reorganization, transfer of assets,
dissolution, issuance or sale of securities or any other voluntary action or
omission, avoid or seek to avoid the observance or performance of any of the
terms of this Agreement or any of the Warrants issued hereunder, but will at all
times in good faith observe and perform all such terms and take all such action
as may be necessary or appropriate in order to protect the rights of such holder
of a Warrant against dilution or other impairment of the kind specified herein;
PROVIDED, HOWEVER, that, subject to compliance with the applicable provisions of
this Agreement, the Company shall not be prohibited by this Article 7 or by any
provision of this Agreement from making decisions providing for, INTER ALIA, the
merger or consolidation of the Company or the sale of its assets which
transactions, in the judgment of the Company's board of directors, are in the
best interests of the Company and stockholders. Without limiting the generality
of the foregoing, the Company (a) will not permit the par value of any shares of
stock receivable upon the exercise of any Warrant to exceed the amount payable
therefor upon such exercise, (b) will take all such action as may be necessary
or appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of stock upon the exercise of all of the Warrants
from time to time outstanding and (c) will not take any action that results in
any adjustment of the shares issuable upon exercise of the Warrants (or which
entitles the holders of the warrants to receive Other Securities upon such
exercise) if the total number of shares of Common Stock (or Other Securities)
issuable after the action upon the exercise of all of the Warrants would exceed
the total number of shares of Common Stock (or Other Securities) then authorized
by the Company's certificate of incorporation and available for the purpose of
issuance upon such exercise.
<PAGE>
ARTICLE 8
NOTIFICATION OF CERTAIN EVENTS
8.1 CORPORATE ACTION. In the event of:
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend (excluding cash distributions made as a
dividend payable out of earnings or out of surplus legally available for
dividends under the laws of the jurisdiction of incorporation of the Company) or
other distribution of any kind, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right or interest of any kind, or
(b) (i) any capital reorganization of the Company, (ii) any
reclassification of the capital shares of the Company (other than a change in
par value or from par value to no par value or from no par value to par value or
as a result of a split-up or combination), (iii) the consolidation or merger of
the Company with or into any other corporation (other than a consolidation or
merger in which the Company is the continuing corporation and which does not
result in any change in the shares of Common Stock), (iv) the sale or transfer
of the properties and assets of the Company as, or substantially as, an entirety
to another Person, or (v) an exchange offer for Common Stock (or Other
Securities); or
(c) the voluntary or involuntary dissolution, liquidation, or winding
up of the Company,
the Company shall cause to be filed with the Warrant Agent and mailed to each
holder of a Warrant a notice specifying (x) the date or expected date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of any such dividend, distribution or right,
if a record is to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution or right are to be
determined, and the amount and character of such dividend, distribution or
right, or (y) the date or expected date on which any such reorganization,
reclassification, consolidation, merger, sale, transfer, exchange offer,
dissolution, liquidation or winding up is expected to become effective, and the
time, if any such time is to be fixed, as of such holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for the securities or other property deliverable
upon such reorganization, reclassification, consolidation, merger, sale,
transfer, exchange offer, dissolution, liquidation or winding up. Such notice
shall be delivered not less than twenty (20) days prior to such date therein
specified, in the case of any such date referred to in clause (x) of the
preceding sentence, and not less than thirty (30) days prior to such date
therein specified, in the case of any such date referred to in clause (y) of the
preceding sentence. Failure to give such notice within the time provided or any
defect therein shall not affect the legality or validity of any such action.
<PAGE>
8.2 AVAILABLE INFORMATION. The Company shall promptly file with the
Warrant Agent copies of its annual reports and of the information, documents and
other reports (or copies of such portions of any of the foregoing as the
Commission may by rules and regulations prescribe) that the Company is required
to file, with the Commission pursuant to Section 13 or 15(d) of the Exchange
Act. If the Company is not required to make such filings, the Company shall
promptly deliver to the Warrant Agent copies of any annual, quarterly or other
reports and financial statements that are generally provided to holders of
equity or debt securities of the Company (other than bank or similar
institutional debt) in their capacity as holders of such securities.
ARTICLE 9
RESERVATION OF STOCK
9.1 RESERVATION: DUE AUTHORIZATION, ETC. The Company shall at all
times reserve and keep available, free from preemptive rights, out of its
authorized but unissued Common Stock (or out of authorized Other Securities),
solely for issuance and delivery upon exercise of Warrants, the full number of
shares of Common Stock (and Other Securities) from time to time issuable upon
the exercise of all Warrants and any other outstanding warrants, options or
similar rights, from time to time outstanding. All shares of Common Stock (and
Other Securities) shall be duly authorized and, when issued upon such exercise,
shall be duly and validly issued, and (in the case of shares) fully paid and
nonassessable, and free from all taxes, liens, charges, security interests,
encumbrances and other restrictions created by or through the Company.
9.2 COMPLIANCE WITH LAW. The Company will use its reasonable best
efforts, at its expense and on a continual basis, to assure that all shares of
Common Stock (and Other Securities) that may be issued upon exercise of Warrants
may be so issued and delivered without violation of any Federal or state
securities law or regulation, or any other law or regulation applicable to the
Company or any of its subsidiaries, PROVIDED that with respect to any such
exercise involving a sale or transfer of warrants or any such securities
issuable upon such exercise, the Company shall have no obligation to register
such Warrants or securities under any such securities law.
ARTICLE 10
PAYMENT OF TAXES
The Company will pay any and all documentary stamp or similar issue
taxes payable to the United States of America or any State, or any political
subdivision or taxing authority thereof or therein, in respect of the issuance
or delivery of shares of Common Stock (or Other Securities) on exercise of
Warrants, PROVIDED that the Company shall not be required to pay any tax that
may be payable in respect of any transfer of a Warrant or any transfer involved
in the issuance and delivery of Common Stock (or Other Securities) in a name
other than that of the
<PAGE>
registered holder of the Warrants to be exercised, and no such issuance or
delivery shall be made unless and until the person requesting such issuance has
paid to the Company the amount of any such tax or has established, to the
reasonable satisfaction of the Company, that such tax has been paid.
ARTICLE 11
LOSS OR MUTILATION
Upon receipt by the Company and the Warrant Agent of evidence
reasonably satisfactory to them of the ownership of and the loss, theft,
destruction or mutilation of any Warrant Certificate and of an indemnity bond
reasonably satisfactory to them in form or amount and (in the case of
mutilation) upon surrender and cancellation thereof, then, in the absence of
notice to the Company or the Warrant Agent that the Warrants represented thereby
have been acquired by a bona fide purchaser, the Company shall execute and
deliver to the Warrant Agent and, upon the Company's request, an authorized
signatory of the Warrant Agent shall manually countersign and deliver, to the
registered holder of the lost, stolen, destroyed or mutilated Warrant
Certificate, in exchange for or in lieu thereof, a new Warrant Certificate of
the same tenor and for a like aggregate number of Warrants. Upon the issuance of
any new Warrant Certificate under this Article 7, the Company may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses (including the
reasonable fees and expenses of the Warrant Agent) in connection therewith.
Every new Warrant Certificate executed and delivered pursuant to this Article 7
in lieu of any lost, stolen or destroyed Warrant Certificate shall be entitled
to the same benefits of this Agreement equally and proportionately with any and
all other Warrant Certificates, whether or not the allegedly lost, stolen or
destroyed Warrant Certificate shall be at anytime enforceable by anyone. The
provisions of this Article 7 are exclusive and shall preclude (to the extent
lawful) all other rights or remedies with respect to the replacement of
mutilated, lost, stolen or destroyed Warrant Certificates.
ARTICLE 12
WARRANT REGISTRATION
12.1 REGISTRATION. The Warrant Certificates shall be issued in
registered form only and shall be registered in the names of the record holders
of the Warrant Certificates to whom they are to be delivered. The Warrant Agent
shall maintain or cause to be maintained a register in which, subject to such
reasonable regulations as it may prescribe, the Warrant Agent shall provide for
the registration of Warrants and of transfers or exchanges of Warrant
Certificates as provided in this Agreement. Such register shall be maintained at
the office of the Warrant Agent located at the respective address therefor as
provided in Section 15.1. Such register shall be open for inspection upon notice
at all reasonable times by the Warrant Agent and each holder of a Warrant.
<PAGE>
12.2 TRANSFER OR EXCHANGE. At the option of the holder, Warrant
Certificates may be exchanged or transferred for other Warrant Certificates for
a like aggregate number of Warrants, upon surrender of the Warrant Certificates
to be exchanged at the office of the Warrant Agent maintained for such purpose
at the respective address therefor as provided in Section 15.1, and upon payment
of the charges herein provided. Whenever any Warrant Certificates are so
surrendered for exchange or transfer, the Company shall execute, and an
authorized signatory of the Warrant Agent shall manually countersign and
deliver, the Warrant Certificates that the holder making the exchange is
entitled to receive.
12.3 VALID AND ENFORCEABLE. All Warrant Certificates issued upon any
registration of transfer or exchange of Warrant Certificates shall be the valid
obligations of the Company, evidencing the same obligations, and entitled to the
same benefits under this Agreement, as the Warrant Certificates surrendered for
such registration of transfer or exchange.
12.4 ENDORSEMENT. Every Warrant Certificate surrendered for
registration of transfer or exchange shall (if so required by the Company or the
Warrant Agent) be duly endorsed, or be accompanied by an instrument of transfer
in form reasonably satisfactory to the Company and the Warrant Agent and duly
executed by the registered holder thereof or such holder's officer or
representative duly authorized in writing.
12.5 NO SERVICE CHARGE. No service charge shall be made for any
registration of transfer or exchange of Warrant Certificates.
12.6 TREATMENT OF HOLDERS OF WARRANT CERTIFICATES. The Company and the
Warrant Agent may treat the registered holder of a Warrant Certificate as the
absolute owner thereof for any purpose and as the person entitled to exercise
the rights represented by the Warrants evidenced thereby, any notice to the
contrary notwithstanding.
12.7 CANCELLATION. Any Warrant Certificate surrendered for
registration of transfer, exchange or the exercise of the Warrants represented
thereby shall, if surrendered to the Company, be delivered to the Warrant Agent,
and all Warrant Certificates surrendered or so delivered to the Warrant Agent
shall be promptly cancelled by the Warrant Agent. Any such Warrant Certificate
shall not be reissued and, except as provided in this Article 12 in case of an
exchange or transfer, in Article 11 in case of a mutilated Warrant Certificate
and in Article 4 in case of the exercise of less than all the Warrants
represented thereby, no Warrant Certificate shall be issued hereunder in lieu
thereof. The Warrant Agent shall deliver to the Company from time to time or
otherwise dispose of such cancelled Warrant Certificates in a manner reasonably
satisfactory to the Company.
<PAGE>
ARTICLE 13
WARRANT AGENT
13.1 OBLIGATIONS BINDING. The Warrant Agent undertakes the duties and
obligations imposed by this Agreement upon the term and conditions set forth in
this Article 13. The Company, and the holders of Warrants by their acceptance
thereof, shall be bound by all of such terms and conditions.
13.2 NO LIABILITY. The Warrant Agent shall not by countersigning
Warrant Certificates or by any other act hereunder be accountable with respect
to or be deemed to make any representations as to the validity or authorization
of the Warrants or the Warrant Certificates (except as to its countersignature
thereon), as to the validity, authorization or value (or kind or amount) of any
Common Stock or of any Other Securities or other property delivered or
deliverable upon exercise of any Warrant, or as to the purchase price of such
Common Stock, securities or other property. The Warrant Agent shall not (i) be
liable for any recital or statement of fact contained herein or in the Warrant
Certificates or for any action taken, suffered or omitted by the Warrant Agent
in good faith in the belief that any Warrant Certificate or any other document
or any signature is genuine or properly authorized, (ii) be responsible for
determining whether any facts exist that may require any adjustment of the
purchase price and the number of shares of Common Stock purchasable upon
exercise of Warrants, or with respect to the nature or extent of any such
adjustments when made, or with respect to the method of adjustment employed,
(iii) be responsible for any failure on the part of the Company to issue,
transfer or deliver any Common Stock or Other Securities or property upon the
surrender of any Warrant for the purpose of exercise or to comply with any other
of the Company's covenants and obligations contained in this Agreement or in the
Warrant Certificates or (iv) be liable for any act or omission in connection
with this Agreement except for its own bad faith, negligence or willful
misconduct.
13.3 INSTRUCTIONS. The Warrant Agent is hereby authorized to accept
instructions with respect to the performance of its duties hereunder from the
Chairman of the Board, Chief Executive Officer, President, any Senior Vice
President, any Vice President, Treasurer or any Assistant Treasurer of the
Company and to apply to any such officer for advice or instructions. The Warrant
Agent shall not be liable for any action taken, suffered or omitted by it in
good faith in accordance with the instructions of any such officer, except to
the extent that it is determined in a final judgment by a court of competent
jurisdiction that such action or omission resulted directly from the Warrant
Agent's negligence.
13.4 AGENTS. The Warrant Agent may execute and exercise any of the
rights and powers hereby vested in it or perform any duty hereunder either
itself or by or through its attorneys, agents or employees, provided reasonable
care has been exercised in the selection and in the continued employment of any
such attorney, agent or employee. The Warrant Agent shall not be under any
obligation or duty to institute, appear in, or defend any action, suit or legal
proceeding in respect hereof, but this provision shall not affect the power of
the Warrant Agent to take such action as the Warrant Agent may consider proper.
The Warrant Agent shall promptly
<PAGE>
notify the Company in writing of any claim made or action, suit or proceeding
instituted against the Warrant Agent arising out of or in connection with this
Agreement.
13.5 COOPERATION. The Company shall perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further acts, instruments and assurances as may reasonably be required by the
Warrant Agent in order to enable the Warrant Agent to carry out or perform its
duties under this Agreement.
13.6 AGENT ONLY. The Warrant Agent shall act solely as agent. The
Warrant Agent shall not be liable except for the performance of such duties as
are specifically set forth herein and no implied covenants or obligations shall
be read into this Agreement against the Warrant Agent, whose duties and
obligations shall be determined solely by the express provisions hereof.
13.7 RIGHT TO COUNSEL. The Warrant Agent may at any time consult with
legal counsel satisfactory to it (who may be legal counsel for the Company), and
the Warrant Agent shall incur no liability or responsibility to the Company or
to any Warrant holder for any action taken, suffered or omitted by the Warrant
Agent in good faith in accordance with the opinion or advice of such counsel.
13.8 COMPENSATION. The Company agrees to pay the Warrant Agent
reasonable compensation for its services hereunder to be agreed upon and to
reimburse the Warrant Agent for its reasonable expenses hereunder, and further
agrees to indemnify the Warrant Agent and hold it harmless against any and all
liabilities, including, but not limited to, judgments, costs and reasonable
counsel fees, for anything done, suffered or omitted by the Warrant Agent in the
execution of its duties and powers hereunder, except for any such liabilities
that arise as a result of the Warrant Agent's bad faith, negligence or willful
misconduct.
13.9 ACCOUNTING. The Warrant Agent shall account promptly to the
Company with respect to Warrants exercised and concurrently pay to the Company
all moneys received by the Warrant Agent on behalf of the Company on the
purchase of shares of Common Stock (or Other Securities) through the exercise of
Warrants. The Warrant Agent shall advise the Company by telephone at the end of
each day on which a payment for the exercise of Warrants is received of the
amount so deposited to such account. The Warrant Agent shall promptly confirm
such telephone advice to the Company in writing.
13.10 NO CONFLICT. The Warrant Agent and any stockholder,
director, officer or employee of the Warrant Agent may buy, sell or deal in any
of the Warrants or other securities of the Company or become pecuniarily
interested in any transaction in which the Company may be interested, or
contract with or lend money to the Company or otherwise act as fully and freely
as though it were not Warrant Agent under this Agreement. Nothing herein shall
preclude the Warrant Agent from acting in any other capacity for the Company or
for any other legal entity,
<PAGE>
13.11 RESIGNATION; TERMINATION. The Warrant Agent may resign its
duties and be discharged from all further duties and liabilities hereunder
(except liabilities arising as a result of the Warrant Agent's bad faith,
negligence or willful misconduct), after giving thirty (30) days' prior written
notice to the Company. The Company may remove the Warrant Agent upon thirty (30)
days' written notice, and the Warrant Agent shall thereupon in like manner be
discharged from all further duties and liabilities hereunder, except as to
liabilities arising as a result of the Warrant Agent's bad faith, negligence or
willful misconduct. The Company shall cause to be mailed promptly (by first
class mail, postage prepaid) to each registered holder of a Warrant at such
holder's last address as shown on the register of the Company, at the Company's
expense, a copy of such notice of resignation or notice of removal, as the case
may be. Upon such resignation or removal the Company shall promptly appoint in
writing a new warrant agent. If the Company shall fail to make such appointment
within a period of thirty (30) days after it has been notified in writing of
such resignation by the resigning Warrant Agent or after such removal, then the
holder of any Warrant may apply to any court of competent jurisdiction for the
appointment of a new warrant agent. Pending appointment of a successor to the
Warrant Agent, either by the Company or by such a court, the duties of the
Warrant Agent shall be carried out by the Company. Any successor warrant agent,
whether appointed by the Company or by such a court, shall be a corporation,
incorporated under the laws of the United States or of any state thereof and
authorized under such laws to exercise corporate trust powers, be subject to
supervision and examination by Federal or state authority, and have a combined
capital and surplus of not less than $100,000,000 as set forth in its most
recent published annual report of condition. After acceptance in writing of such
appointment by the new warrant agent it shall be vested with the same powers,
rights, duties and responsibilities as if it had been originally named herein as
the Warrant Agent, without any further assurance, conveyance, act or deed; but
if for any reason it shall be necessary or expedient to execute and deliver any
further assurance, conveyance, act or deed, the same shall be done at the
expense of the Company and shall be legally and validly executed and delivered
by the resigning or removed Warrant Agent. Not later than the effective date of
any such appointment the Company shall file notice thereof with the resigning or
removed Warrant Agent and shall forthwith cause a copy of such notice to be
mailed (by first class, postage prepaid) to each registered holder of a Warrant
at such holder's last address as shown on the register of the Company. Failure
to give any notice provided for in this Section 13.11, or any defect in any such
notice, shall not affect the legality or validity of the resignation of the
Warrant Agent or the appointment of a new warrant agent, as the case may be.
13.12 CHANGE OF WARRANT AGENT. If at any time the name of the Warrant
Agent shall be changed and at such time any of the Warrant Certificates shall
have been countersigned but not delivered, the Warrant Agent may adopt the
countersignature under its prior name and deliver Warrant Certificates so
countersigned; and if at that time any of the Warrant Certificates shall not
have been countersigned, the Warrant Agent may countersign such Warrant
Certificates either in its prior name or in its changed name; and in all such
cases such Warrant Certificates shall have the full force and effect provided in
the Warrant Certificates and this Agreement.
13.13 SUCCESSOR WARRANT AGENT. Any corporation or entity into which
the Warrant Agent or any new warrant agent may be merged or any corporation or
entity resulting
<PAGE>
from any consolidation to which the Warrant Agent or any new warrant agent shall
be a party or any corporation or entity succeeding to all or substantially all
the agency business of the Warrant Agent or any new warrant agent shall be a
successor Warrant Agent under this Agreement without any further act, provided
that such corporation would be eligible for appointment as a new warrant agent
under the provisions of Section 13.11 of this Article 13. The Company shall
promptly cause the successor Warrant Agent to mail notice of its succession as
Warrant Agent (by first class mail, postage prepaid) to each registered holder
of a Warrant at its last address as shown on the register of the Company.
ARTICLE 14
REMEDIES, ETC.
14.1 REMEDIES. The Company stipulates that the remedies at law of each
holder of a Warrant in the event of any default or threatened default by the
Company in the performance of or compliance with any of the terms of this
Warrant Agreement are not and will not be adequate and that, to the fullest
extent permitted by law, such terms may be specifically enforced by a decree for
the specific performance of any agreement contained herein or by an injunction
against a violation of any of the terms hereof or otherwise.
14.2 WARRANT HOLDER NOT DEEMED A STOCKHOLDER. Prior to the exercise of
the Warrants represented thereby, no holder of a Warrant Certificate, as such,
shall be entitled to any rights of a stockholder of the Company, including, but
not limited to, the right to vote, to receive dividends or other distributions,
to exercise any preemptive right or to receive any notice of meetings of
stockholders, and no such holder shall be entitled to receive notice of any
proceedings of the Company except as provided in this Agreement. Nothing
contained in this Agreement shall be construed as imposing any liabilities on
such holder to purchase any securities or as a stockholder of the Company,
whether such liabilities are asserted by the Company or by creditors or
stockholders of the Company or otherwise.
14.3 RIGHT OF ACTION. All rights of action in respect of this
Agreement are vested in the registered holders of the Warrants. Any registered
holder of any Warrant, without the consent of the Warrant Agent or the
registered holder of any other Warrant, may in such holder's own behalf and for
such holder's own benefit enforce, and may institute and maintain, any suit,
action or proceeding against the Company suitable to enforce, or otherwise in
respect of, such holder's right to exercise such holder's Warrants in the manner
provided in the Warrant Certificate representing such Warrants and the Company's
obligations under this Agreement and the Warrants.
<PAGE>
ARTICLE 15
MISCELLANEOUS
15.1 NOTICES. Any notice, demand or delivery authorized by this
Agreement shall be sufficiently given or made if sent by first class mail,
postage prepaid, delivered by hand or delivered by overnight courier, in each
case addressed to any registered holder of a Warrant at such holder's last known
address appearing on the register of the Company or the Warrant Agent, and to
the Company or the Warrant Agent as follows, or delivered by facsimile (in the
case of notices to any registered holder, to the last known facsimile number of
such holder appearing on the register of the Company or the Warrant Agent):
If to the Company:
Golden Books Family Entertainment, Inc.
888 Seventh Avenue
New York, NY 10106
Attn: General Counsel
Telephone: (212) 547-6700
Facsimile. (212) 547-6711
If to the Warrant Agent:
The Bank of New York
101 Barclay Street
New York, New York 10286
Attn: Ralph Chianese
Telephone: (212) 815-4905
Facsimile: (212) 815-3201
or such other address as shall have been furnished in writing, in accordance
with this Section 15.1, to the party giving or making such notice, demand or
delivery.
15.2 GOVERNING, LAW AND CONSENT TO FORUM. THIS AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK
AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT
REGARD TO PRINCIPLES OF CONFLICT OF LAWS. THE COMPANY AND THE WARRANT AGENT EACH
HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY NEW YORK STATE COURT
SITTING IN THE CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE CITY OF NEW
YORK IN RESPECT OF ANY SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT, AND EACH IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF THE AFORESAID
COURTS. NOTHING
<PAGE>
HEREIN SHALL AFFECT THE RIGHT OF ANY PERSON TO SERVE PROCESS IN ANY MANNER
PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST
THE COMPANY IN ANY OTHER JURISDICTION.
15.3 BENEFITS OF THIS AGREEMENT. This Agreement shall be binding upon
and inure to the benefit of the Company and the Warrant Agent and their
respective successors and assigns, and the registered and beneficial holders
from time to time of the Warrants and of holders of the Common Stock, where
applicable. Nothing in this Agreement is intended or shall be construed to
confer upon any other Person any right, remedy or claim under or by reason of
this Agreement and any part hereof.
15.4 AGREEMENT OF HOLDERS OF WARRANT CERTIFICATES. Every holder of a
Warrant Certificate, by accepting the same, covenants and agrees with the
Company, the Warrant Agent and with every other holder of a Warrant Certificate
that the Warrant Certificates are transferable on the registry books of the
Warrant Agent only upon the terms and conditions set forth in this Agreement,
and the Company and the Warrant Agent may deem and treat the person in whose
name the Warrant Certificate is registered as the absolute owner for all
purposes whatsoever and neither the Company nor the Warrant Agent shall be
affected by any notice to the contrary.
15.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each such counterpart shall for all purposes be deemed to be an
original, and all such counterparts shall together constitute but one and the
same instrument.
15.6 AMENDMENTS. This Agreement may be amended by the parties hereto,
without the consent of the holder of any Warrant Certificate, for the purpose of
curing any manifest error, or of curing, correcting or supplementing any
defective provision contained herein, or making any other provisions with
respect to matters or questions arising under this Agreement as the Company and
the Warrant Agent may deem necessary or desirable; provided that such action
shall not adversely affect the interests of the holders of the Warrant
Certificates. Any other amendment shall require the consent of the holders of
Warrants representing a majority in number of the then outstanding Warrants.
Any such modification or amendment will be conclusive and binding on
all present and future holders of Warrant Certificates whether or not they have
consented to such modification or amendment or waiver and whether or not
notation of such modification or amendment is made upon such Warrant
Certificates. Any instrument given by or on behalf of any holder of a Warrant
Certificate in connection with any consent to any modification or amendment will
be conclusive and binding on all subsequent holders of such Warrant Certificate.
15.7 CONSENT TO JURISDICTION. Notwithstanding anything to the contrary
contained in Section 15.2 hereof, (a) the parties hereby expressly acknowledge
and agree that, to the extent permitted by applicable law, the Bankruptcy Court
shall have exclusive jurisdiction to hear and determine any and all disputes
concerning the distribution of Warrants hereunder to holders of Claims pursuant
to the Plan, and (b) the Warrant Agent hereby consents to the
<PAGE>
jurisdiction of the Bankruptcy Court with respect to any such disputes and
waives any argument of lack of such jurisdiction.
15.8 HEADINGS. The table of contents hereto and the descriptive
headings of the several sections hereof are inserted for convenience only and
shall not control or affect the meaning or construction of any of the provisions
hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
GOLDEN BOOKS FAMILY
ENTERTAINMENT, INC.
By: /s/
----------------------------
Name:
- ---------------------------- -----------------------
Title:
- ---------------------------- ----------------------
THE BANK OF NEW YORK
By: /s/
-----------------------------
Name: John Sivertsen
- ----------------------------
Title: Vice President
- ----------------------------
EXHIBIT 4.3
EXHIBIT A
FORM OF WARRANT CERTIFICATE
<PAGE>
[FORM OF FACE OF WARRANT CERTIFICATE]
CUSIP No.
---------
Warrant No. Number of Warrant(s):____
--------
Exercisable During the Period that Commences at 9:00 a.m., New York City time,
on _______________, 1999 and Terminates at 5:00 p.m., New York City time, on
__________, ______________________ except as provided below.
Void after 5:00 p.m., New York City time, on ____________ ___, _____________.
WARRANT TO PURCHASE
COMMON STOCK, PAR VALUE $.01 PER SHARE,
OF
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
This certifies that ___________________, or registered assigns, is the
registered owner of the number of warrants set forth above (the "Warrants"),
each of which represents the right, at any time after ____________________ (the
"Original Issue Date") and on or before 5:00 p.m., New York City time, on
_______________ (the "Exercise Period"), to purchase from Golden Books Family
Entertainment, Inc., a Delaware corporation (the "Company"), at the price per
share of $46.05 (the "Exercise Price"), one share of Common Stock, $0.01 par
value, of the Company as such stock was constituted as of the Original Issue
Date, subject to adjustment as provided in the Warrant Agreement hereinafter
referred to, upon surrender hereof, with the subscription form on the reverse
hereof duly executed, by hand or by mail, to [INSERT NAME AND ADDRESS OF WARRANT
AGENT], or to any successor thereto, as the warrant agent under the Warrant
Agreement, at the office of such successor maintained for such purpose (any such
warrant agent being herein called the "Warrant Agent") (or, if such exercise
shall be in connection with an underwritten public offering of shares of such
Common Stock (or Other Securities) (as such term and other capitalized terms
used herein are defined in the Warrant Agreement) subject to the Warrant
Agreement, at the location at which the Company shall have agreed to deliver
such securities), and simultaneous payment in full (by certified or official
bank or bank cashier's check payable to the order of the Company, or by wire
transfer of immediately available funds to an account designated by the Warrant
Agent for the benefit of the Company) of the Exercise Price in respect of each
Warrant represented by this Warrant Certificate that is so exercised, all
subject to the terms and conditions hereof and of the Warrant Agreement.
Upon any partial exercise of the Warrants represented by this Warrant
Certificate, there shall be issued to the holder hereof a new Warrant
Certificate representing the Warrants that were not exercised.
<PAGE>
No fractional shares may be issued upon the exercise of rights to
purchase hereunder, and as to any fractional share otherwise issuable, the
Company will make a cash payment in lieu of such issuance, as provided in the
Warrant Agreement.
This Warrant Certificate is issued under and in accordance with a
Warrant Agreement, dated as of ___________________,1999 (the "Warrant
Agreement"), between the Company and [_____________________________], as Warrant
Agent, and is subject to the terms and provisions contained therein. The Warrant
Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Warrant Agent,
the Company and the registered holders of the Warrants. The holder of this
Warrant Certificate consents to all terms and provisions of the Warrant
Agreement by acceptance hereof. Copies of the Warrant Agreement are on file at
the above-mentioned office of the Warrant Agent and may be obtained by writing
to the Warrant Agent.
REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS WARRANT SET
FORTH ON THE REVERSE HEREOF, WHICH FURTHER PROVISIONS SHALL FOR ALL PURPOSES
HAVE THE SAME EFFECT AS IF SET FORTH AT THIS PLACE.
This Warrant Certificate shall not be valid unless countersigned by the Warrant
Agent.
Dated: , 1999
-----------------
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
By:
-------------------------------
Name:
Title:
Countersigned:
THE BANK OF NEW YORK,
as Warrant Agent
By:
-------------------------------
Name:
Title:
<PAGE>
[FORM OF REVERSE OF WARRANT CERTIFICATE]
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
The transfer of this Warrant Certificate and all rights hereunder is
registrable by the registered holder hereof, in whole or in part, on the
register of the Company upon surrender of this Warrant Certificate at the office
or agency of the Company or the office of the Warrant Agent maintained for such
purpose at The Bank of New York, 101 Barclay Street, New York, New York, 10286,
attention: ________________, duly endorsed or accompanied by a written
instrument of transfer duly executed and in form satisfactory to the Company and
the Warrant Agent, by the registered holder hereof or his attorney duly
authorized in writing and upon payment of any necessary transfer tax or other
governmental charge imposed upon such transfer or registration thereof. Upon any
partial transfer the Company will cause to be delivered to such holder a new
Warrant Certificate or Certificates with respect to any portion not so
transferred.
This Warrant Certificate may be exchanged at the office or agency of
the Company or the office of the Warrant Agent maintained for such purpose at
The Bank of New York, 101 Barclay Street, New York, New York 10286, attention:
_________________ for Warrant Certificates representing the same aggregate
number of Warrants, each new Warrant Certificate to represent such number of
Warrants as the holder hereof shall designate at the time of such exchange.
Prior to the exercise of the Warrants represented hereby, the holder
of this Warrant Certificate, as such, shall not be entitled to any rights of a
stockholder of the Company, including, but not limited to, the right to vote, to
receive dividends or other distributions, to exercise any preemptive right or to
receive any notice of meetings of stockholders, and shall not be entitled to
receive notice of any proceedings of the Company except as provided in the
Warrant Agreement. Nothing contained herein shall be construed as imposing any
liabilities upon the holder of this Warrant Certificate to purchase any
securities or as a stockholder of the Company, whether such liabilities are
asserted by the Company or by creditors or stockholders of the Company or
otherwise.
This Warrant Certificate shall be void and all rights represented
hereby shall cease unless exercised before the close of business on____________,
2002.
This Warrant Certificate shall not be valid for any purpose until it
shall have been manually countersigned by an authorized signatory of the Warrant
Agent.
Witness the facsimile seal of the Company and the signature of its
duly authorized officer.
<PAGE>
SUBSCRIPTION FORM
(To be executed only upon exercise of warrant)
TO GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
, as Warrant Agent
- -----------------------
Attention:
-------------------
The undersigned (i) irrevocably exercises ______ Warrants represented
by the within Warrant Certificate, (ii) purchases ________ shares of common
stock, par value $.01 per share, of Golden Books Family Entertainment, Inc.
(before giving effect to the adjustments provided in the Warrant Agreement
referred to in the within Warrant Certificate) for each Warrant so exercised and
herewith makes payment in full of the purchase price of $___ per share, in
respect of each Warrant so exercised as provided in the Warrant Agreement (such
payment being by certified or official bank or bank cashier's check payable to
the order of Golden Books Family Entertainment, Inc., or by wire transfer of
immediately available funds to an account designated by the Warrant Agent for
the benefit of Golden Books Family Entertainment, Inc.), all on the terms and
conditions specified in the within Warrant Certificate and the Warrant
Agreement, (iii) surrenders this Warrant Certificate and all right, title and
interest therein to Golden Books Family Entertainment, Inc. and (iv) directs
that the securities or other property deliverable upon the exercise of such
Warrants be registered or placed in the name and at the address specified below
and delivered thereto.
Dated: ,
--------------- --- -------
- -----------------------------------------------------------------------------
(Owner)*
-----------------------------------
(Signature of Authorized Representative)
-----------------------------------
(Street Address)
-----------------------------------
(City) (State) (Zip Code)
<PAGE>
Securities or property to be
issued and delivered to:
----------------------------
Signature Guaranteed**
Please insert social
security or other
identifying number
- ----------------------
Name
------------------------------------------------------------------------
Street Address
-------------------------------------------------------------
City, State and Zip Code
---------------------------------------------------
*The signature must correspond with the name as written upon the face
of the within Warrant Certificate in every particular, without alteration or
enlargement or any change whatsoever.
**The signature must be guaranteed by a securities transfer agents
medallion program ("stamp") participant or an institution receiving prior
approval from the Warrant Agent.
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned registered holder of the within
Warrant Certificate hereby sells, assigns and transfers unto the Assignee named
below all of the rights of the undersigned under the within Warrant Certificate,
with respect to the number of warrants set forth below:
NAME OF ADDRESS NO. OF
ASSIGNEE WARRANTS
Please insert social
security or other
identifying number
of Assignee
and does hereby irrevocably constitute and appoint _____________attorney to make
such transfer on the books of Golden Books Family Entertainment, Inc. maintained
for the purpose, with full power of substitution in the premises.
Dated: ,
----------------- ----
Name*
Signature of Authorized
Representative
Signature Guaranteed**
* The signature must correspond with the name as written upon the face
of the within Warrant Certificate in every particular, without alteration or
enlargement or any change whatsoever.
** The signature must be guaranteed by a securities transfer agents
medallion program ("stamp") participant or an institution receiving prior
approval from the Warrant Agent.
EXHIBIT 10.1
GOLDEN COMPREHENSIVE SECURITY PROGRAM
(As Amended and Restated Effective January 1, 1993)
(Conformed Through the First Amendment)
McDermott, Will & Emery
Chicago, Illinois
<PAGE>
C E R T I F I C A T E
I, ______________________________________________________, Secretary
of WESTERN PUBLISHING COMPANY, INC., hereby certify that the attached is a full,
true and complete copy of the GOLDEN COMPREHENSIVE SECURITY PROGRAM, as in
effect on the date hereof.
Dated this ----- day of -----------------------, 1993.
--------------------------------
Secretary as Aforesaid
(Corporate Seal)
<PAGE>
GOLDEN COMPREHENSIVE
--------------------
SECURITY PROGRAM
----------------
SECTION 1
---------
INTRODUCTION
------------
1.1 PURPOSE. GOLDEN COMPREHENSIVE SECURITY PROGRAM (the "plan") is
maintained by WESTERN PUBLISHING COMPANY, INC. (the "company") and, effective
April 23, 1986, by WESTERN PUBLISHING GROUP, INC., the company's parent
("parent") for eligible employees of the company and the parent and the eligible
employees of any other United States subsidiary of the company or the parent
which adopts the plan, with the consent of the company. The purpose of the plan
is to replace the Western Pension Plan for Salaried Employees and other plans
previously maintained for eligible employees and to provide for the accumulation
of funds from both employer and participant contributions in order to provide
retirement income to participants when they retire from the employ of the
employers, thereby providing for their future financial security. The plan is
designed as a qualified pension and profit sharing plan under the provisions of
Sections 401(a) and 401(k) of the Internal Revenue Code of 1986, as amended (the
"Code").
1.2 EFFECTIVE DATE, PLAN YEAR. The original effective date of the plan
was November 1, 1984. The plan, as set forth below, constitutes an amendment and
restatement of the plan effective January 1, 1993 (the "effective date"). A
"plan year" means each calendar year.
-1-
<PAGE>
1.3 EMPLOYERS. The company, the parent and any United States
subsidiary of the company or the parent which adopts the plan and trust with the
consent of the company are sometimes referred to hereinafter collectively as the
"employers" and individually as an "employer."
1.4 PLAN ADMINISTRATION. The plan will be administered by a pension
security committee (the "committee") appointed by the company, as described in
Section 9. Participants will be notified of the identity of the committee
members and of any change in the membership of such committee.
1.5 TRUSTEE, TRUST AGREEMENT, TRUST FUND. Funds contributed by the
employers or participants under the plan will be held and invested in a trust
fund, until distributed, by a trustee (the "trustee") appointed by the company.
The trustee will act under a trust agreement between the employers and the
trustee. Participants will be notified of the identity of the trustee, and of
any change in trustee.
1.6 EXAMINATION OF PLAN DOCUMENTS. Copies of the plan and trust
agreement, and any amendments thereto, will be made available at the principal
office of each employer where they may be examined by any participant or
beneficiary entitled to receive benefits under the plan. The provisions of and
benefits under the plan are subject to the terms and provisions of the trust
agreement.
-2-
<PAGE>
1.7 NOTICES. Any notice or document required to be given to or filed
with the committee shall be considered as given or filed if delivered or mailed
by registered mail, postage prepaid, addressed as follows:
Benefit Plans Administration Committee
Western Publishing Company, Inc.
444 Madison Avenue
New York, New York 10022
1.8 GENDER AND NUMBER. Words in the masculine gender shall include the
feminine and neuter genders and, where the context admits, the plural shall
include the singular, and the singular shall include the plural.
1.9 SUPPLEMENTS. The company and any other employer (with the consent
of the company) may establish supplements to this plan with respect to any group
or class of employees of an employer to which the plan has been extended. Each
such supplement will be a part of the plan as it applies to the employees
affected thereby. To the extent that the provisions of any supplement are
inconsistent with the other features of the plan, the provisions of the
supplement shall control.
-3-
<PAGE>
SECTION 2
ELIGIBILITY AND PARTICIPATION
2.1 ELIGIBILITY. Subject to the conditions and limitations of the
plan, each employee of an employer who was an active participant in the plan
immediately prior to the effective date will continue to participate in the plan
in accordance with the provisions of this plan. Each other employee of an
employer will become a participant in the plan on January 1, 1993, or on the
first January 1, April 1, July 1 or October 1 (the "quarterly entry date")
coincident with or next following the date he meets all of the following
requirements:
(a) He is either:
(i) A salaried employee (that is, an employee whose
basic compensation for services rendered to an
employer is paid to him in fixed amounts at stated
intervals without regard to the number of hours
worked, even though he may receive additional
compensation in the form of bonuses, overtime pay
or commissions); or
(ii) A member of a group or class of employees of an
employer to whom the plan has been extended by the
Board of Directors of the employer; and
(b) He does not belong to a collective bargaining unit
of employees represented by a collective
bargaining representative, except to the extent
that an agreement between the employer and such
representative extends the plan to such unit of
employees; and
-4-
<PAGE>
(c) He has completed six months of continuous
employment (as defined in subsection 2.2).
Each employee will be notified of the date as of which he becomes a participant
in the plan and will be furnished with a summary plan description in accordance
with governmental rules and regulations. An employee who would be eligible to
participate in the plan on the applicable quarterly entry date except for the
requirements of subparagraph 2.1(a) or (b) will become a participant on the date
he satisfies the conditions for participation under such subparagraphs but will
not be eligible to make income deferral contributions (as defined in subsection
3.2) or voluntary participant contributions until the quarterly entry date
coincident with or next following the date he becomes a participant.
2.2 CONTINUITY OF EMPLOYMENT. In determining an employee's or
participant's continuity of employment, the following rules shall apply:
(a) An employee's or participant's continuous
employment will be computed in terms of full and
fractional years of continuous employment, with
fractional years computed in completed days of
employment, commencing on the date an employee is
first employed by an employer (i.e., the date he
first completes an hour of service) or, if he has
incurred a one-year break in employment (as
defined in subparagraph (g) below), the date of
his reemployment (i.e., the date he first
completes an hour of service upon reemployment).
(b) A leave of absence (as defined in subsection 2.3)
will not interrupt continuity of employment for
purposes of the plan.
-5-
<PAGE>
(c) A period of concurrent employment with two or more
employers will be considered as employment with
one employer during that period.
(d) The termination of any employee's employment with
one employer will not interrupt the continuity of
his employment or participation if, concurrently
with or immediately after such termination, he is
employed by one or more other employers.
(e) If a former employee of the employers is
reemployed by an employer before he has incurred a
one-year break in employment (as defined in
subparagraph (g) below), his employment with the
employers will not be deemed to have terminated.
(f) A period of employment with a controlled group
member (as defined below) which is not an employer
will be considered a period of employment with an
employer for purposes of determining years and
days of continuous employment. A "controlled group
member" means any corporation or other trade or
business which is under common control with an
employer within the meaning of Sections 414(b),
414(c) and 414(m) of the Code.
(g) In determining an employee's or participant's
continuous employment for an employee or
participant who incurs a one-year break in
employment and is reemployed by an employer or
controlled group member, continuous employment
(both before and after such one-year break in
employment) will be taken into account for plan
purposes upon his reemployment, except as follows:
-6-
<PAGE>
If a former employee of the employers who is
not vested with respect to any portion of his
employer contribution account balance, income
deferral contribution account balance, or
matched employer contribution account balance
is reemployed by an employer or controlled
group member after he has incurred five
consecutive one-year breaks in employment and
if such consecutive one-year breaks in
employment equal or exceed his years of
continuous employment, his period of
continuous employment with the employers or
controlled group members prior to such five
consecutive one-year breaks in employment
shall be disregarded for purposes of
determining the vested portion of his
employer contribution account or matched
employer contribution account upon his
reemployment. In no event shall a period of
continuous employment after an employee has
incurred five consecutive one-year breaks in
employment be taken into account in
determining the vested portion of his
employer contribution account or matched
employer contribution account attributable to
employment prior to such five consecutive
one-year breaks in employment.
A "one-year break in employment" will be deemed to
have occurred for each 12-month period commencing
on the date of an employee's termination of
employment, and on each anniversary thereof,
during which such employee is not employed by an
employer or controlled group member. In the case
of a maternity or paternity absence (as defined
below), the 12-month period beginning on the first
day of such absence and the first anniversary
-7-
<PAGE>
thereof shall not constitute one-year breaks in
service. A "maternity or paternity absence" means
an employee's absence from work because of the
pregnancy of the employee or birth of a child of
the employee, the placement of a child with the
employee in connection with the adoption of such,
or for purposes of caring for the child
immediately following such birth or placement.
(h) In determining the continuous employment of an
employee who had previously been employed by Sight
& Sound, Inc., and who was transferred to
employment with an employer after such
acquisition, such continuous employment will
commence on the date such employee was first0
employed by Sight & Sound, Inc.
An "hour of service" means each hour for which an employee is directly or
indirectly paid, or entitled to payment, by an employer for the performance of
duties, determined in accordance with Department of Labor Reg. Sec. 2530.200b-2.
A "year of continuous employment" means 365 days of continuous employment under
this subsection.
2.3 LEAVE OF ABSENCE. A leave of absence will not interrupt continuity
of employment or participation in the plan. A "leave of absence" for plan
purposes means a leave of absence required by law or granted by an employer on
account of service in military or governmental branches described in any
applicable statute granting reemployment rights to employees who entered such
branches, or any other military or governmental branch designated by the
employers, and also means any other absence from active employment with an
employer under conditions which are not treated by it as a termination of
employment including, but not limited to, vacations, holidays, maternity,
illness, incapacity or jury duty. Leaves of absence
-8-
<PAGE>
will be governed by rules uniformly applied to all employees similarly situated.
If an employee or participant does not return to work with an employer or
controlled group member on or before termination of a leave of absence, he will
be considered to have resigned on the date his last leave ended unless his
employment actually terminated prior to the expiration of such leave.
2.4 REEMPLOYED FORMER PARTICIPANT. If a former participant in the plan
who has completed the requirements of subparagraph 2.1(c) is reemployed by an
employer after incurring a one-year break in employment, he will again become a
participant in the plan on the date he meets the requirements of subparagraphs
2.1(a) and (b) and will be eligible to make income deferral contributions under
subsection 3.2 or voluntary participant contributions under subsection 4.1 on
the quarterly entry date coincident with or next following the date he becomes a
participant.
2.5 LEASED EMPLOYEES. A leased employee (as defined below) shall not
be eligible to participate in the plan. A leased employee means any person who
is not an employee of an employer but who has provided services to an employer
of the type which have historically (within the business field of the employers)
been provided by employees on a substantially full-time basis for a period of at
least one year pursuant to an agreement between an employer and a leasing
organization. The period during which a leased employee performs services for an
employer shall be taken into account for purposes of subsection 2.2 of the plan
unless (i) such leased employee is a participant in a money purchase pension
plan maintained by the leasing organization which provides a nonintegrated
employer contribution rate of at least ten percent (10%) of compensation,
immediate participation for all employees and full and immediate
-9-
<PAGE>
vesting and (ii) leased employees do not constitute more than twenty percent
(20%) of the employer's nonhighly compensated work force.
-10-
<PAGE>
SECTION 3
---------
EMPLOYER CONTRIBUTIONS
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3.1 ANNUAL EMPLOYER CONTRIBUTION. Subject to the limitations of the
plan, each employer will contribute to the plan for each plan year an amount
equal to three percent (3%) of the adjusted compensation (as defined in
subsection 3.3) of participants entitled to share in the contribution for that
year. The amount of the employer's contribution for a plan year, as described
above, will be reduced, however, by any forfeitures to be credited under
subsection 7.3 for that plan year; and the employer's contribution, as so
reduced, will be the actual amount paid to the trustee as a contribution for
that year under this subsection. An employer's contribution for any plan year
under this subsection shall be paid to the trustee not later than the earlier of
(i) the latest date for making such contribution under the provisions of Section
412(c)(10) of the Code or (ii) the time required for the filing of the
employer's federal income tax return for the fiscal year in which such plan year
ends, including extensions thereof.
3.2 INCOME DEFERRAL CONTRIBUTIONS. Subject to the limitations of the
plan, by writing filed with the committee, a participant, if he so desires, may
defer payment of a percentage (in increments of one percent (1%)) of his
compensation ("income deferral contributions"), not exceeding sixteen percent
(16%) thereof, by electing to have such percentage withheld from his
compensation and contributed to the plan on his behalf by his employer. For plan
years beginning on or after January 1, 1993, no participant may elect to make
income deferral contributions for any calendar year in excess of $8,994 (or such
greater amount as determined pursuant to Section 402 (g) (5) of the Code). The
amounts withheld from a
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participant's compensation pursuant to the participant's election shall be
contributed to the plan by the participant's employer and credited to his income
deferral contribution account as soon as practicable after being withheld but,
in any event, not later than 30 days following the end of the pay period for
which such contributions are made. A participant may elect to change the rate of
his deferrals, or suspend or resume such deferrals, within the limits stated
above, by filing a new election with the committee. Each election under this
subsection shall be made at such time, in such manner and in accordance with
such rules as the committee shall determine and shall be effective for
compensation paid on the first payment date (i.e., a date on which regular
salary payments are made to employees of the employer) coincident with or next
following the quarterly entry date or such other date specified by the committee
for which such election is effective.
3.3 COMPENSATION AND ADJUSTED COMPENSATION. A participant's
"compensation" for any plan year means the sum total of the adjusted
compensation (as defined below) paid to him during that plan year for services
rendered to the employers as an employee and the amount of any income deferral
contributions made for such year under subsection 3.2. A participant's "adjusted
compensation" for any plan year means the total cash compensation, including
commissions, bonuses and overtime pay, but excluding any payments from the
Western Incentive Compensation Program, paid during the period such participant
is an active participant in the plan. In no event shall compensation in excess
of $200,000 (or such greater amount as permitted in regulations issued by the
Secretary of the Treasury) be included in a participant's compensation for any
plan year. Beginning with the plan year commencing January 1, 1994, in no event
shall compensation in excess of $150,000 (or such greater amount
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as may be permitted under Section 401(a)(17)(B) of the Code) be included in a
participant's compensation for any plan year.
3.4 MATCHING EMPLOYER CONTRIBUTIONS. Subject to the limitations of the
plan and in addition to the annual employer contributions made under subsection
3.1 and the income deferral contributions made under subsection 3.2, each
employer will contribute for a participant an amount equal to sixty percent
(60%) of the first six percent (6%) of income deferral contributions (but not
exceeding $8,994 or such greater amount as determined pursuant to Section
402(g)(5) of the Code for plan years beginning on or after January 1, 1993) made
on behalf of the participant under subsection 3.2, reduced by any forfeitures to
be credited to such participant's matched employer contribution account for such
period as provided under subsection 7.3. Such contributions shall be paid to the
trustee and credited to the participant's matched employer contribution account
as soon as practicable after the end of the pay period for which such
contribution is made but, in any event, not later than 60 days after the end of
such period.
3.5 EMPLOYER CONTRIBUTIONS MADE FROM PROFITS. Each employer's
contributions for or during a plan year under subsection 3.4 shall be made from
net income (i.e., its net profits before federal and state taxes on income) for
that plan year, or its accumulated profits (i.e., its net profits after federal
and state taxes on income which have been accumulated and retained in the
business), or both, as determined under generally accepted accounting principles
and practices. Each employer's contributions are conditioned on their
deductibility under Section 404 of the Code and, unless an employer specifies
otherwise, shall not exceed an
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amount equal to the maximum amount deductible on account thereof by the employer
for its fiscal year for purposes of federal taxes on income.
3.6 LIMITATIONS ON INCOME DEFERRALS. In no event shall the actual
deferral percentage (as defined below) of the highly compensated participants
(as defined in subsection 3.8) for any plan year exceed the greater of:
(a) the actual deferral percentage of all other participants for
such plan year multiplied by 1.25; or
(b) the actual deferral percentage of all other participants for
such plan year multiplied by 2.00; provided that the actual
deferral percentage of the highly compensated participants
does not exceed that of all other participants by more than
two percentage points.
The "actual deferral percentage" of a group of participants for a plan year
means the average of the ratios (determined separately for each participant in
such group) of A to B where A equals the income deferral contributions credited
to each such participant's income deferral contribution account for each plan
year and B equals the participant's "compensation" for such plan year. For
purposes of this subsection, the term "compensation" shall mean compensation as
defined in Section 414(s) of the Code, including income deferral contributions.
The committee shall determine from time to time based on the income deferral
elections then on file with the committee whether the foregoing limitations will
be satisfied and, to the extent necessary to insure compliance with such
limitation, shall reduce, on an individual-by-individual basis, for each highly
compensated participant who is exceeding such deferral percentage the applicable
percentage of income deferral contributions to be withheld for such highly
compensated participant beginning with the highly compensated participant with
the highest deferral percentage first and then reducing the applicable
percentage for each subsequent highly
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compensated participant until such excess contributions are eliminated. In
addition, if at any time a portion of the income deferrals withheld from a
highly compensated participant's compensation cannot be credited to his income
deferral contribution account because the limitations described above would be
applicable, such amounts will not be considered contributions under subsection
3.2 and the amount of such excess contributions (and any income allocable to
such contributions) will be distributed to such highly compensated participant
no later than two and one-half (2-1/2) months after the close of the plan year
for which such excess contribution was made. For purposes of determining the
amount of any income for a plan year attributable to any excess contributions by
a highly compensated participant (as defined in subsection 3.8) to be returned
to such participant, the following formula will be used:
(i) first, the value of his income deferral
contribution account as of the beginning of the
plan year and as of the last day of the plan year
shall be determined;
(ii) next, the gain or loss on such income deferral
contribution account shall be determined after
first reducing the difference between the balance
of the account as at the end of the year and the
balance as at the beginning of the year by income
deferral contributions made for such year; and
(iii) finally, the amount calculated under paragraph
(ii) shall be multiplied by a fraction the
numerator of which is the excess income deferral
contributions made by the participant for such
year and the denominator of which is such
participant's income deferral contribution account
as of the last day of such year, reduced by the
amount of any gain for such year and increased by
the amount of any loss for such year. The amount
calculated under this paragraph shall be the
amount of income to be returned to the participant
for such year.
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The actual deferral percentage of a highly compensated participant to whom the
family attribution rules described in subsection 3.8 apply shall be the greater
of:
(i) the actual deferral ratio obtained by aggregating
the income deferral contributions and compensation
of only those family members who are highly
compensated participants; or
(ii) the actual deferral ratio obtained by aggregating
the income deferral contributions and compensation
of all family members who are participants.
For purposes of this subsection, certain former employees (as determined under
Section 414(q)(9) of the Code) shall be treated as employees for purposes of
determining highly compensated participants.
3.7 LIMITATIONS ON MATCHING EMPLOYER CONTRIBUTIONS AND PARTICIPANT
CONTRIBUTIONS. In no event shall the contribution percentage (as defined below)
of the highly compensated participants (as defined below) for any plan year
exceed the greater of:
(a) the contribution percentage of all other participants
for such plan year multiplied by 1.25; or
(b) the contribution percentage of all other participants
for such plan year multiplied by 2.00; provided that
the contribution percentage of the highly compensated
participants does not exceed that of all other
participants by more than 2 percentage points.
The "contribution percentage" of a group of participants for a plan year means
the average of the ratios (determined separately for each participant in such
group) of A to B where A equals the sum of the matching employer contributions
under subsection 3.4 and the participant contributions under subsection 4.1, if
any, credited, to such participant's accounts for such plan year and B equals
the participant's compensation (as defined in subsection 3.6) for such plan
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year. The committee shall determine from time to time based on such
participant's matching employer contributions and participant contributions
whether the foregoing limitations will be satisfied and, to the extent necessary
to insure compliance with such limitation, shall reduce, on an
individual-by-individual basis, for each highly compensated participant who is
exceeding such contribution percentage, the applicable percentage of participant
contributions, if any, to be withheld for such highly compensated participant,
beginning with the highly compensated participant with the highest contribution
percentage first and then reducing the applicable percentage for each subsequent
highly compensated participant until such contribution percentage satisfies the
foregoing test. If, after reducing such participant contributions, such
contribution percentage still exceeds such limitation, the matching employer
contributions to be contributed for such highly compensated participants shall
be reduced, beginning with the highly compensated participant with the highest
matching employer contributions first and then reducing the applicable
percentage for each subsequent highly compensated participant until such
contribution percentage satisfies the foregoing test. If, because of the
foregoing limitations, a portion of the matching employer contributions made on
behalf of a highly compensated participant may not be credited to his account
for a plan year, such portion (and the income allocable to such amount) will be
forfeited and returned to the employer making such contribution not later than
two and one-half months after the end of that plan year. The determination of
any excess aggregate matching contributions under this subparagraph shall be
made after determining any excess income deferral contributions under subsection
3.6. Income on such excess participant contributions and, if applicable,
matching employer contributions shall be calculated in the same manner as
provided in subparagraphs (i) - (iii) of subsection 3.6
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except that such calculations shall be made using the participant's participant
contribution account balance and the participant's contributions and excess
participant contributions made for such plan year and then, if necessary, such
participant's matched employer contribution account balance and the employer's
matching employer contributions and excess matching employer contributions made
for such plan year. In the event that both the actual deferral percentage and
the contribution percentage do not satisfy the requirements of subparagraphs
3.6(a) and 3.7(a) above, the following additional limitation shall apply to
participant contributions and then to employer matching contributions of highly
compensated participants under the plan. After the appropriate tests under
subparagraph 3.6(a) or (b) above and subparagraph 3.7(a) or (b) have been made
and any excess income deferral contributions and participant contributions have
been returned to the participant and any excess employer matching contributions
are forfeited, the "Aggregate Limit" test will be applied. The "Aggregate Limit"
will be the sum of: (1) 125 percent of the greater of the actual deferral
percentage or the contribution percentage for participants who are not highly
compensated participants and (2) the lesser of (a) the actual deferral
percentage or the contribution percentage, whichever is smaller, for
participants who are not highly compensated participants plus two (2) percentage
points or (b) the actual deferral percentage or contribution percentage,
whichever is smaller, for participants who are not highly compensated
participants multiplied by 2.0. If the sum of the actual deferral percentage and
the contribution percentage for the highly compensated participants exceeds the
Aggregate Limit, participant contributions and then employer matching
contributions will be further reduced until the Aggregate Limit test is
satisfied.
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3.8 HIGHLY COMPENSATED PARTICIPANTS. For purposes of subsections 3.6
and 3.7 of the plan, a "highly compensated participant" means any participant
who, during the current or immediately preceding plan year:
(a) was a 5 percent (5%) owner of an employer or controlled
group member;
(b) received annual compensation from an employer and/or
controlled group member of more than $75,000;
(c) received annual compensation from an employer and/or
controlled group member of more than $50,000 and was in
the top-paid twenty percent (20%) of the employees; or
(d) was an officer of an employer and/or controlled group
member receiving annual compensation greater than fifty
percent (50%) of the limitation in effect under Section
415(b)(1)(A) of the Internal Revenue Code; provided,
that for purposes of this subparagraph (d), no more
than 50 employees of the employer (or if lesser, the
greater of 3 employees or 10 percent of the employees)
shall be treated as officers.
A participant not described in (b), (c) or (d) above for the immediately
preceding year will not be considered a highly compensated participant for the
current plan year under (b), (c) or (d) unless such participant is included
within the group of the 100 highest paid employees of the employer and
controlled group members for such current year. If any participant is a family
member of a highly compensated participant who is either a 5 percent owner or
one of the ten most highly compensated participants with respect to any plan
year, that participant shall not be treated as a separate participant for
purposes of this subsection and such individual's compensation will be treated
as if paid to such highly compensated participant; provided that, a "family
member" of a highly compensated participant means such participant's spouse,
lineal ascendants or descendants and the spouses of such lineal ascendants or
descendants. For purposes of this subsection, "compensation" shall be defined as
provided in subsection 3.6 of the plan. The compensation
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thresholds in (b) , (c) and (d) above will be adjusted in accordance with
Section 414(q)(1) of the Code.
3.9 VERIFICATION OF EMPLOYER CONTRIBUTIONS. A certificate of an
independent certified public accountant selected by the employer shall be
conclusive on all persons as to the amount of an employer's contributions under
the plan for any plan year.
3.10 NO INTEREST IN EMPLOYERS. The employers shall have no right,
title or interest in the trust fund, nor will any part of the trust fund at any
time revert or be repaid to an employer, unless:
(a) the Internal Revenue Service determines that the plan
does not meet the requirements of Section 401(a) of the
Internal Revenue Code of 1986, in which event
contributions made to the plan by such employer
conditioned upon such qualification shall be returned
to the employer within one year after the date notice
of such determination is issued to the employer; or
(b) a contribution is made by such employer by mistake of
fact and such contribution is returned to the employer
within one year after payment to the trustee; or
(c) a contribution is disallowed as an expense for federal
income tax purposes and such contribution (to the
extent disallowed) is returned to the employer within
one year after the disallowance of the deduction.
The amount of any contribution that may be returned to an employer pursuant to
subparagraph (b) or (c) above shall be reduced by any portion thereof previously
distributed from the trust fund and by any losses of the trust fund allocable
thereto and in no event may the return of such contribution cause any
participant's account balances to be less than the amount of such balances had
the contribution not been made under the plan.
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SECTION 4
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PARTICIPANT CONTRIBUTIONS
-------------------------
4.1 AMOUNT OF PARTICIPANT CONTRIBUTIONS. In lieu of any income
deferral contributions made by a participant under subsection 3.2 and subject to
any limitations contained in the plan, a participant, if he so desires, may
elect to make voluntary contributions under the plan for any plan year in an
amount of not less than one percent (1%) nor more than sixteen percent (16%) of
his adjusted compensation (as defined in subsection 3.3) for that year. Each
such election by a participant under this subsection shall be made at such time,
in such manner and in accordance with such rules as the committee shall
determine.
4.2 DEDUCTION OR PAYMENT OF PARTICIPANT CONTRIBUTIONS. A participant's
contributions may be made by regular payroll deductions (in multiples of one
percent) or in any other way approved by the committee. Participant
contributions deducted by an employer will be paid to the trustee as soon as
practicable after the date the contributions are made.
4.3 VARIATION, DISCONTINUANCE, RESUMPTION AND WITHDRAWAL OF
PARTICIPANT CONTRIBUTIONS. A participant may elect to change his contribution
rate (but not retroactively) within the limits specified above, to discontinue
making contributions or to resume making such contributions. As of the first day
of any plan year quarter, a participant may withdraw all or any portion of the
then net credit balance in his participant contribution account. Each election
by a participant under this subsection 4.3 shall be made at such time and in
such manner as the
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committee shall determine, and shall be effective only in accordance with such
rules as may be established from time to time by the committee.
SECTION 5
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PERIOD OF PARTICIPATION
-----------------------
5.1 TERMINATION DATE. A participant's "termination date" will be the
date on which his employment with all of the employers is terminated because of
the first to occur of the following:
(a) NORMAL OR LATE RETIREMENT. The date of the
participant's retirement on or after attaining age 65
years (his "normal retirement age"). A participant's
right to all account balances shall be nonforfeitable
on and after his normal retirement age.
(b) EARLY RETIREMENT. The date of the participant's
retirement on or after attaining age 55 years but
before attaining age 65 years.
(c) DISABILITY RETIREMENT. The date the participant is
retired from the employ of all of the employers at any
age because of disability (physical or mental), as
determined by a qualified physician selected by the
committee. A participant will be considered disabled
for purposes of this subparagraph if, on account of a
disability, he is no longer capable of performing the
duties assigned to him by his employer.
(d) DEATH. The date of the participant's death.
(e) RESIGNATION OR DISMISSAL. The date the participant
resigns or is dismissed from the employ of all of the
employers before he attains age 55 years and for a
reason other than disability retirement.
If a participant is transferred from employment with an employer to employment
with a controlled group member, his termination date will not be considered to
have occurred until his
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employment with all employers and controlled group members has terminated but
his participation in the plan will be restricted as provided in subsection 5.2.
5.2 RESTRICTED PARTICIPATION. If (i) payment of all of a participant's
account balances is not made prior to the accounting date next following his
termination date, or (ii) a participant transfers to a controlled group member
which is not an employer, or (iii) a participant transfers to a group or class
of employees who are not eligible to participate in the plan pursuant to the
requirements of subparagraph 2.1(a) or (b), the participant or his beneficiary
will be treated as a participant for all purposes of the plan, except as
follows:
(a) The participant may not make income deferral
contributions and will not share in employer
contributions and forfeitures (as defined in subsection
7.3) under Section 3 after his termination date, or
during any period described in (i), (ii) or (iii)
above, except as provided in subsection 6.5.
(b) The participant may not make contributions under
Section 4 after his termination date or during any
period described in (i), (ii), or (iii) above.
(c) The beneficiary of a deceased participant cannot
designate a beneficiary under subsection 7.6.
If such participant subsequently again satisfies the requirements for
participation in the plan, he will become an active participant in the plan on
the date he satisfies the requirements of subparagraph 2.1 (a), (b) and (c) and
will be eligible to make income deferral contributions under subsection 3.2
effective with the first payment date (i.e., a date on which regular salary
payments are made to employees of the employer) coincident with or next
following the date that he satisfies the requirements of subsection 2.4.
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SECTION 6
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ACCOUNTING
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6.1 SEPARATE ACCOUNTS. The committee will maintain the following
accounts in the name of each participant:
(a) EMPLOYER CONTRIBUTION ACCOUNT. This account will
reflect his share of employer contributions under
subsection 3.1 and certain forfeitures arising under
the plan, and the income, losses, appreciation and
depreciation attributable thereto.
(b) INCOME DEFERRAL CONTRIBUTION ACCOUNT. If a participant
elects to make income deferral contributions under
subsection 3.2 of the plan, this account will reflect
such contributions and the income, losses, appreciation
and depreciation attributable thereto.
(c) MATCHED EMPLOYER CONTRIBUTION ACCOUNT. If a participant
has elected to make income deferral contributions under
the plan, this account will reflect the matching
employer contributions made under subsection 3.4 of the
plan and certain forfeitures arising under the plan,
and the income, losses, appreciation and depreciation
attributable thereto.
(d) PARTICIPANT CONTRIBUTION ACCOUNT. If a participant has
elected to make voluntary participant contributions
under subsection 4.1 of the plan, this account will
reflect such participant contributions and the income,
losses, appreciation and depreciation attributable
thereto.
(e) PRIOR PLAN ACCOUNT. If a participant has amounts
attributable to his participation in any prior plan
transferred to this plan as provided in Section 8, this
account will reflect such amounts and the income,
losses, appreciation and depreciation attributable
thereto.
The committee also may maintain such other accounts (including accounts
reflecting amounts invested in any particular investment fund) in the names of
participants or otherwise as it considers advisable. Unless the context
indicates otherwise, references in the plan to a participant's "accounts" means
all accounts maintained in his name under the plan.
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6.2 ACCOUNTING DATES. A "regular accounting date" is the last day of
each month. A "special accounting date" is any date designated as such by the
committee and a special accounting date occurring under subsection 11.4. The
term "accounting date" includes both a regular accounting date and a special
accounting date.
6.3 EMPLOYER CONTRIBUTIONS CONSIDERED MADE ON LAST DAY OF PLAN YEAR.
For purposes of this Section 6, each employer's contributions for any plan year
under subsection 3.1 will be considered to have been made on the last day of
that year, regardless of when paid to the trustee.
6.4 ADJUSTMENT OF PARTICIPANTS' ACCOUNTS. As of each accounting date,
the committee shall:
(a) FIRST, charge to the proper accounts all payments,
distributions or withdrawals made since the last
preceding accounting date that have not been charged
previously;
(b) NEXT, adjust the credit balances in the accounts of all
participants upward or downward, pro rata, according to
the credit balances so that the total of the credit
balances will equal the then adjusted net worth (as
defined below) of the trust fund or any separate
investment f und (as defined below) established for
such accounts;
(c) NEXT, subject to the provisions of subsection 6.7,
credit any income deferral contributions that are to be
credited as of that date in accordance with subsection
3.2;
(d) NEXT, credit matching employer contributions and
forfeitures, if any, that are to be credited as of that
date in accordance with subsection 3.4;
(e) NEXT, allocate and credit employer contributions and
forfeitures, if any, that are to be allocated and
credited as of that date in accordance with subsection
6.5; and
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(f) FINALLY, credit any participant contributions that are
to be credited as of that date in accordance with
subsection 4.2.
The "trust fund" as at any date will consist of all property of every kind then
held by the trustee. The "adjusted net worth" of the trust fund as at any date
means the then net worth of the trust fund as determined by the trustee, less an
amount equal to the sum of employer and participant contributions not yet
credited to the accounts of participants. The committee may establish one or
more investment funds for the investment of employer and participant
contributions under the plan and may adjust participant accounts in accordance
with the accounting provisions established under any such investment funds. The
investment funds established by the committee are described in subsection 6.8.
The term "investment fund" includes any trust account, group annuity contract,
separate account or other investment vehicle established under a contract with a
licensed insurance company or under a trust agreement with a trustee.
6.5 ALLOCATION OF EMPLOYER CONTRIBUTIONS AND FORFEITURES. Subject to
subsection 6.7, as of each regular accounting date occurring on the last day of
a plan year, each employer's total contribution under subsection 3.1 of the plan
for the plan year ending on that date, plus forfeitures (used to reduce an
employer's contribution as provided in subsection 3.1), if any, that are to be
allocated on that date in accordance with subsection 7.3, will be allocated and
credited to the employer contribution accounts of participants who were employed
by such employer during that plan year (excluding participants who resigned or
were dismissed from the employ of all of the employers during that year under
subparagraph 5.1(e)), pro rata, according to the adjusted compensation paid to
them, respectively, by such employer during that year.
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6.6 STATEMENT OF ACCOUNTS. Each participant will be furnished with a
statement reflecting the condition of his accounts in the trust fund as of the
last day of each plan year or more frequently, if so provided by the committee.
No participant, except one authorized by the committee, shall have the right to
inspect the records reflecting the accounts of any other participant.
6.7 CONTRIBUTION LIMITATIONS. Notwithstanding any provisions in the
plan to the contrary, the following limitations shall apply to each participant
in the plan:
(a) If such participant is not an active participant in any
other defined contribution or defined benefit plan (as
defined in Section 415(k) of the Internal Revenue Code
of 1986) maintained by an employer or a controlled
group member which is not an employer, the maximum
"annual additions" (as defined below) to such
participant's accounts for any plan year shall not
exceed the lesser of $30,000 (or, if greater, 1/4 of
the dollar limitation in effect under Section
415(b)(1)(A) of the Code for the calendar year which
begins with or within that plan year) or 25 percent of
the participant's compensation for the plan year. A
participant's "annual additions" shall mean the sum of
(i) employer contributions to be allocated and credited
to his employer contribution account or matched
employer contribution account for the year, (ii) any
forfeitures to be allocated and credited to his
employer contribution account for the year, (iii) any
income deferral contributions credited to his income
deferral contribution account for the year and (iv)
participant contributions credited to his participant
contribution account for such year. For purposes of
this subparagraph, annual additions shall include
excess aggregate contributions (as defined in Section
401(m)(6)(B) of the Code) and excess income deferrals
(as described in Section 402(g) of the Code),
regardless of whether such amounts are distributed or
forfeited. For purposes of this subsection,
"compensation" means compensation as defined for
purposes of Section 415 of the Internal Revenue Code.
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(b) If such participant is an active participant in any
other defined contribution plan maintained by an
employer or a controlled group member which is not an
employer, the maximum "annual additions" provided in
subparagraph (a) above shall apply to this plan and all
such other defined contribution plans as if all such
plans were one plan.
(c) If such participant is an active participant in any
other defined contribution plan maintained by an
employer or a controlled group member which is not an
employer, the limitation provided in subparagraph (a)
or (b) above, whichever is applicable, shall apply,
and, in addition, the following additional limitation
shall be applicable. If such participant's "defined
contribution fraction" (as described below) when added
to his "defined benefit fraction", determined under
such other defined benefit plan as of the end of each
plan year, exceeds 1.0 as calculated under Section
415(e) of the Code, the annual additions under this
plan, the annual additions under such other defined
contribution plan, or the annual benefit expected to be
paid under the defined benefit plan shall be adjusted,
in the sole discretion of the plan administrators under
the plans, so that the defined contribution fraction
when added to the defined benefit fraction will not
exceed 1.0. A participant's defined contribution
fraction as of the end of any plan year shall consist
of a numerator which is the sum of the annual additions
to such participant's accounts for all years, computed
under subparagraph (a) or (b) above, whichever is
applicable, and the denominator of which is the sum of
the adjusted limitations for each year of such
participant's service with the employers or controlled
group members. For purposes of this subparagraph the
"adjusted limitation" for a year shall mean the lesser
of: (i) $30,000 (or, if greater, 1/4 of the dollar
limitation in effect under Section 415 (b) (1) (A) of
the Code for the calendar year which begins with or
within that plan year) multiplied by 125 percent and,
(ii) 25 percent of such participant's compensation for
such year multiplied by 140 percent.
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If, as a result of the limitations provided above, any participant contributions
cannot be credited to a participant's participant contribution account, the
committee, after consulting with the participant, may in its sole discretion:
(a) Reduce any future participant contributions to be made
by the participant for such plan year.
(b) Return to the participant any participant contributions
which, because of the limitations contained in this
subsection, cannot be credited to his participant
contribution account for the year, without interest or
earnings.
Any employer contributions which cannot be credited to a participant's accounts
because of the foregoing limitations will be used to reduce employer
contributions for the next plan year (and succeeding plan years in order of
time).
6.8 INVESTMENT FUNDS. Each participant may elect, subject to the
following provisions, to have a portion or all of his income deferral
contributions, matching employer contributions and participant contributions
(but not employer contributions made under subsection 3.1 or his employer
contribution account) invested in one or more investment funds established by
the committee. As at January 1, 1993, the following investment funds have been
established: (a) CONSERVATIVE EQUITY FUND. This fund will be primarily invested
in equity securities that are deemed to have 'defensive' characteristics, the
investment objective being a favorable rate of return paralleling the pattern of
the general stock market, but the variability of its results expected to be
lower than those of the general stock market.
(b) AGGRESSIVE EQUITY FUND. This fund will be primarily
invested in equity securities that are deemed to have
'aggressive' characteristics, the investment objective
being a favorable rate of return paralleling the
pattern of the general stock market, but the
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variability of its results expected to be greater than
those of the general stock market.
(c) INTEREST ACCUMULATION INVESTMENT FUND. This fund will
be invested with an insurance company under a group
annuity contract or in an eligible pooled fund or funds
consisting of such guaranteed investment contracts, or
in a money market fund or funds, the investment
objective being the preservation of principal and a
favorable rate of interest on such principal.
(d) PARENT COMPANY STOCK FUND. This fund will be invested
solely in the shares of common stock issued by Western
Publishing Group, Inc., the parent of the company.
An election by a participant will be subject to the following requirements:
(a) each election made in accordance with this subsection
must be in writing and filed with the committee at such
time as the committee determines.
(b) Each election shall be effective on the first day of
any plan year quarter (after all adjustments as of the
next preceding accounting date have been made) for
which a new election is effective. If no election is in
effect with respect to a participant, such
participant's income deferral contributions, matching
employer contributions and participant contributions
will be invested in the Interest Accumulation
Investment Fund.
(c) Any election made in accordance with this subsection to
have amounts invested in one or more investment funds
shall be in increments of 10 percent of such
participant's contributions or account balances.
(d) Effective as of the dates specified in subparagraph (b)
above, a participant may elect to have a portion or all
of the amounts credited to his income deferral
contribution account, matching employer contribution
account, participant contribution account or prior plan
account (after all adjustments as of the next preceding
accounting date have been made) transferred from one
investment fund to another investment fund. Each such
election shall be subject to the provisions of
subparagraphs (a) and (c) above and no election to
transfer from the Interest Accumulation Investment Fund
to another investment fund shall be effective unless
such
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transfer is permitted under the Interest Accumulation
Investment Fund, without penalty.
(e) With respect to each participant who has an interest in
the Parent Company Stock Fund (as defined in
subparagraph 6.8(d) above), the trustee shall provide a
copy of the notice and proxy statement for each meeting
of the holders of common stock issued by Western
Publishing Group, Inc., together with an appropriate
form for the participant's use in instructing the
trustee with respect to the voting of the shares of
such stock that, at the record date for the
determination of the shareholders entitled to such
notice, and to vote at, such meeting, pre allocable to
such participant under the Parent Company Stock Fund as
of such date. If a participant furnishes timely
instructions to the trustee, the trustee (in person or
by proxy) shall vote the shares (including fractional
shares) of the common stock of Western Publishing
Group, Inc. allocable to such participant in the Parent
Company Stock Fund in accordance with the directions of
the participant. Shares of such stock allocable to
participants in the Parent Company Stock Fund for which
timely voting instructions are not received by the
trustee shall be voted by the trustee as directed by
the committee.
(f) Notwithstanding the foregoing, any elections by a
participant who is an officer or director of Western
Publishing Group, Inc. with respect to contributions to
or withdrawals from, and elections to transfer amounts
between the Parent Company Stock Fund and any other
fund, may be limited in accordance with any regulations
issued by the Securities and Exchange Commission under
Section 16 of the Securities Exchange Act of 1934.
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SECTION 7
---------
PAYMENT OF ACCOUNT BALANCES
---------------------------
7.1 RETIREMENT OR DEATH. If a participant's employment with all of the
employers and controlled group members is terminated because of retirement under
subparagraph 5.1(a), (b) or (c), or if a participant dies while in the employ of
an employer, any income deferral contributions or participant contributions made
by him previously but not credited to his appropriate account will be returned
to him or, in the event of his death, to his beneficiary. The balances in all of
his accounts as at the accounting date coincident with or next following his
termination date (after all adjustments required under the plan as of that date
have been made) shall be nonforfeitable and shall be distributable to him or, in
the event of his death, to his beneficiary, under subsection 7.4.
7.2 RESIGNATION OR DISMISSAL. If a participant who immediately prior
to November 1, 1984 was an active participant in the Western Pension Plan for
Salaried Employees and who became a participant in this plan on November 1, 1984
resigns or is dismissed from the employ of all of the employers before
retirement under subparagraph 5.1(a), (b) or (c), any income deferral
contributions or participant contributions made by him previously but not
credited to his appropriate account will be returned to him and the balances in
all of his accounts as at the accounting date coincident with or next following
his termination date (after all adjustments required under the plan as of that
date have been made) shall be nonforfeitable and shall be distributable to him
under subsection 7.4.
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In the case of any other participant who resigns or is dismissed under
subparagraph 5.1(a), (b) or (c), any income deferral contributions or
participant contributions made by him previously but not credited to his
appropriate account will be returned to him and the balances in his income
deferral contribution account, participant contribution account and prior plan
account, if any, as at the accounting date coincident with or next following his
termination date (after all adjustments required under the plan as of that date
have been made) shall be nonforfeitable and shall be distributable to him under
subsection 7.4 along with the vested balances in his employer contribution
account and matched employer contribution account as at the accounting date
coincident with or next following his termination date (after all adjustments
required under the plan as of that date have been made) determined in accordance
with the following schedule:
Vested Percentage of
Years of continuous employer contribution
employment under and matched employer
SUBSECTION 2.2 CONTRIBUTION ACCOUNTS
------------------- -----------------------
Less than 1 0
1 25%
2 50%
3 75%
4 or more 100%
7.3 FORFEITURES. The amount by which a participant's employer
contribution account and matched employer contribution account are reduced under
subsection 7.2 shall be treated as a 'forfeiture' on the earlier of the date of
distribution of such participant's account balances or the date such participant
incurs five consecutive one-year breaks in employment. Prior to that date, such
accounts will continue to be
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adjusted pursuant to the provisions of subparagraph 6.4(b). Forfeitures
attributable to a participant's employer contribution account will be used to
reduce the employer's contribution otherwise required under subsection 3.1 and
shall be allocated and credited to the employer contribution accounts of other
participants in accordance with subsection 6.5. Forfeitures attributable to a
participant's matched employer contribution account will be used to reduce the
employer's contribution otherwise required under subsection 3.4 and shall be
credited to the matched employer contribution accounts of other participants in
accordance with that subsection. If a participant is reemployed by an employer
or controlled group member before he incurs five consecutive one-year breaks in
employment, any forfeitures attributable to such participant shall be recredited
to such participant's appropriate account(s) on the accounting date coincident
with or next following the date of such participant's reemployment if the
participant repays the total amount of any previous distribution attributable to
his employer contribution account and matched employer contribution account
within five years of his date of reemployment. Such participant's accounts shall
be recredited from current unallocated forfeitures or, to the extent there are
insufficient unallocated forfeitures for this purpose, from supplemental
employer contributions necessary to restore such amount. The actual amount
restored to such participant's accounts shall be the amount of such forfeitures,
without investment adjustments.
7.4 MANNER OF DISTRIBUTION. After each participant's termination date,
and subject to the conditions set forth below and in subsections 7.5 and 7.11,
distribution of the net credit balance in the participant's accounts will be
made to or for the benefit of
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the participant or, in the case of his death, to or for the benefit of his
beneficiary, by one or both of the following methods:
(a) By purchase of an annuity subject to the following
requirements:
(i) Except as otherwise provided in subparagraph (v)
below, if such participant has a spouse to whom he
is legally married as of the date payment of his
account balances is to commence as a result of his
termination of employment for a reason other than
death, the participant's account balances shall be
applied to purchase an annuity for him and such
annuity shall provide for payment of an annuity
for the life of the participant with a survivor
annuity payable for the life of his spouse which
is one-half of the annuity payable during the
joint lives of the participant and his spouse.
(ii) Except as otherwise provided in subparagraph (v)
below, if such participant has a spouse to whom he
is legally married as of the date of his death, an
annuity providing payments for the life of the
spouse shall be purchased for the spouse with at
least 50 percent of the participant's account
balances unless such amount is less than $3,500,
in which case, such amount shall be distributed to
the spouse in a lump sum. Such spouse may elect in
writing to have any amounts payable to the spouse
paid in a lump sum.
(iii) The portion of a participant's account balances,
if any, which is not paid to the participant's
spouse under subparagraph (ii) shall be paid to
such participant's designated beneficiary under
one or more of the methods described in
subparagraph (v) below; provided such
distributions commence within one year of the
participant's death.
(iv) The premium paid to the insurance company for a
contract will be charged to the participant's
accounts when paid. The committee may direct the
trustee to cause the contract to be assigned or
delivered to the person or persons then entitled
to payments under it but, prior to assignment or
delivery of the contract, it shall be rendered
nontransferable and noncommutable.
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(v) In the event a participant does not have a spouse
as of the date payment of his account balances is
to commence to him or upon his death, or such
participant elects, with the written consent of
his spouse (which consent acknowledges the effect
of such election and is witnessed by a plan
representative or notary public), not to receive
distribution in the form of an annuity described
in (i) or (ii) above, the committee, after
consulting with the participant, will direct the
trustee to distribute such participant's benefits
to him or, in the event of his death, to or for
the benefit of his designated beneficiary, by any
one or more of the following methods:
(1) an annuity for life, with or without a refund
feature;
(2) an annuity for life and a period certain,
which period certain may not exceed the joint
life expectancy of the participant and his
designated beneficiary;
(3) an annuity for the joint life expectancy of
the participant and his designated
beneficiary;
(4) with the written consent of the participant
and, where applicable, his spouse, a lump sum
under subparagraph (b) below.
If such participant's designated beneficiary is not the
participant's spouse and is more than 10 years younger
than the participant, an annuity shall be paid over a
period not exceeding the joint life expectancy of the
participant and a designated beneficiary 10 years
younger than the participant.
(vi) Within a reasonable period of time prior to the
earliest date on which a married participant could
receive payment of benefits under the plan, the
committee will furnish him with a written
explanation of the terms and conditions of the
form of payment specified in subparagraph (a)(i)
above, and the financial effect of making an
election not to receive payment in such form. An
election not to receive payment in the form
specified in subparagraph (a)(i) shall be in
writing and signed by the participant and
consented to by his spouse and may be made or
revoked by the participant at any time during the
90-day period prior to
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commencement of his benefits. Within the
three plan year period beginning (i) on the
first day of the plan year in which a
participant attains age 32 or (ii) if such
employee becomes a participant in the plan
after attaining age 32, with the plan year in
which such employee becomes a participant,
the committee will furnish him with a written
explanation of the terms and conditions of
the form of payment specified in subparagraph
(a)(ii) above and the financial effect of
making an election not to receive payment in
such form. An election not to receive payment
in the form specified in subparagraph (a)(ii)
may be made by a participant at any time on
or after the first day of the plan year in
which he attains age 35 years. Such election
shall be in writing and consented to by his
spouse and may be made or revoked by the
participant at any time prior to his death.
(b) Subject to the provisions of subparagraph (a), by
payment in a lump sum.
Subject to the requirements of subparagraph (a) above, the participant may elect
the method of distributing his benefits to him and may direct how his benefits
are to be paid to his beneficiary. The committee shall select the method of
distributing the participant's benefits to his beneficiary if the participant
has not filed a direction with the committee. The trustee may make distributions
in cash or property, or partly in each, provided property is distributed at its
fair market value as of the date of distribution as determined by the trustee.
All distributions under the plan shall comply with the requirements of Section
401(a)(9) of the Code and the regulations thereunder.
7.5 COMMENCEMENT OF DISTRIBUTIONS. Except as provided in the following
sentence, payment of a participant's benefits will be made within a reasonable
time after his termination date, but not later than 60 days after (a) the end of
the plan year in which his termination date occurs, or (b) such later date on
which the amount of the
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payment can be ascertained by the committee. However, if a participant's
termination date occurs before he attains age 65 and if the aggregate
nonforfeitable balance in his accounts at his termination date or at the time of
any prior distribution exceeds $3,500, then payment of such benefits shall be
deferred to his attainment of age 65 (or, if elected by the participant, age
70-1/2) unless the participant (or, in the event of his death, his surviving
spouse) consents in writing to an immediate distribution. A (i) participant or
(ii) former participant who previously made an election to defer commencement of
his benefits whose nonforfeitable balance in his accounts as at his termination
date (after any required adjustments) was less than $3,500 will automatically
receive his distribution in a lump sum. A participant who previously made an
election to defer commencement of his benefits may elect, not more frequently
than once each plan year and in an amount not less than $1,000 in each such plan
year, to receive a distribution from his account(s) in a lump sum payment.
7.6 DESIGNATION OF BENEFICIARY. Each participant from time to time, by
signing a form furnished by the committee, may designate any person or persons
(who may be designated concurrently, contingently or successively) to whom his
benefits are to be paid if he dies before he receives all of his benefits. A
beneficiary designation form will be effective only when the form is filed with
the committee while the participant is alive and will cancel all beneficiary
designation forms previously filed with the committee. If a deceased participant
failed to designate a beneficiary as provided above, or if the designated
beneficiary dies before the participant or before complete payment of
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the participant's benefits, the committee, in its discretion, may direct the
trustee to pay the participant's benefits as follows:
(a) To or for the benefit of any one or more of his
relatives by blood, adoption or marriage and in such
proportions as the committee determines; or
(b) To the legal representative or representatives of the
estate of the last to die of the participant and his
designated beneficiary.
The term "designated beneficiary" as used in the plan means the person or
persons (including a trustee or other legal representative acting in a fiduciary
capacity) designated by a participant as his beneficiary in the last effective
beneficiary designation form filed with the committee under this subsection and
to whom a deceased participant's benefits are payable under the plan. The term
"beneficiary" as used in the plan means the natural or legal person or persons
to whom a deceased participant's benefits are payable under this subsection.
7.7 MISSING PARTICIPANTS OR BENEFICIARIES. Each participant and each
designated beneficiary must file with the committee from time to time in writing
his post office address and each change of post office address. Any
communication, statement or notice addressed to a participant or beneficiary at
his last post office address filed with the committee, or if no address is filed
with the committee then, in the case of a participant, at his last post office
address as shown on the employer's records, will be binding on the participant
and his beneficiary for all purposes of the plan. Neither the employers nor the
committee will be required to search for or locate a participant or beneficiary.
If the committee notifies a participant or beneficiary that he is entitled to a
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payment and also notifies him of the provisions of this subsection, and the
participant or beneficiary fails to claim his benefits or make his whereabouts
known to the committee within three years after the notification, the benefits
of the participant or beneficiary will be disposed of, to the extent permitted
by applicable law, as follows:
(a) If the whereabouts of the participant then is unknown
to the committee but the whereabouts of the
participant's designated beneficiary then is known to
the committee, payment will be made to the designated
beneficiary;
(b) If the whereabouts of the participant and the
participant's designated beneficiary then is unknown to
the committee but the whereabouts of one or more
relatives by blood, adoption or marriage of the
participant is known to the committee, the committee
may direct the trustee to pay the participant's
benefits to one or more of such relatives and in such
proportions as the committee decides; or
(c) If the whereabouts of such relatives and the
participant's designated beneficiary then is unknown to
the committee, the benefits of such participant or
beneficiary will be disposed of in an equitable manner
permitted by law under rules adopted by the committee.
7.8 FACILITY OF PAYMENT. When a person entitled to benefits under the
plan is under legal disability, or in the committee's opinion, is in any way
incapacitated so as to be unable to manage his financial affairs, the committee
may direct the trustee to pay the benefits to such person's legal
representative, or to a relative or friend of such person for such person's
benefits, or the committee may direct the application of such benefits for the
benefit of such person. Any payment made in accordance with the preceding
sentence shall be a full and complete discharge of any liability for such
payment under the plan.
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7.9 LOANS TO PARTICIPANTS. While it is the primary purpose of the plan
to accumulate funds for participants when they retire, it is recognized that
under some circumstances it is in the best interests of participants to permit
loans to be made to them while they continue in the active service of the
employers. Accordingly, the committee, pursuant to such rules as it may from
time to time establish, and upon written application by a participant supported
by such evidence as the committee may request, may direct the trustee to make a
loan to a participant subject to the following: (a) Subject to the provisions of
this subsection, each participant may borrow from his accounts (other than his
employer contribution account and matched employer contribution account) for
general purposes or for residential purposes by filing a written application
with the committee requesting such loan. The minimum amount which can be
borrowed for any loan will be $1,000. All loans shall be made on a pro rata
basis from a participant's income deferral contribution account, participant
contribution account and prior plan account and no more than two loans may be
outstanding at any time.
(b) The principal amount of any loan made to a participant,
when added to the outstanding balance of all other
loans made to the participant from all qualified plans
maintained by the employers, shall not exceed the least
of: (i) $50,000, reduced by the excess (if any) of the
highest outstanding balance during the one-year period
ending immediately preceding the date of the loan, over
the outstanding balance of all such loans from all such
plans on the date of such loan; (ii) 50 percent of the
participant's vested account balances under the plan;
and (iii) the sum of a participant's income deferral
contribution account, participant contribution account
and prior plan account (excluding any amounts in such
account attributable to the Western IRA Plan).
(c) Each loan must be evidenced by a written note in a form
approved by the committee, shall require substantially
level amortization payments (with payments at least
quarterly), shall be repaid by regular payroll
deduction and shall be secured by the participant's
account balances. Each loan shall bear interest at the
rate established by the committee and be commensurate
with rates
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charged by commercial lenders on similar loans. Any
loan to a married participant must be consented to in
writing by the participant's spouse. Such spousal
consent shall be obtained no earlier than the beginning
of the ninety-day period ending on the date of the
loan, must acknowledge the effect of the loan and must
be witnessed by a plan representative or notary public.
Such consent shall be binding with respect to the
consenting spouse or any subsequent spouse with respect
to that loan unless such loan is renegotiated,
extended, reserved or otherwise revised.
(d) Each loan shall specify a repayment period which shall
not be less than 12 months nor more than 60 months for
general purposes and not less than 120 months nor more
than 240 months for residential loans used to acquire,
construct, reconstruct or substantially rehabilitate
any dwelling unit which within a reasonable time is to
be used (determined at the time the loan is made) as a
principal residence of the participant. No repayment
period shall extend beyond a participant's normal
retirement date. Amounts repaid by the participant will
be recredited to the participant's accounts in the same
ratio as the loan is made from such accounts.
(e) If, on a participant's termination date (other than a
termination date described in paragraph 5.1(c)), any
loan or portion of a loan made to him under the plan,
together with the accrued interest thereon, remains
unpaid, the entire amount of the unpaid loan and
accrued interest shall be due and payable by the
participant; provided that, if such amount is not
repaid by the end of the calendar month beginning after
his termination date, an amount equal to the
outstanding balance of the loan, together with the
accrued interest thereon, shall be charged to the
participant's accounts after all other adjustments
required under the plan, but before any distribution
pursuant to subsection 7.4. A participant who has a
termination date under subparagraph 5.1(c) need not
repay the entire amount of the loan by the end of the
calendar month beginning after his termination date,
but if payments are in default at the end of any
calendar month, such loan shall be charged against the
participant's accounts as provided in the preceding
sentence.
(f) In determining the adjusted net worth of the trust fund
as of each accounting date, the committee shall
disregard any promissory notes held by the trustee
evidencing loans made to participants, together with
any interest and principal payments on such loans
received by the trustee since the preceding accounting
date. For purposes of adjusting participants' accounts
under subsection 6.3,
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the committee shall exclude from the credit balance of
a participant's accounts the unpaid amount of any loan
made to him (disregarding any principal payments made
since the last preceding accounting date). Interest
paid by a participant on a loan made to him under this
subsection 7.9 shall be credited to the accounts of the
participant as of the accounting date which ends the
accounting period during which such interest payment
was made, after all adjustments required under the plan
as of the date have been made.
(g) Notwithstanding any provision to the contrary, the
participant's ability to withdraw amounts from his
participant contribution account under subsection 4.3
and from his prior plan account under subsection 8.3
shall be restricted to the extent that the outstanding
principal and interest due on a loan equals or exceeds
50% of his vested account balances.
7.10 LATEST DATE FOR DISTRIBUTION. Notwithstanding any provision of
the plan to the contrary, payment of benefits to a participant shall be made (or
commence) no later than the April 1 of the calendar year following the calendar
year in which the participant has attained age 70-1/2.
7.11 DIRECT TRANSFER OF ELIGIBLE ROLLOVER DISTRIBUTIONS. Effective
January 1, 1993, if payment of benefits to a participant, a participant's
surviving spouse, or the spouse or former spouse of the participant who is an
alternate payee under a qualified domestic relations order (as defined in
Section 414(p) of the Code) constitutes an 'eligible rollover distribution'
under Section 402 (c) (4) of the Code, then the participant or the participant's
spouse (or former spouse) may elect to have such distribution paid directly to
an eligible retirement plan described in Section 402 (c) (8) (B) of the Code
(except that in the case of an eligible rollover distribution to a participant's
surviving spouse on the death of a participant, the definition of an eligible
retirement plan is limited to an individual retirement account or individual
retirement
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annuity). Each election by a participant under this subsection shall be made at
such time and in such manner as the committee shall determine and shall be
effective only in accordance with such rules as shall be established from time
to time by the committee. Any election by a participant under this subsection
will be subject to the requirements of subparagraph 7.4(a)(v) of the plan.
7.12 WITHDRAWAL OF INCOME DEFERRAL CONTRIBUTIONS. With the consent of
the committee, a participant may elect to withdraw any income deferral
contributions made by such participant because of a "hardship" (as defined
below) causing an immediate and heavy financial need on the participant. For
purposes of this subsection a hardship shall include:
(a) Medical expenses incurred (or not yet incurred but
necessary to obtain such medical care) by the
participant, the participant's spouse or the
participant's dependents (as defined in Section 152 of
the Internal Revenue Code) which are not reimbursed by
insurance or otherwise;
(b) Purchase of a principal residence for the participant,
excluding mortgage payments;
(c) Payment of tuition and related educational fees for the
next twelve months of post-secondary education for the
participant or the participant's spouse, children or
dependents;
(d) The need to prevent the eviction of the participant
from his principal residence or foreclosure under the
mortgage on the participant's principal residence;
(e) Casualty losses or catastrophes such as flooding,
hurricanes or tornadoes; or
(f) Any other hardship which in the opinion of the
committee creates an immediate and heavy financial need
on the participant.
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A withdrawal will be considered necessary to satisfy an immediate and heavy
financial need only if the participant represents in writing to the committee
that the need cannot reasonably be relieved (i) through reimbursement or
compensation by insurance or otherwise, (ii) by liquidation of the employee's
assets and the assets of the employee's spouse and minor children that are
reasonably available to the employee, (iii) from other available distributions
and loans under this plan or any other qualified retirement plan maintained by
the employers or by borrowing from commercial sources on reasonable commercial
terms in amounts sufficient to satisfy the need; or (iv) the cessation of income
deferral contributions or voluntary contributions to the plan. Each such
election shall be in writing, shall be filed with the committee at such time and
in such manner as the committee shall determine and shall be effective in
accordance with such rules as the committee may establish from time to time. Any
withdrawal by a married participant must be consented to in writing by the
participant's spouse, must acknowledge the effect of the withdrawal and must be
witnessed by a plan representative or notary public.
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SECTION 8
---------
PRIOR PLAN ACCOUNTS
-------------------
8.1 TRANSFER OF PRIOR PLAN BALANCES. Each participant in the plan who
prior to November 1, 1984 was covered by the Western Publishing Company
Employees' Savings and Security Plan ("savings and security plan") and/or
Western Profit Sharing Trust Plan has had his account balance(s) under such
plan(s) transferred in a lump sum to this plan. In addition, each participant
previously covered by the Western Pension Plan for Salaried Employees who was
not eligible to receive an annuity under such plan had the option of having the
present value of his accrued benefit determined under such plan transferred to
this plan in a lump sum. The balances attributable to each such participant's
participation in such plans (a "prior plan") will be subject to the provisions
of this Section.
8.2 PRIOR PLAN ACCOUNTS. All such amounts which are transferred to
this plan from a prior plan will be held in a separate prior plan account
established for the participant which will be fully vested and nonforfeitable at
all times. Such prior plan account will be adjusted from time to time in
accordance with the provisions of section 6 and, except as otherwise provided in
subsection 8.3, will be distributed in accordance with the provisions of Section
7. Appropriate subaccounts will be maintained reflecting each participant's
interest in a prior plan.
8.3 WITHDRAWALS FROM PRIOR PLAN ACCOUNTS. No withdrawals of any
portion of a participant's prior plan account will be permitted prior to
distribution in
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accordance with Section 7 of the plan unless such amounts are attributable to
such participant's participation in the Savings and Security plan or unless such
amounts are attributable to "rollover" amounts as described in subsection 8.4.
8.4 OTHER TRANSFERRED AMOUNTS AND ROLLOVERS. Subject to such rules and
requirements as the committee may establish, a participant may direct the
trustee to receive a "rollover" amount either in the form of a direct rollover
(as defined in Section 401 (a) (31) of the Code) or an indirect rollover as
defined in Section 402(c)(5) or Section 408(d)(3) of the Code attributable to
such participant's participation in any other qualified pension or profit
sharing plan under Section 401(a) of the Code. Any such rollover amount shall be
credited to a prior plan account and will be subject to the provisions of
subsection 8.2. At the direction of a participant and with the consent of the
committee, the trustee, under this plan, may receive assets held for a
participant under any other plan pursuant to a trust-to-trust transfer between
such qualified pension or profit sharing plan and this plan. Any such
transferred amounts will be credited to a prior plan account and shall be
subject to the provisions of subsection 8.2.
-47-
<PAGE>
SECTION 9
---------
THE COMMITTEE
-------------
9.1 MEMBERSHIP. A committee consisting of three or more persons (who
may but need not be employees of the employers) shall be appointed by the
company. The Secretary of the company shall certify to the trustee from time to
time the appointment to (and termination of ) office of each member of the
committee and the person who is selected as secretary of the committee.
9.2 COMMITTEE'S GENERAL POWERS, RIGHTS AND DUTIES. Except as otherwise
specifically provided and in addition to the powers, rights and duties
specifically given to the committee elsewhere in the plan and the trust
agreement, the committee shall have the following powers, rights and duties: (a)
To select a secretary, if it believes it advisable, who may but need not be a
committee member.
(b) To determine all questions arising under the plan,
including the power to determine the rights or
eligibility of employees or participants and any other
persons to benefits under the plan, and the amount of
their benefits under the plan, and to remedy
ambiguities, inconsistencies or omissions.
(c) To adopt such rules of procedures and regulations as in
its opinion may be necessary for the proper and
efficient administration of the plan and as are
consistent with the plan and trust agreement.
(d) To enforce the plan in accordance with the terms of the
plan and the trust agreement and the rules and
regulations adopted by the committee.
-48-
<PAGE>
(e) To direct the trustee as respects payments or
distributions from the trust fund in accordance with
the provisions of the plan.
(f) To furnish the employers with such information as may
be required by them for tax or other purposes in
connection with the plan.
(g) To employ agents, attorneys, accountants or other
persons (who also may be employed by the employers) and
to allocate or delegate to them such powers, rights and
duties as the committee may consider necessary or
advisable to properly carry out administration of the
plan, provided that such allocation or delegation and
the acceptance thereof by such agents, attorneys,
accountants or other persons, shall be in writing.
9.3 MANNER OF ACTION. During a period in which two or more committee
members are acting, the following provisions apply where the context admits:
(a) A committee member by writing may delegate any or all
of his rights, powers, duties and discretions to any
other member, with the consent of the latter.
(b) The committee members may act by meeting or by writing
signed without meeting, and may sign any document by
signing one document or concurrent documents.
(c) An action or a decision of a majority of the members of
the committee as to a matter shall be as effective as
if taken or made by all members of the committee.
(d) If, because of the number qualified to act, there is an
even division of opinion among the committee members as
to a matter, a disinterested party selected by the
committee shall decide the matter and his decision
shall control.
(e) Except as otherwise provided by law, no member of the
committee shall be liable or responsible for an act or
omission of the other committee members in which the
former has not concurred.
-49-
<PAGE>
(f) The certificate of the secretary of the committee or of
a majority of the committee members that the committee
has taken or authorized any action shall be conclusive
in favor of any person relying on the certificate.
9.4 INTERESTED COMMITTEE MEMBER. If a member of the committee is also
a participant in the plan, he may not decide or determine any matter or question
concerning distributions of any kind to be made to him or the nature or mode of
settlement of his benefits unless such decision or determination could be made
by him under the plan if he were not serving on the committee.
9.5 RESIGNATION OR REMOVAL OF COMMITTEE MEMBERS. A member of the
committee may be removed by the company at any time by 10 days' prior written
notice to him and the other members of the committee. A member of the committee
may resign at any time by giving 10 days' prior written notice to the company
and the other members of the committee. The company may fill any vacancy in the
membership of the committee; provided, however, that if a vacancy reduces the
membership of the committee to less than three, such vacancy shall be filled as
soon as practicable. The company shall give prompt written notice thereof to the
other members of the committee. Until any such vacancy is filled, the remaining
members may exercise all of the powers, rights and duties conferred on the
committee.
9.6 COMMITTEE EXPENSES. All costs, charges and expenses reasonably
incurred by the committee will be paid by the employers in such proportions as
the company may direct. No compensation will be paid to a committee member as
such.
-50-
<PAGE>
9.7 INFORMATION REQUIRED BY COMMITTEE. Each person entitled to
benefits under the plan shall furnish the committee with such documents,
evidence, data or information as the committee considers necessary or desirable
for the purpose of administering the plan. The employers shall furnish the
committee with such data and information as the committee may deem necessary or
desirable in order to administer the plan. The records of the employers as to an
employee's or participant's period of employment, termination of employment and
the reason therefor, leave of absence, reemployment, compensation and adjusted
compensation will be conclusive on all persons unless determined to the
committee's satisfaction to be incorrect.
9.8 UNIFORM RULES. The committee shall administer the plan on a
reasonable and nondiscriminatory basis and shall apply uniform rules to all
persons similarly situated.
9.9 REVIEW OF BENEFIT DETERMINATIONS. The committee will provide
notice in writing to any participant or beneficiary whose claim for benefits
under the plan is denied and the committee shall afford such participant or
beneficiary a full and fair review of its decision if so requested.
9.10 COMMITTEE'S DECISION FINAL. Subject to applicable law, any
interpretation of the provisions of the plan and any decisions on any matter
within the discretion of the committee made in good faith shall be binding on
all persons. A misstatement or other mistake of fact shall be corrected when it
becomes known and the
-51-
<PAGE>
committee shall make such adjustment on account thereof as it considers
equitable and practicable.
-52-
<PAGE>
SECTION 10
----------
GENERAL PROVISIONS
------------------
10.1 ADDITIONAL EMPLOYERS. Any United States subsidiary of the company
may adopt the plan and become a party to the trust agreement by:
(a) Filing with the company, the committee and the trustee
a written instrument to that effect; and
(b) Filing with the committee and the trustee a certified
copy of a resolution of the company's Board of
Directors consenting to such action.
10.2 ACTION BY EMPLOYERS. Any action required or permitted to be taken
by an employer under the plan shall be by resolution of its Board of Directors,
by resolution of a duly authorized committee of its Board of Directors, or by a
person or persons authorized by resolution of its Board of Directors or such
committee.
10.3 WAIVER OF NOTICE. Any notice required under the plan may be
waived by the person entitled to such notice.
10.4 CONTROLLING LAW. Except to the extent superseded by laws of the
United States, the laws of Wisconsin shall be controlling in all matters
relating to the plan.
10.5 EMPLOYMENT RIGHTS. The plan does not constitute a contract of
employment, and participation in the plan will not give any employee the right
to be retained in the employ of an employer, nor any right or claim to any
benefit under the plan, unless such right or claim has specifically accrued
under the terms of the plan.
-53-
<PAGE>
10.6 LITIGATION BY PARTICIPANTS. If a legal action begun against the
trustee, an employer or the committee or any member thereof by or on behalf of
any person results adversely to that person, or if a legal action arises because
of conflicting claims to a participant's or other person's benefits, the cost to
the trustee, the employers or the committee or any member thereof of defending
the action will be charged to the extent permitted by law to the sums, if any,
which were involved in the action or were payable to the person concerned.
10.7 INTERESTS NOT TRANSFERABLE. The interests of persons entitled to
benefits under the plan are not subject to their debts or other obligations and,
except as may be required by the tax withholding provisions of the Internal
Revenue Code or any state's income tax act or pursuant to any qualified domestic
relations order as defined in Section 414(p) of the Code, may not be voluntarily
or involuntarily sold, transferred, alienated, assigned or encumbered, except as
otherwise provided in Section 401(a) (13) of the Code. Notwithstanding any other
provisions of the plan, the committee may direct the trustee to distribute
benefits to an alternate payee on the earliest date specified in a qualified
domestic relations order, without regard to whether such distribution is made or
commences prior to the participant's earliest retirement age (as defined in
Section 414 (p) (4) (B) of the Code) or the earliest date that the participant
could commence receiving benefits under the plan.
10.8 ABSENCE OF GUARANTY. Neither the committee nor the employers in
any way guarantee the trust fund from loss or depreciation. The liability of the
trustee or
-54-
<PAGE>
the committee to make any payment under the plan will be limited to the assets
held by the trustee which are available for that purpose.
10.9 EVIDENCE. Evidence required of anyone under the plan may be by
certificate, affidavit, document or other information which the person acting on
it considers pertinent and reliable, and signed, made or presented by the proper
party or parties.
-55-
<PAGE>
SECTION 11
----------
AMENDMENT AND TERMINATION
-------------------------
11.1 AMENDMENT. While the employers expect and intend to continue the
plan, the company reserves the right to amend the plan from time to time, except
as follows:
(a) The duties and liabilities of the committee cannot be
changed substantially without its consent;
(b) No amendment shall reduce the accrued benefit (as
defined in Section 411(d)(6) of the Code) the
participant would be entitled to receive if he had
resigned from the employ of all the employers on the
date of the amendment; and
(c) Except as provided in subsection 3.8, under no
condition shall an amendment result in the return or
repayment to any employer of any part of the trust fund
or the income from it or result in the distribution of
the trust fund for the benefit of anyone other than
persons entitled to benefits under the plan.
11.2 TERMINATION. The plan will terminate as to all employers (i) on
any date specified by the company if thirty days' advance written notice of the
termination is given to the committee, the trustee and the other employers or
(ii) on the date that contributions by all employers are completely discontinued
under the plan. A partial termination of the plan may occur as to an individual
employer or as to a group or class of employees on any date so specified by the
company or as required by law.
11.3 REORGANIZATIONS. No plan termination will occur solely as a
result of the judicially declared bankruptcy or insolvency of an employer, or
the dissolution,
-56-
<PAGE>
merger, consolidation or reorganization of an employer, or the sale by that
employer of all or substantially all of its assets or the termination or
complete discontinuance of contributions by any one employer. However,
arrangements may be made with the consent of the company whereby the plan will
be continued by any successor to that employer or any purchaser of all or
substantially all of its assets, in which case the successor or purchaser will
be substituted for that employer under the plan and the trust agreement;
provided that, if an employer is merged, dissolved, or in any other way
organized into, or consolidated with, any other employer, the plan as applied to
the former employer will automatically continue in effect without a termination
thereof.
11.4 VESTING AND DISTRIBUTION ON TERMINATION. On termination or
partial termination of the plan, the date of termination will be a "special
accounting date" and, after all adjustments then required have been made, each
affected participant's benefits will be nonforfeitable. If, on termination of
the plan, the participant remains an employee of an employer, the amount of his
benefits shall be retained in the trust fund until his termination of employment
with all of the employers and then shall be paid to him in accordance with the
provisions of subsection 7.4. In the event that the participant's employment
with all of the employers is terminated coincident with the termination of the
plan, his benefits shall be paid to him in a lump sum, subject to the provisions
of subsection 7.4.
11.5 NOTICE OF AMENDMENT OR TERMINATION. Participants will be notified
of an amendment or termination of the plan within a reasonable time.
-57-
<PAGE>
11.6 PLAN MERGER, CONSOLIDATION, ETC. In the case of any merger or
consolidation of this plan with, or the transfer of assets or liabilities of
this plan to, any other plan, each participant's benefits if such plan
terminated immediately after such merger, consolidation or transfer shall be
equal to or greater than the benefits he would have been entitled to receive if
this plan had terminated immediately before the merger, consolidation or
transfer.
-58-
<PAGE>
SECTION 12
----------
TOP-HEAVY RULES
---------------
12.1 PURPOSE AND EFFECT. The purpose of this Section is to comply with
the requirements of Section 416 of the Code. Except for subsection 12.6, the
provisions of this Section shall be effective for each plan year beginning with
the plan year ending December 31, 1985 in which the plan is a "top-heavy plan"
within the meaning of Section 416(g) of the Code.
12.2 TOP-HEAVY PLAN. In general, the plan will be top-heavy plan for
any plan year if, as of the last day of the preceding plan year (the
"determination date"), the sum of the amounts in (a), (b) and (c) below for key
employees (defined below and in Section 416(i) (1) of the Code) exceeds 60
percent of the sum of such amounts for all employees who are covered by a
defined contribution plan or defined benefit plan which is aggregated in
accordance with subsection 12.4 below: (a) The aggregate account balances of
participants under this plan.
(b) The aggregate account balances or participants under
any other defined contribution plan included in
subsection 12.4.
(c) The present value of cumulative accrued benefits of
participants calculated under any defined benefit plan
included in subsection 12.4.
In determining the account balances of participants under this plan (i) such
participant's account balances shall be increased by the aggregate
distributions, if any, made with respect to the participant during the 5-year
period ending on the determination date,
-59-
<PAGE>
(ii) the account balances of a participant who was previously a key employee,
but who is no longer a key employee, shall be disregarded, (iii) the accounts of
a beneficiary of a participant shall be considered accounts of the participant
and (iv) the account balances of a participant who has not performed any
services for an employer during the 5-year period ending on the determination
date shall be disregarded.
12.3 KEY EMPLOYEE. In general, a "key employee" is an employee who, at
any time during the plan year ending on the determination date or during any of
the four preceding plan years, is: (a) an officer of employer or a controlled
group member whose compensation (as defined in subparagraph 6.7(a)) exceeds
fifty percent (50%) of the dollar limitation specified in Section 415(b)(1)(A)
of the Code for a plan year (including only the greater of three or ten percent
of the total employees of the employer and controlled group members but not
exceeding 50);
(b) one of the ten employees owning the largest interests
in an employer and all other controlled group members
whose compensation (as defined in subparagraph 6.7(a))
exceeds the dollar limitation specified in subparagraph
6.7(a);
(c) a 5 percent owner of an employer or controlled group
member; or
(d) a 1 percent owner of an employer or controlled group
member receiving annual compensation from the employer
and all other controlled group members of more than
$150,000.
A "key employee" for purposes of any other plan included in subsection 12.4
means a key employee as determined in accordance with such plan.
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<PAGE>
12.4 AGGREGATED PLANS. Each other defined contribution plan and
defined benefit plan maintained by an employer or controlled group member which
covers a "key employee" as a participant or which is maintained by such employer
or controlled group member in order for a plan covering a key employee to be
qualified shall be aggregated in determining whether this plan is top-heavy. In
addition, any other defined contribution or defined benefit plan of an employer
or controlled group member may be included if all such plans which are included
when aggregated will not discriminate in favor of officers, shareholders or
highly compensated employees.
12.5 MAXIMUM EARNINGS. For any plan year in which the plan is a
top-heavy plan, a participant's adjusted compensation in excess of $200,000 (or
such greater amount as may be determined by the Commissioner of Internal Revenue
for that plan year) shall be disregarded for purposes of subsections 3.4 and 6.5
of the plan.
12.6 NO DUPLICATION OF BENEFITS. If a participant is covered by
another plan maintained by an employer or controlled group member, appropriate
modification may be made in the plan in accordance with regulations issued by
the Internal Revenue Service to prevent inappropriate duplication of minimum
contributions or benefits under Section 416 of the Code.
12.7 ADJUSTMENT OF COMBINED BENEFIT LIMITATIONS. For any plan year in
which the plan is a top-heavy plan, the determination of the defined
contribution plan fraction and defined benefit plan fraction under subsection
6.7 of the plan shall be adjusted in accordance with the provisions of Section
416 (h) of the Code.
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<PAGE>
SUPPLEMENT A
------------
TO
--
GOLDEN COMPREHENSIVE SECURITY PLAN
----------------------------------
A-1. PURPOSE. The purpose of this Supplement A is to provide for the
administration of accounts transferred to this plan effective as of March 31,
1987 from the Western Publishing Company Inc. Employees' IRA Plan (the "IRA
plan").
A-2. EFFECTIVE DATE. The effective date of this Supplement is March
31, 1987 (the "transfer date").
A-3. ELIGIBILITY. Any employee who was a participant in this plan and
in the IRA plan immediately prior to the transfer date and whose account balance
in the IRA plan is transferred to this plan shall be eligible to participate in
this Supplement and shall be known as a "Supplement A participant."
A-4. SUPPLEMENT A PARTICIPANTS' ACCOUNTS.
(a) The committee shall maintain, for each Supplement
A participant, an account reflecting the amount
transferred to this Supplement on his behalf from
the IRA plan and the income, losses, appreciation
and depreciation attributable thereto, (an "IRA
account"). Each IRA account shall be invested in
the same guaranteed interest fund ("Interest Fund
II") in which it was invested immediately prior to
the transfer date.
(b) The committee shall adjust the IRA accounts of
Supplement A participants in accordance with the
provisions of Section 6 of the plan. Any cash
amounts received by the trustee with respect to
Interest Fund II (and credited to a Supplement A
participant's IRA account under the provisions of
this subsection) will be reinvested, to the extent
possible, in the same Fund, unless such cash
amounts are to be held pending distribution to or
on account of the participant.
(c) A Supplement A participant's IRA account will be
fully vested in the Supplement A participant at
all times.
A-1
<PAGE>
(d) A Supplement A participant's IRA account will not
be considered an account for purposes of
subsection 7.9 of this plan.
A-5. WITHDRAWAL OF SUPPLEMENT A CONTRIBUTIONS. A Supplement A
participant may elect to withdraw all or part of his IRA account no more than
once per calendar month, subject to the following conditions and limitations:
(a) The amount available for any such distribution
from the Interest Fund II will be based on the
value of the Supplement A participant's IRA
account in the Fund as determined as of the end of
the month next preceding the date the distribution
is to be made.
(b) The amount withdrawn from a Supplement A
participant's IRA account shall be paid in cash.
If a participant elects to withdraw less than $250
from his IRA participant's account, the entire
balance in his IRA account, will be distributed to
him in cash.
(c) Each election under this subsection shall be filed
with the committee at such time and in such manner
as specified by the committee.
A-6. DISTRIBUTION. A Supplement A participant shall be entitled to
receive the balance in his IRA account after his termination date, in the manner
described in Section 7 of the plan.
A-7. USE OF TERMS. Notwithstanding Section 8 of the plan, all terms
and provisions of the plan shall apply to this Supplement A, except that where
the terms and provisions of the plan and this Supplement conflict, the terms and
provisions of this Supplement shall control.
A-2
<PAGE>
SUPPLEMENT A
------------
DATAPAGE PARTICIPATION
----------------------
A-1 DATAPAGE SALE. On or about September 29, 1989,
assets of the plan attributable to the account
balances of participants employed in the Datapage
Division of the company were transferred to a new
qualified retirement plan established for such
Datapage Division participants and known as the
Datapage Profit Sharing Plan. Subsequently, as a
result of the sale of the assets of such Division
by the company to Datapage Technologies
International, Inc. ("DTI"), such employees were
terminated and became employees of DTI.
A-2 PARTICIPATION IN 1989 ALLOCATION. Notwithstanding
the provisions of subsection 6.5 of the plan, each
participant in the plan during the 1989 plan year
who was employed ion the Datapage Division and
transferred to employment with Datapage
Technologies International, Inc. on September 29,
1989, shall be eligible to share in the allocation
of employer contributions and forfeitures, if any,
to be allocated and credited under subsection 6.5
for the 1989 plan year.
A-3 TRANSFER OF ALLOCATED EMPLOYER CONTRIBUTIONS AND
FORFEITURES. Any amounts allocated and credited to
the ----------- accounts of participants described
in paragraph A-2 above will be transferred to the
accounts established for the benefit of such
participants under the Datapage Profit Sharing
Plan as soon as practicable after such allocations
are determined and held for the benefit of such
participants under the Datapage Profit Sharing
Plan.
A-4 EFFECTIVE DATE. The effective date of this
Supplement A is October 1, 1989.
A-3
<PAGE>
SUPPLEMENT B
------------
TO
--
GOLDEN COMPREHENSIVE SECURITY PROGRAM
-------------------------------------
B-1. PURPOSE. The purpose of this Supplement B is to provide for the
administration of accounts transferred to this plan effective March 15, 1993, as
a result of the merger of the Sight & Sound, Inc. 401(k) Profit Sharing Plan
("S&S plan") and the requirements of Section 401(k) (10) of the Code.
B-2. EFFECTIVE DATE. The effective date of this Supplement is March
15, 1993 (the "transfer date").
B-3. S&S PLAN PARTICIPANTS. Each former participant in the S&S plan
who has become a participant in this plan shall participate in this Supplement
and shall be known as a "Supplement B participant."
B-4. SUPPLEMENT B PARTICIPANTS' ACCOUNTS.
(a) The committee shall maintain for each Supplement B
participant a fully vested nonforfeitable account
reflecting the amount transferred to this
Supplement on his behalf on the transfer date from
the S&S plan attributable to his Participant's
Elective Account under the S&S plan and any other
account under the S&S plan that he elects to
transfer to this plan.
(b) Each Supplement B participant shall have the same
investment choices with respect to the
Participant's Elective Account (and any other
account which is transferred from the S&S plan) as
he would have with respect to his Income Deferral
Contribution Account under the plan and, except as
otherwise provided herein, such balances shall be
distributed in the same manner as other benefits
under the plan.
(c) To the extent a Supplement B participant (or
beneficiary of a Supplement B participant) chooses
an optional form of payment with respect to
transferred amounts which was permitted under the
S&S plan but not permitted under this plan, such
S&S participant may elect to have his benefits
distributed in such form.
B-1
<PAGE>
(d) On and after the transfer date, a Supplement B
participant's transferred Elective Account will be
treated the same as an Income Deferral
Contribution Account under the plan and will be
subject to the same limitations applicable to such
Income Deferral Contribution Account under the
plan.
B-5. USE OF TERMS. Notwithstanding Section 8 of the
plan, all terms and provisions of the plan shall
apply to this Supplement B, except that where the
terms and provisions of the plan and this
Supplement conflict, the terms and provisions of
this Supplement shall control.
B-2
<PAGE>
SECOND AMENDMENT
OF
GOLDEN COMPREHENSIVE SECURITY PROGRAM
(As Amended and Restated Effective January 1, 1993)
WHEREAS, Western Publishing Company, Inc. (the "Corporation")
maintains the Golden Comprehensive Security Program (the "Plan"); and
WHEREAS, the Plan was completely amended and restated effective
January 1, 1993, and further amendment of the Plan is now considered desirable;
NOW, THEREFORE, IT IS RESOLVED that, by virtue and in exercise of the
power reserved to this Corporation under Subsection 11.1 of the Plan, the Plan,
as previously amended, be and it hereby is further amended, effective as of
January 1, 1995, by adding the following sentences to Subsection 11.2 of the
Plan:
"In the event of the termination of employment of substantially all
employees of Western Publishing Group, Inc. (the "Company") as a
result of the sale of the Company, or a Change of Control, as defined
below, of the Company, all participants employed by Western Publishing
Group, Inc. on the date of such sale or Change of Control shall be
fully vested and have a 100% nonforfeitable interest in their employer
contribution and matched employer contribution accounts under the
Plan."
For the purposes of the preceding paragraph "Change of Control" means
(i) the sale, merger, consolidation or any other extraordinary
corporate transaction(s) involving Western Publishing Group, Inc.
which results in the then common stockholders of Western Publishing
Group, Inc. owning less than 80% of the common equity of the successor
company or its parent, or (ii) a change in composition of the Board of
Directors of Western Publishing Group, Inc. as the result of a proxy
contest, corporate transaction or other agreement which results in the
replacement, elimination or increase in membership such that the board
members in office, just prior to that event cease to constitute a
majority of the new board."
<PAGE>
I, James A. Cohen, Secretary of Western Publishing Company, Inc.,
hereby certify that the foregoing is a correct copy of a resolution duly adopted
by the Board of Directors of said Corporation on June 15, 1995, and that said
resolution has not been changed or repealed.
Dated this 15 day of June, 1995.
/S/ JAMES A. COHEN
-------------------------------
Secretary as Aforesaid
(Corporate Seal)
* * *
The undersigned, as committee members under the Golden Comprehensive
Security Program, hereby acknowledge receipt of a certified copy of the
foregoing amendment and hereby consent thereto, this 15th day of June, 1995.
/S/ JAMES A. COHEN
-------------------------------
/S/
-------------------------------
/S/
-------------------------------
-------------------------------
(As Committee Members As Aforesaid)
<PAGE>
UNANIMOUS WRITTEN CONSENT
OF THE
BOARD OF DIRECTORS
OF
WESTERN PUBLISHING COMPANY, INC.
The undersigned, constituting all of the directors of Western
Publishing Company, Inc., a Delaware corporation (the "Corporation"), hereby
consent to and adopt the following resolutions:
WHEREAS, Western Publishing Company, Inc. (the "Corporation")
maintains the Golden Comprehensive Security Program (the "Plan"); and
WHEREAS, the Plan was completely amended and restated effective
January 1, 1993, and further amendment of the Plan is now considered desirable;
NOW, THEREFORE, IT IS RESOLVED that, by virtue and in exercise of the
power reserved to this Corporation under Subsection 11.1 of the Plan, the Plan,
as previously amended, be and it hereby is further amended, effective as of
January 1, 1995, by adding the following sentences to Subsection 11.2 of the
Plan:
"In the event of the termination of employment of substantially all
employees of Western Publishing Group, Inc. (the "Company") as a
result of the sale of the Company, or a Change of Control, as defined
below, of the Company, all participants employed by Western Publishing
Group, Inc. on the date of such sale or Change of Control shall be
fully vested and have a 100% nonforfeitable interest in their employer
contribution and matched employer contribution accounts under the
Plan."
For the purposes of the preceding paragraph "'Change of Control' means
(i) the sale, merger, consolidation or any other extraordinary
corporate transaction(s) involving Western Publishing Group, Inc.
which results in the then common stockholders of Western Publishing
Group, Inc. owning less than 80% of the common equity of the successor
company or its parent, or (ii) a change in composition of the Board of
Directors of Western Publishing Group, Inc. as the result of a proxy
contest,
<PAGE>
corporate transaction or other agreement which results in the
replacement, elimination or increase in membership such that the board
members in office just prior to that event cease to constitute a
majority of the new board."
Dated this 15 day of June, 1995.
/S/
------------------------
Richard A. Bernstein
/S/
------------------------
James A. Cohen
/S/
------------------------
Mitchell N. Baron
<PAGE>
SECOND AMENDMENT
OF
GOLDEN COMPREHENSIVE SECURITY PROGRAM
(As Amended and Restated Effective January 1, 1993)
WHEREAS, Western Publishing Company, Inc. (the "Corporation")
maintains the Golden Comprehensive Security Program (the "Plan") ; and
WHEREAS, the Plan was completely amended and restated effective
January 1, 1993, and further amendment of the Plan is now considered desirable;
NOW, THEREFORE, IT IS RESOLVED that, by virtue and in exercise of the
power reserved to this Corporation under Subsection 11.1 of the Plan, the Plan,
as previously amended, be and it hereby is further amended, effective as of
January 1, 1995, by adding the following sentences to Subsection 11.2 of the
Plan:
"In the event of the termination of employment of substantially all
employees of Western Publishing Group, Inc. (the "Company") as a
result of the sale of the Company, or a Change of Control, as defined
below, of the Company, all participants employed by Western Publishing
Group, Inc. on the date of such sale or Change of Control shall be
fully vested and have a 100% nonforfeitable interest in their employer
contribution and matched employer contribution accounts under the
Plan."
For the purposes of the preceding paragraph "'Change of Control' means
(i) the sale, merger, consolidation or any other extraordinary
corporate transaction(s) involving Western Publishing Group, Inc.
which results in the then common stockholders of Western Publishing
Group, Inc. owning less than 80% of the common equity of the successor
company or its parent, or (ii) a change in composition of the Board of
Directors of Western Publishing Group, Inc. as the result of a proxy
contest, corporate transaction or other agreement which results in the
replacement, elimination or increase in membership such that the board
members in office just prior to that event cease to constitute at
majority of the new board."
<PAGE>
I, James A. Cohen, Secretary of Western Publishing Company, Inc.,
hereby certify that the foregoing is a correct copy of a resolution duly
adopted, by the Board of Directors of said Corporation on June 15, 1995, and
that said resolution has not been changed or repealed.
Dated this 15 day of June, 1995.
/S/ JAMES A. COHEN
---------------------------
Secretary as Aforesaid
(Corporate Seal)
* * *
The undersigned, as committee members under the Golden
Comprehensive Security Program, hereby acknowledge receipt of a certified copy
of the foregoing amendment and hereby consent thereto, this 15 day of June,
1995.
/S/ JAMES A. COHEN
-----------------------------
/S/
-----------------------------
/S/
-----------------------------
(As Committee Members As Aforesaid)
<PAGE>
(Annex A)
THIRD AMENDMENT
---------------
OF
--
GOLDEN COMPREHENSIVE SECURITY PROGRAM
-------------------------------------
(As Amended and Restated Effective January 1, 1993)
WHEREAS, this corporation maintains the Golden Comprehensive Security
Program (As Amended and Restated Effective January 1, 1993) (the "plan"); and
WHEREAS, the plan has been amended, and further amendment thereof is
now considered desirable;
NOW, THEREFORE, IT IS RESOLVED that, by virtue and in exercise of the
power reserved to this corporation under subsection 11.1 of the plan, the plan,
as previously amended, be and it hereby is further amended in the following
particulars:
1. By substituting the following for subsection 2.1 of the plan:
"2.1. ELIGIBILITY. Subject to the conditions and limitations
of the plan, each employee of an employer who was an active
participant in the plan immediately prior to January 1, 1996 will
continue to participate in the plan on and after that date. Each
other employee of an employer will be eligible to become a
participant in the plan if he meets the following requirements:
(a) He is either:
(i) A salaried employee (that is, an employee whose
basic compensation for services rendered to an
employer is paid to him in fixed amounts at stated
intervals without regard to the number of hours
worked, even though he may receive additional
compensation in the form of bonuses, overtime pay
or commissions); or
<PAGE>
(ii) A member of a group or class of employees of an
employer to whom the plan has been extended by the
Board of Directors of the employer; and
(b) He does not belong to a collective bargaining unit of
employees represented by a collective bargaining
representative, except to the extent that an agreement
between the employer and such representative extends
the plan to such unit of employees.
Each employee who meets the requirements of subparagraphs (a) and (b) above will
become a participant in the plan on the entry date specified in (c) or (d)
below, whichever applies:
(c) If the employee is hired by an employer before January
1, 1996, on the first January 1, April 1, July 1 or
October 1 (the 'quarterly entry date') coincident with
or next following the date he has completed six months
of continuous employment (as defined in subsection
2.2); or
(d) If the employee is hired by an employer on or after
January 1, 1996, on the first day of the calendar month
(the `monthly entry date') coincident with or next
following the date he has completed twelve months of
continuous employment (as defined in subsection 2.2).
Each employee will be notified of the date as of which he becomes a participant
in the plan and will be furnished with a summary plan description in accordance
with governmental rules and regulations. An employee who would be eligible to
participate in the plan on the applicable quarterly entry date or monthly entry
date except for the requirements of subparagraph 2.1(a) or (b) will become a
participant on the date he satisfies the conditions for participation under such
subparagraphs but will not be eligible to make income deferral contributions (as
defined in subsection 3.2) or voluntary participant contributions until the
quarterly entry date or the monthly entry date, as the case may be, coincident
with or next following the date he becomes a participant."
2. By substituting the following for subsection 2.4 of the plan:
"2.4. REEMPLOYED FORMER PARTICIPANT. If a former participant
in the plan is reemployed by an employer after incurring a
one-year break in employment, he will again become a participant
in the plan on the date he meets the requirements of
subparagraphs 2.1(a) and (b) and will be eligible to make income
deferral contributions under subsection 3.2 or voluntary
participant contributions under subsection 4.1 on the monthly
entry date (or, for former participants reemployed before 1996,
the quarterly entry date) coincident with or next following the
date he becomes a participant."
<PAGE>
3. By adding the following new subsection 2.6 to the plan immediately
following subsection 2.5 thereof:
"2.6. TRANSFERRED PARTICIPANTS. If a participant in the plan
is transferred from employment covered by the plan to employment
with a controlled group member that is a participating employer
under any other defined contribution plan of a member of the
controlled group, the participant's accounts under this plan
shall be transferred to such other plan and shall thereafter be
subject to all of the terms and conditions of such other plan.
Conversely, if a participant in one of the aforementioned defined
contribution plans is transferred to employment covered by this
plan, such participant's accounts under the other plan shall be
transferred to this plan. Each of a participant's transferred
accounts shall be combined with the like account established for
the participant under subsection 6.1 of this plan, and the
combined total of each such account shall thereafter be subject
to all of the terms and conditions of this plan, unless and until
such participant's accounts are again transferred to one of the
aforementioned plans. Each transfer of account balances under
this subsection shall be made in accordance with Sections
401(a)(12) and 414(1) of the Code and the regulations
thereunder."
4. By adding the following new sentences to subsection 3.1 of the plan
immediately following the last sentence thereof:
"Employer contributions payable under this subsection may be
paid in cash or in shares of common stock of Western Publishing
Group, Inc. ('parent company shares'), or any combination
thereof, as the employer may elect. Notwithstanding the next
preceding sentence, the participating employers may not make a
contribution in parent company shares under this subsection 3.1
if such contribution would cause the aggregate fair market value
of parent company shares allocated to participants' employer
contribution accounts under subsection 6.5 to exceed ten percent
of the fair market value of the total of such participants'
employer contribution accounts."
5. By deleting the phrase "by writing filed with the committee," from
the first sentence of subsection 3.2 of the plan.
<PAGE>
6. By substituting the following sentences for the last two sentences
of subsection 3.2 of the pla
"A participant may elect to change the rate of his
deferrals, or suspend or resume such deferrals, within the limits
stated above, by making a new election. Each election under this
subsection shall be made at such time, in such manner and in
accordance with such rules as the committee shall determine, and
shall be effective beginning with the first full pay period of
any month, provided the participant has made a proper election
before the fifteenth day of the preceding month."
7. By substituting the following sentences for the first sentence of
subsection 3.4 of the plan:
"Subject to the limitations of the plan and in addition to the
annual ployer contributions made under subsection 3.1 and the
income deferral contributions made under subsection 3.2, each
employer will contribute to the trustee such amount, if any, as
the employer may determine in its sole discretion before the
beginning of each plan year. Such amount may be stated in terms
of an aggregate dollar contribution or a dollar or percentage
match of income deferral contributions up to a stated amount or
in any other manner. Matching employer contributions as
determined under this subsection may be reduced by any
forfeitures to be credited to a participant's matched employer
contribution account for such period as provided under subsection
7.3."
8. By adding the following new sentence as the final sentence of
subsection 3.4 of the plan:
"Employer contributions payable under this subsection may be paid
in cash or in parent company shares, or any combination thereof,
as the employer may elect."
9. By substituting the following for the penultimate sentence of
subsection 4.3 of the plan:
"Once each month, a participant may withdraw all or a portion of
his participant contribution account."
<PAGE>
10. By substituting the following for clause (i) of the first sentence
of subsection 5.2 of the plan:
"(i) payment of all of a participant's account balances is not
made immediately following his termination date,"
11. By substituting the following sentences for the last sentence of
subsection 5.2 of the plan:
"If a participant described in (ii) or (iii) above subsequently meets the
requirements for participation in the plan, he will become an active
participant in the plan on the date he satisfies the requirements of
subparagraphs 2.1(a) and (b), and will be eligible to make income deferral
contributions under subsection 3.2 or voluntary participant contributions
under subsection 4.1 on the monthly entry date (or, for participants first
hired before 1996, the quarterly entry date) coincident with or next
following the date he becomes an active participant. If a participant
described in (i) above is later reemployed, his subsequent participation
will be determined in accordance with the provisions of subsection 2.4."
12. By substituting the following for the first sentence of subsection
6-2:
"A 'regular accounting date' shall occur on each business day."
13. By substituting the following for subsections 6.4 and 6.5 of the
plan:
"6.4. VALUATION OF PARTICIPANTS' ACCOUNTS. Pursuant to rules
established by the committee and applied on a uniform and
nondiscriminatory basis, participants' accounts will be valued on
each accounting date to reflect the fair market value (as
determined by the trustee) of the various investment funds as of
such date, including adjustments to reflect any distributions
(including withdrawals and loans), contributions, rollovers,
transfers between investment funds, income, losses, appreciation,
or depreciation with respect to such accounts since the previous
accounting date.
6.5. ALLOCATION OF EMPLOYER CONTRIBUTIONS AND FORFEITURES.
Subject to subsection 6.7, as soon as administratively possible after
the end of the plan year, each employer's total contribution under
subsection 3.1 of the plan for the plan year, plus forfeitures (used to
reduce an employer's contribution as provided in subsection 3.1), if
any, that are to be allocated in accordance with subsection 7.3 for the
plan year, will be
<PAGE>
allocated and credited to the employer contribution accounts
of participants who were employed by such employer during
that plan year (excluding participants who resigned or were
dismissed from the employ of all of the employers during
that year under subparagraph 5.1(e)), pro rata, according to
the adjusted compensation paid to them, respectively, by
such employer during that year.
14. By substituting the following for subsection 6.8 of the plan:
"6.8. INVESTMENT FUNDS. The committee may designate in its
discretion one or more funds for the investment of participants'
accounts. One such investment fund shall be designated as the
Parent Company Stock Fund, which fund will be invested solely in
parent company shares. The committee, in its discretion, may from
time to time designate or establish new investment funds or
eliminate existing investment funds for investment purposes under
the plan. Each of the investment funds established under this
subsection shall comply with the investment guidelines set forth
in the Investment Policy Statement issued by the committee, which
Investment Policy Statement (and any subsequent Statement that
modifies or replaces it, as determined by the committee from time
to time) is incorporated herein by reference. If employer
contributions are not made in parent company stock, such
contributions will be invested in accordance with the
participant's election under subsection 6.9."
15. By adding the following new subsection 6.9 to the plan immediately
following subsection 6.8 thereof:
"6.9. INVESTMENT FUND ELECTIONS. Each participant may elect,
subject to the following provisions, to have a portion or all of
his accounts invested in one or more of the investment funds,
subject to the following requirements:
(a) Once in each calendar quarter, a participant
may make an investment election with respect
to future contributions to be made by him or
on his behalf. Notwithstanding the next
preceding sentence, if the employer elects to
make employer contributions under subsection
3.1 or 3.4 in the form of parent company
shares, such contributions shall be invested
in the Parent Company Stock Fund unless and
until the participant makes an election to
<PAGE>
transfer such amounts in accordance with
subparagraph (d) below.
(b) Each investment election under (a) above
shall be effective as soon as
administratively possible after the election
has been made, and shall be subject to the
provisions of subparagraph (c) below. If no
new election is made by a participant, all
future contributions will be invested in
accordance with the participant's last
election under (a) above, or, if there is no
prior election, in the same percentages as
such participant's accounts are invested
under (d) below.
(c) Each election under this subsection shall be
made in increments of 10 percent, in
accordance with such rules as the committee
determines.
(d) Once in each calendar quarter, a participant
may elect to have a portion or all of the
amounts previously credited to his accounts
transferred among any available investment
funds. Such an election shall be effective as
soon as administratively possible after the
election has been made; and shall be subject
to the provisions of subparagraph (c) above.
Notwithstanding the foregoing, when an
employer contribution under subsection 3.1 or
3.4 is made in the form of parent company
shares, each participant may make an
additional investment election during the
plan year to transfer all or a portion of the
employer contribution from the Parent Company
Stock Fund to any of the other investment
funds.
(e) Notwithstanding the foregoing, any elections
by a participant who is an officer or
director of Western Publishing Group, Inc. or
a significant subsidiary with respect to
contributions to or withdrawals from, and
elections to transfer amounts between the
Parent Company Stock Fund and any other fund,
may be limited in accordance with any
regulations issued by the Securities and
Exchange Commission under Section 16 of the
Securities Exchange Act of 1934."
<PAGE>
16. By adding the following new subsection 6.10 to the plan
immediately following subsection 6.9 thereof:
"6.10. VOTING AND TENDERING OF PARENT COMPANY SHARES. The
voting of parent company shares held in the trust, and if a
tender offer is made for parent company shares, the tendering of
such shares, shall be subject to the provisions of the Employee
Retirement Income Security Act of 1974 (`ERISA') and the
following provisions, to the extent such provisions are not
inconsistent with ERISA:
(a) VOTING OF PARENT COMPANY SHARES. With respect to
each participant who has an interest in the Parent
Company Stock Fund, the trustee shall provide a
copy of the notice and proxy statement for each
meeting of the holders of common stock issued by
Western Publishing Group, Inc., together with an
appropriate form for the participant's use in
instructing the trustee with respect to the voting
of parent company shares that, at the record date
for the determination of the shareholders entitled
to such notice, and to vote at, such meeting, are
allocable to such participant under the Parent
Company Stock Fund as of such date. If a
participant furnishes timely instructions to the
trustee, the trustee (in person or by proxy) shall
vote the parent company shares (including
fractional shares) allocable to such participant
in the Parent Company Stock Fund in accordance
with the directions of the participant. Parent
company shares allocable to participants in the
Parent Company Stock Fund for which timely voting
instructions are not received by the trustee shall
be voted by the trustee as directed by the
committee.
(b) TENDERING OF PARENT COMPANY SHARES. The trustee
shall furnish to each participant who has an
interest in the Parent Company Stock Fund notice
of any tender offer for, or a request or
invitation for tenders of, parent company shares
made to the trustee. The trustee shall request
from each such participant instructions as to the
tendering of parent company shares that are
allocable to such participant under the Parent
Company Stock Fund. For this purpose,
<PAGE>
the trustee shall provide participants with a
reasonable period of time in which they may
consider any such tender offer for, or request or
invitation for tenders of, parent company shares
made to the trustee. The trustee shall tender
parent company shares that are allocable to such
participant under the Parent Company Stock Fund as
to which the trustee has received instructions to
tender from participants within the time specified
by the trustee. Parent Company shares that are
allocable to a participant under the Parent
Company Stock Fund as to which the trustee has not
received instructions from participants shall not
be tendered.
(c) APPOINTMENT OF FIDUCIARY. The committee shall be
designated, under Section 404(c) of ERISA, as the
fiduciary responsible for ensuring that (i) the
procedures adopted by the plan administrator with
respect to the exercise of the foregoing voting
and tender rights are sufficient to safeguard the
confidentiality of information related to such
exercise; (ii) such procedures are being followed
by the plan administrator; and (iii) an
independent fiduciary is appointed whenever the
committee deems it appropriate for the proper
exercise of the foregoing voting and tender
rights."
17. By substituting the word "on" for the phrase "as at the accounting
date coincident with or next following" wherever the latter occurs in
subsections 7.1 and 7.2 of the plan.
18. By substituting the reference "subsection 6.4" for the reference
"subparagraph 6.4(b)" where the latter reference appears in the second sentence
of subsection 7.3 of the plan.
19. By substituting the following for the third, fourth and fifth
sentences of subsection 7.3 of the plan:
<PAGE>
"Forfeitures will be used to reduce the employer's contributions
otherwise required under subsection 3.1 or subsection 3.4, as
determined by the committee. If a participant is reemployed by an
employer or controlled group member before he incurs five
consecutive one-year breaks in employment, any forfeitures
attributable to such participant shall be recredited to such
participant's appropriate account(s) as soon as administratively
possible following such participant's reemployment if the
participant repays the total amount of any previous distribution
attributable to his employer contribution account and matched
employer contribution account within five years of his date of
reemployment."
20. By substituting the following for the final sentence of
subparagraph 7.4(a)(ii) of the plan:
"Such spouse may elect, in accordance with such procedures as the
committee may establish, to have any amounts payable to the
spouse paid in a lump sum."
21. By deleting the word "written" from the second sentence of
subsection 7.9 of the plan.
22. By deleting the phrase "in writing" from the second sentence of
subsection 7.5 of the plan.
23. By substituting the following for the first sentence of
subparagraph 7.9(a) of the plan:
"Subject to the provisions of the subsection, each participant
may borrow from his accounts (other than his employer
contribution account and matched employer contribution account)
for general purposes or for residential purposes by making
application to the trustee and recordkeeper requesting such
loan."
24. By substituting the following for the final sentence of
subparagraph 7.9(d) of the plan:
<PAGE>
"Amounts repaid by the participant will be recredited to the
participant's accounts and investment funds in the same ratio
that such participant's accounts are invested under subparagraph
6.9(d) of the plan at the time of repayment."
25. By substituting the following for subparagraph 7.9(f) of the plan:
"(f) Interest paid by a participant on a loan made to
him under this subsection 7.9 shall be credited to
the accounts of the participant as soon as
administratively possible after such interest
payment was made."
26. By adding the following new subparagraph 7.9(h) to the plan
immediately following subparagraph 7.9(g) thereof:
"(h) For loans initiated on or after April 1, 1996,
there shall be charges for setting up the loan, which
charges shall be assessed against the borrowing
participant's loan proceeds. There also shall be annual
maintenance charges, which charges shall be applied to
reduce the borrowing participant's accounts on a pro
rata basis. The committee shall determine reasonable
amounts for such charges from time to time."
27. By substituting the following for the penultimate sentence of
subsection 7.12 of the plan:
"Each such election shall be made at such time and
in such manner as the committee shall determine
and shall be effective in accordance with such
rules as the committee may establish from time to
time."
28. By substituting the following for the first sentence of subsection
8.1 of the plan:
"Each participant in the plan who was previously
covered by the Western Publishing Company
Employees' Savings and Security Plan ('savings and
security plan') and/or Western Profit Sharing
Trust Plan has had his account balance(s) under
such plan(s) transferred in a lump sum to this
plan."
<PAGE>
29. By adding the following new sentence as the final sentence of
subsection 8.3 of the plan:
"A participant may make such a withdrawal once
each month."
30. By deleting subsection 12.5 of the plan and by renumbering
subsections 12.6 and 12.7 as subsections 12.5 and 12.6, respectively.
31. By substituting the following for subparagraph A-5(a) of
Supplement A to the Pla
"(a) The amount available for any such distribution from the
Interest Fund II will be the value of the Supplement A
participant's IRA account in the Fund determined on the date
the distribution is to be made."
32. By substituting the following for subparagraph A-5(c) of
Supplement A to the Plan:
"(c) Each election under this subsection shall be made
at such time and in such manner as specified by the
committee."
IT IS FURTHER RESOLVED that particulars 16 and 24 above shall be
effective as of January 1, 1994 ; particulars 4, 7, 8 and 19 shall be effective
December 31, 1995; particulars 1, 2 and 11 above shall be effective January 1,
1996; and the remaining particulars shall be effective April 1, 1996.
<PAGE>
(Annex A)
FOURTH AMENDMENT
----------------
OF
--
GOLDEN COMPREHENSIVE SECURITY PROGRAM
-------------------------------------
(As Amended and Restated Effective January 1, 1993)
WHEREAS, this corporation maintains the Golden Comprehensive Security
Program (As Amended and Restated Effective January 1, 1993) (the "plan"); and
WHEREAS, the plan has been amended, and further amendment thereof is now
considered desirable;
NOW, THEREFORE, IT IS RESOLVED that, by virtue and in exercise of the power
reserved to this corporation under subsection 11.1 of the plan, the plan, as
previously amended, be and it hereby is further amended in the following
particulars:
1. By substituting the following for subsection 2.1 (d) of the plan:
"(d) If the employee is hired by an employer on or
after January 1, 1996, on the first day of the
calendar month (the "monthly entry date')
coincident with or next following the date he has
completed thirty (30) days of continuous
employment (as defined in subsection 2.2)."
2. By substituting the following sentence for the first sentence in
subsection 3.1 of the plan:
"Subject to the limitations of the plan, each
employer will contribute to the plan for each year
an amount equal to three percent (3%) of the
adjusted compensation (as defined in subsection
3.3) of participants who have completed one (1)
year of continuous service with the company who
are entitled to share in the contribution for that
year."
3. By substituting the following sentence for the second sentence in
subsection 3.3 of the plan:
"A participant's 'adjusted compensation' for any
plan year means the total cash compensation,
including commissions, bonuses, and overtime pay."
<PAGE>
4. By substituting the following sentence for the first sentence in
subsection 3.4 of the plan:
"Subject to the limitations of the plan and in addition
to the annual employer contributions made under
subsection 3.1 and the income deferral contributions
made under subsection 3.2, each employer will
contribute for a participant who has completed one (1)
year of continuous service with the company an amount
equal to sixty percent (60%) of the first six percent
(6%) of income deferral contributions (but not
exceeding $8,994 or such greater amount as determined
pursuant to Section 402(g) of the Code for plan years
beginning on or after January 1, 1993) made on behalf
of the participants under subsection 3.2, reduced by
any forfeitures to be credited to such participant's
matched employer contributions account for such period
as provided under subsection 7.3."
5. By substituting the following for subsection 6.5 of the plan:
"6.5 ALLOCATION OF EMPLOYER CONTRIBUTIONS AND
FORFEITURES. Subject to subsection 6.7, as soon as
administratively possible after the end of the
plan year, each employee's contribution under
subsection 3.1 of the plan for the plan year, plus
forfeitures (used to reduce an employer's
contribution as provided in subsection 3.1), if
any, that are to be allocated in accordance with
subsection 7.3 for the plan year, will be
allocated and credited to the employer
contribution accounts of participants who were
employed by such employer during that plan year
and who had completed one (1) year of continuous
service with the company (excluding participants
who resigned or were dismissed from the employ of
all of the employers during that year under
subparagraph 5.1 (e)), pro rata, according to the
adjusted compensation paid to them after they had
completed one (1) year of continuos service,
respectively, by such employer during that year."
IT IS FURTHER RESOLVED that particulars 1, 2, 4 and 5 be effective as of
September 1, 1997; and particular 3 be effective January 1, 1998.
<PAGE>
(Annex A)
FOURTH AMENDMENT
----------------
OF
--
GOLDEN COMPREHENSIVE SECURITY PROGRAM
-------------------------------------
(As Amended and Restated Effective January 1, 1993)
WHEREAS, this corporation maintains the Golden Comprehensive Security
Program (As Amended and Restated Effective January 1, 1993) (the "plan"); and
WHEREAS, the plan has been amended, and further amendment thereof is now
considered desirable;
NOW, THEREFORE, IT IS RESOLVED that, by virtue and in exercise of the power
reserved to this corporation under subsection 11.1 of the plan, the plan, as
previously amended, be and it hereby is further amended in the following
particulars:
1. By substituting the following for subsection 2.1 (d) of the plan:
"(d) If the employee is hired by an employer on or
after January 1, 1996, on the first day of the
calendar month (the "monthly entry date')
coincident with or next following the date he has
completed thirty (30) days of continuous
employment (as defined in subsection 2.2)."
2. By substituting the following sentence for the first sentence in
subsection 3.1 of the plan:
"Subject to the limitations of the plan, each employer
will contribute to the plan for each year an amount
equal to three percent (3%) of the adjusted
compensation (as defined in subsection 3.3) of
participants who have completed one (1) year of
continuous service with the company who are entitled to
share in the contribution for that year."
3. By substituting the following sentence for the second sentence in
subsection 3.3 of the plan:
"A participant's 'adjusted compensation' for any plan
year means the total cash compensation, including
commissions, bonuses, and overtime pay."
<PAGE>
4. By substituting the following sentence for the first sentence in
subsection 3.4 of the plan:
"Subject to the limitations of the plan and in addition
to the annual employer contributions made under
subsection 3.1 and the income deferral contributions
made under subsection 3.2, each employer will
contribute for a participant who has completed one (1)
year of continuous service with the company an amount
equal to sixty percent (60%) of the first six percent
(6%) of income deferral contributions (but not
exceeding $8,994 or such greater amount as determined
pursuant to Section 402(g) of the Code for plan years
beginning on or after January 1, 1993) made on behalf
of the participants under subsection 3.2, reduced by
any forfeitures to be credited to such participant's
matched employer contributions account for such period
as provided under subsection 7.3."
5. By substituting the following for subsection 6.5 of the plan:
"6.5 ALLOCATION OF EMPLOYER CONTRIBUTIONS AND
FORFEITURES. Subject to subsection 6.7, as soon as
administratively possible after the end of the plan
year, each employees contribution under subsection 3.1
of the plan for the plan year, plus forfeitures (used
to reduce an employer's contribution as provided in
subsection 3.1), if any, that are to be allocated in
accordance with subsection 7.3 for the plan year, will
be allocated and credited to the employer contribution
accounts of participants who were employed by such
employer during that plan year and who had completed
one (1) year of continuous service with the company
(excluding participants who resigned or were dismissed
from the employ of all of the employers during that
year under subparagraph 5.1 (e)), pro rata, according
to the adjusted compensation paid to them after they
had completed one (1) year of continuos service,
respectively, by such employer during that year."
IT IS FURTHER RESOLVED that particulars 1, 2, 4, and 5 be effective as of
September 1, 1997; and particular 3 be effective January 1, 1998.
<PAGE>
FIFTH AMENDMENT
OF
GOLDEN COMPREHENSIVE SECURITY PROGRAM
(As Amended and Restated Effective January 1, 1993)
WHEREAS, this corporation maintains the GOLDEN COMPREHENSIVE SECURITY
PROGRAM (the "plan") ; and
WHEREAS, the plan was completely amended and restated effective January 1,
1993, and further amendment of the plan is now considered desirable;
NOW THEREFORE, IT IS RESOLVED that by virtue and in exercise of the
amending power reserved to this corporation under subsection 11.1 of the plan,
the plan, as previously amended, be and it is hereby further amended, effective
December 1, 1997, by adding the following sentence to the end of Subsection 7.2
of the plan:
"In the event of the termination of employment of employees
of the employer associated with the Cambridge, Maryland
facility as a result of the sale of the Cambridge, Maryland
facility, all participants employed by the employer
associated with the Cambridge, Maryland facility on the date
of the such sale whose employment with the employer is
terminated on December 1, 1997, shall be fully vested and
have a 100% nonforfeitable interest in their employer
contribution and matched employer contribution accounts
under the plan."
* * *
I, ---------------, Secretary of Golden Books Publishing Company, Inc. hereby
certify that the foregoing is a correct copy of resolutions duly adopted by the
Board of Directors of said corporation on -------------, 1997, and that said
resolutions have not been changed or repealed.
---------------------------------
Secretary as Aforesaid
* * *
The undersigned, as committee members under the Golden Comprehensive Security
Program, hereby acknowledge receipt of a certified copy of the foregoing
amendment, and hereby consent thereto, this ----- day of ------------------,
1997.
---------------------------------
---------------------------------
---------------------------------
---------------------------------
As Committee Members As Aforesaid
<PAGE>
FIFTH AMENDMENT
OF
GOLDEN COMPREHENSIVE SECURITY PROGRAM
(As Amended and Restated Effective January 1, 1993)
WHEREAS, this corporation maintains the GOLDEN COMPREHENSIVE SECURITY
PROGRAM (the "plan") ; and
WHEREAS, the plan was completely amended and restated effective January 1,
1993, and further amendment of the plan is now considered desirable;
NOW THEREFORE, IT IS RESOLVED that by virtue and in exercise of the
amending power reserved to this corporation under subsection 11.1 of the plan,
the plan, as previously amended, be and it is hereby further amended, effective
December 1, 1997, by adding the following sentence to the end of Subsection 7.2
of the plan:
"In the event of the termination of employment of employees
of the employer associated with the Cambridge, Maryland
facility as a result of the sale of the Cambridge, Maryland
facility, all participants employed by the employer
associated with the Cambridge, Maryland facility on the date
of the such sale whose employment with the employer is
terminated on December 1, 1997, shall be fully vested and
have a 100% nonforfeitable interest in their employer
contribution and matched employer contribution accounts
under the plan."
* * *
I, Philip Galanes, Secretary of Golden Books Publishing Company, Inc. hereby
certify that the foregoing is a correct copy of resolutions duly adopted by the
Board of Directors of said corporation on ---------, 1997, and that said
resolutions have not been changed or repealed.
/S/
-------------------------------
Secretary as Aforesaid
* * *
The undersigned, as committee members under the Golden Comprehensive Security
Program, hereby acknowledge receipt of a certified copy of the foregoing
amendment, and hereby consent thereto, this 24th day of November, 1997.
/S/
-------------------------------
/S/
-------------------------------
/S/
-------------------------------
-------------------------------
As Committee Members As Aforesaid
<PAGE>
FIFTH AMENDMENT
OF
GOLDEN COMPREHENSIVE SECURITY PROGRAM
(As Amended and Restated Effective January 1, 1993)
WHEREAS, this corporation maintains the GOLDEN COMPREHENSIVE SECURITY
PROGRAM (the "plan"); and
WHEREAS, the plan was completely amended and restated effective January 1,
1993, and further amendment of the plan is now considered desirable;
NOW THEREFORE, IT IS RESOLVED that by virtue and in exercise of the
amending power reserved to this corporation under subsection 11.1 of the plan,
the plan, as previously amended, be and it is hereby further amended, effective
December 1, 1997, by adding the following sentence to the end of Subsection 7.2
of the plan:
"In the event of the termination of employment of employees
of the employer associated with the Cambridge, Maryland
facility as a result of the sale of the Cambridge, Maryland
facility, all participants employed by the employer
associated with the Cambridge, Maryland facility on the date
of the such sale whose employment with the employer is
terminated on December 1, 1997, shall be fully vested and
have a 100% nonforfeitable interest in their employer
contribution and matched employer contribution accounts
under the plan."
* * *
I, Philip Galanes, Secretary of Golden Books Publishing Company, Inc. hereby
certify that the foregoing is a correct copy of resolutions duly adopted by the
Board of Directors of said corporation on 11/24, 1997, and that said resolutions
have not been changed or repealed.
/S/
-------------------------------
Secretary as Aforesaid
* * *
The undersigned, as committee members under the Golden Comprehensive Security
Program, hereby acknowledge receipt of a certified copy of the foregoing
amendment, and hereby consent thereto, this 24th day of November, 1997.
/S/
-------------------------------
/S/
-------------------------------
/S/
-------------------------------
-------------------------------
As Committee Members As Aforesaid
<PAGE>
SIXTH AMENDMENT
OF
GOLDEN COMPREHENSIVE SECURITY PROGRAM
(As Amended and Restated Effective January 1, 1993)
WHEREAS, this corporation maintains the GOLDEN COMPREHENSIVE SECURITY
PROGRAM (the "plan"); and
WHEREAS, the plan was completely amended and restated effective January 1,
1993, and further amendment of the plan is now considered desirable;
NOW THEREFORE, IT IS RESOLVED that by virtue and in exercise of the
amending power reserved to this corporation under subsection 11.1 of the plan,
the plan, as previously amended, be and it is hereby further amended, effective
January 1, 1998, by substituting the following sentence for the first sentence
in subsection 3.1 of the plan:
"Subject to the limitations of the plan, each employer will
contribute to the plan for each plan year an amount, as
determined solely by the company based on its financial
performance, which will vary between zero percent (0%) and
three percent (3%) of the adjusted compensation (as defined
in subsection 3.3) of participants who have completed one
(1) year of continuous service with the company who are
entitled to share in the contribution for that year."
* * *
I, Philip Galanes, Secretary of Golden Books Publishing Company, Inc. hereby
certify that the foregoing is a correct copy of resolutions duly adopted by the
Board of Directors of said corporation on 11/24, 1997, and that said resolutions
have not been changed or repealed.
/S/
-------------------------------
Secretary as Aforesaid
* * *
The undersigned, as committee members under the Golden Comprehensive Security
Program, hereby acknowledge receipt of a certified copy of the foregoing
amendment, and hereby consent thereto, this ---- day of -------------, 1997.
/S/
-------------------------------
/S/
-------------------------------
/S/
-------------------------------
-------------------------------
As Committee Members As Aforesaid
<PAGE>
SEVENTH AMENDMENT
OF
GOLDEN COMPREHENSIVE SECURITY PROGRAM
(As Amended and Restated Effective January 1, 1993)
WHEREAS, this corporation maintains the GOLDEN COMPREHENSIVE
SECURITY PROGRAM (the "plan"); and
WHEREAS, the plan was completely amended and restated effective
January 1, 1993, and further amendment of the plan is now considered
desirable;
NOW THEREFORE, IT IS RESOLVED that by virtue and in exercise of the
amending power reserved to this corporation under subsection 11.1 of the plan,
the plan, as previously amended, be and it is hereby further amended in the
following particulars:
1. By substituting the following for subsection 6.9(a) of the plan:
"(a) On a daily basis, a participant may make an investment
election with respect to future contributions to be made by
him or on his behalf. Notwithstanding the next preceding
sentence, if the employer elects to make employer
contributions under subsection 3.3 in the form of parent
company shares, such contributions shall be invested in the
Parent Company Stock Fund unless and until the participant
makes an election to transfer such amounts in accordance
with subparagraph (d) below."
2. By substituting the following for subsection 6.9(d) of the plan:
"(d) On a daily basis, a participant may elect to have a
portion or all of the amounts previously credited to his
accounts transferred among any available investment funds.
Such an election shall be effective as soon as
administratively possible after the election has been made;
and shall be subject to the provisions of subparagraph (c)
above."
3. By substituting the following for subsection 7.5 of the plan:
"7.5. COMMENCEMENT OF DISTRIBUTIONS. Except as provided in
the following sentence, payment of a participant's benefits
will be made within a reasonable time after his termination
date, but not later than 60 days after (a) the end of the
plan year in which his termination occurs, or (b) such later
date on which the amount of the payment can be ascertained
by the committee. However, if a participant's termination
date occurs before he attains age 65 and if the aggregate
nonforfeitable balance in his accounts at his termination
date or at the time of any prior distribution
<PAGE>
exceeds $5,000 (or the dollar limit under section 411(a)(11)
if the Internal Revenue Code, if greater), then payment of
such benefits shall be deferred to his attainment of age 65
(or, if elected by the participant, age 70 1/2) unless the
participant (or, in the event of his death, his surviving
spouse) consents to an immediate distribution. A (i)
participant or (ii) former participant who previously made
an election to defer commencement of his benefits whose
nonforfeitable balance in his accounts as at his termination
date (after any required adjustments) was less than $5,000
(or the dollar limit under section 411 (a) of the Internal
Revenue Code, if greater) will automatically receive his
distribution in a lump sum. A participant who previously
made an election to defer commencement of his benefits may
elect, not more frequently than once each plan year and in
an amount not less than $1,000 in each such plan year, to
receive a distribution from his account(s) in a lump sum
payment."
IT IS FURTHER RESOLVED that particulars 1 and 2 above shall be effective
February 18, 1999; and particular 3 shall be effective January 1, 1999.
* * *
I, Philip Galanes, Secretary of Golden Books Publishing Company, Inc. hereby
certify that the foregoing is a correct copy of resolutions duly adopted by the
Board of Directors of said corporation on 11/24, 1997, and that said resolutions
have not been changed or repealed.
/S/
-------------------------------
Secretary as Aforesaid
* * *
The undersigned, as committee members under the Golden Comprehensive Security
Program, hereby acknowledge receipt of a certified copy of the foregoing
amendment, and hereby consent thereto, this ---- day of --------------, 1999.
/S/
-------------------------------
/S/
-------------------------------
/S/
-------------------------------
-------------------------------
As Committee Members As aforesaid
EXHIBIT 10.2
GOLDEN RETIREMENT SAVINGS PROGRAM
(As Amended and Restated Effective as of January 1, 1993)
McDermott, Will & Emery
Chicago, Illinois
<PAGE>
RESOLUTIONS
WHEREAS, this corporation maintains Golden Retirement Savings
Program (the "plan"), which plan originally was established effective as of July
1, 1987 and has been amended from time to time thereafter; and
WHEREAS, the officers of this corporation have caused to be
prepared an amendment and restatement of the plan effective January 1, 1993 to
incorporate all prior amendments and modifications to comply with the Tax Reform
Act of 1986 and subsequent legislation and regulations affecting the plan; and
WHEREAS, it is deemed desirable to adopt such amendment and
restatement of the plan;
NOW, THEREFORE, IT IS RESOLVED that this Board hereby adopts
the plan, as amended and restated effective January 1, 1993, in the form
attached to and forming a part of these resolutions.
IT IS FURTHER RESOLVED that the officers of this corporation
are hereby authorized and directed to take such action as they deem necessary or
desirable to continue to maintain the plan as a "qualified" retirement plan
under Section 401(a) and 401(k) of the Internal Revenue Code of 1986, as
amended, including further amendment of the plan and the filing of such plan
with the Internal Revenue Service for a determination that the plan continues to
be qualified for federal income tax purposes.
I, James A. Cohen, Secretary of Western Publishing Company,
Inc., hereby certify that the foregoing is a correct copy of resolutions duly
adopted by the Board of Directors of said corporation on December 28, 1993, and
that said resolutions have not been changed or repealed.
Dated this 28th day of December, 1993.
/s/
-------------------------------
Secretary as Aforesaid
(Corporate Seal)
<PAGE>
C E R T I F I C A T E
I, James A. Cohen, Secretary of WESTERN PUBLISHING COMPANY,
INC., hereby certify that the attached is a full, true and complete copy of the
GOLDEN RETIREMENT SAVINGS PROGRAM, as in effect on the date hereof.
Dated this 28 day of December, 1993.
/s/ JAMES A. COHEN
-------------------------------
Secretary as Aforesaid
(Corporate Seal)
<PAGE>
GOLDEN RETIREMENT
SAVINGS PROGRAM
SECTION 1
INTRODUCTION
1.1. PURPOSE. GOLDEN RETIREMENT SAVINGS PROGRAM (the
"plan") is maintained by WESTERN PUBLISHING COMPANY, INC. (the "company") for
eligible employees of the company and the eligible employees of any other United
States subsidiary of the company which adopts the plan, with the consent of the
company. The purpose of the plan is to provide for the accumulation of funds
from both employer and participant contributions in order to provide retirement
income to participants when they retire from the employ of the employers,
thereby providing for their future financial security. The plan is designed as a
qualified profit sharing plan under the provisions of Sections 401(a) and 401(k)
of the Internal Revenue Code of 1986, as amended (the "Code").
1.2. EFFECTIVE DATE AND PLAN YEAR. The original effective
date of the plan was July 1, 1987. The "effective date" of the plan as set forth
herein is January 1, 1993. A "plan year" means each calendar year.
1.3. EMPLOYERS. The company and any United States
subsidiary of the company which adopts the plan and trust with the consent of
the company are sometimes referred to hereinafter collectively as the
"employers" and individually as an "employer."
-1-
<PAGE>
1.4. PLAN ADMINISTRATION. The plan will be administered by
a pension security committee (the "committee") appointed by the company, as
described in Section 9. Participants will be notified of the identity of the
committee members and of any change in the membership of such committee.
1.5. TRUSTEE, TRUST AGREEMENT, AND TRUST FUND. Funds
contributed by the employers or participants under the plan will be held and
invested in a trust fund, until distributed, by a trustee (the "trustee")
appointed by the company. The trustee will act under a trust agreement between
the employers and the trustee. Participants will be notified of the identity of
the trustee and of any change in trustee.
1.6. EXAMINATION OF PLAN DOCUMENTS. Copies of the plan and
trust agreement, and any amendments thereto, will be made available at the
principal office of each employer where they may be examined by any participant
or beneficiary entitled to receive benefits under the plan. The provisions of
and benefits under the plan are subject to the terms and provisions of the trust
agreement.
1.7. NOTICES. Any notice or document required to be given
to or filed with the committee shall be considered as given or filed if
delivered or mailed by registered mail, postage prepaid, addressed as follows:
Benefit Plans Administration Committee
Western Publishing Company, Inc.
444 Madison Avenue
New York, New York 10022
-2-
<PAGE>
1.8. GENDER AND NUMBER. Words in the masculine gender
shall include the feminine and neuter genders and, where the context admits, the
plural shall include the singular, and the singular shall include the plural.
1.9. SUPPLEMENTS. The company and any other employer
(with the consent of the company) may establish supplements to this plan with
respect to any group or class of employees of an employer to which the plan has
been extended. Each such supplement will be a part of the plan as it applies to
the employees affected thereby. To the extent that the provisions of any
supplement are inconsistent with the other features of the plan, the provisions
of the supplement shall control.
-3-
<PAGE>
SECTION 2
ELIGIBILITY AND PARTICIPATION
2.1. ELIGIBILITY. Subject to the conditions and
limitations of the plan, each employee of an employer who was an active
participant in the plan immediately prior to the effective date will continue to
participate in the plan in accordance with the provisions of this plan. Each
other employee of an employer will become a participant in the plan on January
1, 1993, or on the first January 1, April 1, July 1, or October 1 thereafter
(the "quarterly entry date") coincident with or next following the date he meets
all of the following requirements:
(a) He is a member of a group of employees to which the
plan has been and continues to be extended by his
employer, either unilaterally or through collective
bargaining, as described in Supplement A.
(b) He has completed six months of continuous employment
(as defined in subsection 2.2).
Each employee will be notified of the date as of which he becomes a participant
in the plan and will be furnished with a summary plan description in accordance
with governmental rules and regulations. An employee who would be eligible to
participate in the plan on the applicable quarterly entry date except for the
requirements of subparagraph 2.1(a) or (b) will become a participant on the date
he satisfies the conditions for participation under such subparagraphs but will
not be eligible to make income deferral contributions (as defined in subsection
3.2) or voluntary participant contributions until the quarterly entry date
coincident with or next following the date he becomes a participant.
-4-
<PAGE>
2.2. CONTINUITY OF EMPLOYMENT. In determining an
employee's or participant's continuity of employment, the following rules shall
apply:
(a) An employee's or participant's continuous employment
will be computed in terms of full and fractional
years of continuous employment, with fractional years
computed in completed days of employment, commencing
on the date an employee is first employed by an
employer (i.e., the date he first completes an hour
of service) or, if he has incurred a one-year break
in employment [as defined in subparagraph (g) below],
the date of his reemployment (i.e., the date he first
completes an hour of service upon reemployment).
(b) A leave of absence (as defined in subsection 2.3)
will not interrupt continuity of employment for
purposes of the plan.
(c) A period of concurrent employment with two or more
employers will be considered as employment with one
employer during that period, and an employee's
employment with any predecessor to an employer will
be considered as employment with that employer.
(d) The termination of any employee's employment with one
employer will not interrupt the continuity of his
employment or participation if, concurrently with or
immediately after such termination, he is employed by
one or more other employers.
(e) If a former employee of the employers is reemployed
by an employer before he has incurred a one-year
break in employment (as defined in subparagraph (g)
below], his employment with the employers will not be
deemed to have terminated.
(f) A period of employment with a controlled group member
(as defined below) which is not an employer will be
considered a period of employment with an employer
for purposes of determining years and days of
continuous employment. A "controlled group member"
means any corporation or other trade or business
which is under common control with an employer within
the meaning of Sections 414(b), 414(c) and 414(m) of
the Code.
(g) In determining an employee's or participant's
continuous employment for an employee or participant
who incurs a one-year break in employment and is
reemployed by an employer or controlled group member,
continuous employment (both before and after such
one-year break in
-5-
<PAGE>
employment) will be taken into account for plan
purposes upon his reemployment, except as follows:
If a former employee of the employers who is
not vested with respect to any portion of
his income deferral contribution account or
matched employer contribution account
balance is reemployed by an employer or
controlled group member after he has
incurred five consecutive one-year breaks in
employment and if such consecutive one-year
breaks in employment equal or exceed his
years of continuous employment, his period
of continuous employment with the employers
or controlled group members prior to such
five consecutive one-year breaks in
employment shall be disregarded for all
purposes of the plan upon his reemployment,
and such employee shall be treated as a new
employee for all purposes of the plan. In no
event shall a period of continuous
employment after an employee has incurred
five consecutive one-year breaks in
employment be taken into account in
determining the vested portion of his
matched employer contribution account
balance attributable to employment prior to
such five consecutive one-year breaks in
employment.
A "one-year break in employment" will be deemed to
have occurred for each 12-month period commencing on
the date of an employee's termination of employment,
and on each anniversary thereof, during which such
employee is not employed by an employer or controlled
group member. In the case of a maternity or paternity
absence (as defined below), an employee's termination
of employment will not be deemed to have occurred
until the first anniversary of the date of such
absence. A "maternity or paternity absence" means an
employee's absence from work because of the pregnancy
of the employee or birth of a child of the employee,
the placement of a child with the employee in
connection with the adoption of such child by the
employee, or for purposes of caring for the child
immediately following such birth or placement.
An "hour of service" means each hour for which an employee is directly or
indirectly paid, or entitled to payment, by an employer for the performance of
duties, determined in accordance with Department of Labor Reg. Sec. 2530.200b-2.
A "year of continuous employment" means 365 days of continuous employment under
this subsection.
-6-
<PAGE>
2.3. LEAVE OF ABSENCE. A leave of absence will not
interrupt continuity of employment or participation in the plan. A "leave of
absence" for plan purposes means a leave of absence required by law or granted
by an employer on account of service in military or governmental branches
described in any applicable statute granting reemployment rights to employees
who entered such branches, or any other military or governmental branch
designated by the employers, and also means any other absence from active
employment with an employer under conditions which are not treated by it as a
termination of employment including, but not limited to, vacations, holidays,
maternity, illness, incapacity or jury duty. Leaves of absence will be governed
by rules uniformly applied to all employees similarly situated. If an employee
or participant does not return to work with an employer or controlled group
member on or before termination of a leave of absence, he will be considered to
have resigned on the date his last leave ended unless his employment actually
terminated prior to the expiration of such leave.
2.4. REEMPLOYED FORMER PARTICIPANT. If a former
participant in the plan who has completed one year of continuous employment is
reemployed by an employer after incurring a one-year break in employment, he
will again become a participant in the plan on the date he meets the
requirements of subparagraphs 2.1(a) and (b) and will be eligible to make income
deferral contributions under subsection 3.1 or voluntary participant
contributions under subsection 4.1 on the quarterly entry date coincident with
or next following the date he becomes a participant.
2.5. LEASED EMPLOYMENT. A leased employee (as defined
below) shall not be eligible to participate in the plan. A leased employee means
any person who is not an employee
-7-
<PAGE>
of an employer but who has provided services to an employer of the type which
have historically (within the business field of the employers) been provided by
employees on a substantially full- time basis for a period of at least one year
pursuant to an agreement between an employer and a leasing organization. The
period during which a leased employee performs services for an employer shall be
taken into account for purposes of subsection 2.2 of the plan unless (i) such
leased employee is a participant in a money purchase pension plan maintained by
the leasing organization which provides a nonintegrated employer contribution
rate of at least ten percent (10%) of compensation, immediate participation for
all employees and full and immediate vesting and (ii) leased employees do not
constitute more than twenty percent (20%) of the employer's nonhighly
compensated work force.
-8-
<PAGE>
SECTION 3
EMPLOYER CONTRIBUTIONS
3.1. INCOME DEFERRAL CONTRIBUTIONS. Subject to the
limitations of the plan, by writing filed with the committee, a participant, if
he so desires, may defer payment of a percentage [in increments of one percent
(1%)] of his compensation ("income deferral contributions"), not exceeding
sixteen percent (16%) thereof, by electing to have such percentage withheld from
his compensation and contributed to the plan on his behalf by his employer. For
plan years beginning on or after January 1, 1993, no participant may elect to
make income deferral contributions for any calendar year in excess of $8,994 [or
such greater amount as determined pursuant to Section 402(g)(5) of the Code].
The amounts withheld from a participant's compensation pursuant to the
participant's election shall be contributed to the plan by the participant's
employer and credited to his income deferral contribution account as soon as
practicable after being withheld but, in any event, not later than 30 days
following the end of the pay period for which such contributions are made. A
participant may elect to change the rate of his deferrals, or suspend or resume
such deferrals, within the limits stated above, by filing a new election with
the committee. Each election under this subsection shall be made at such time,
in such manner, and in accordance with such rules as the committee shall
determine, and shall be effective for compensation paid on the first payment
date (i.e., a date on which regular salary payments are made to employees of the
employer) coincident with or next following the quarterly entry date or such
other date specified by the committee for which such election is effective.
-9-
<PAGE>
3.2. COMPENSATION AND ADJUSTED COMPENSATION. A
participant's "compensation" for any plan year means the sum total of the
adjusted compensation (as defined below) paid to him during that plan year for
services rendered to the employers as an employee and the amount of any income
deferral contributions made for such year under subsection 3.1. A participant's
"adjusted compensation" for any plan year means the total cash compensation,
including overtime, base pay, overtime premium, and shift premium, vacation and
holiday compensation, but excluding any payments representing cash
reimbursements for expenses incurred by the participant and any compensation
paid to him in a form other than cash, paid during the period such participant
is an active participant in the plan. In no event shall compensation in excess
of $200,000 (or such greater amount as permitted in regulations issued by the
Secretary of the Treasury) be included in a participant's compensation for any
plan year.
3.3. MATCHING EMPLOYER CONTRIBUTION. Subject to the
limitations of the plan and the income deferral contributions made under
subsection 3.1, each employer will contribute for a participant an amount equal
to fifty percent (50%) of the first six percent (6%) of income deferral
contributions [but not exceeding $8,994 or such greater amount as determined
pursuant to Section 402(g)(5) of the Code for plan years beginning on or after
January 1, 1993] made on behalf of the participant under subsection 3.1, reduced
by any forfeitures to be credited to such participant's matched employer
contribution account for such period as provided under subsection 7.3. Such
contributions shall be paid to the trustee and credited to the participant's
matched employer contribution account as soon as practicable after the end of
the pay period for
-10-
<PAGE>
which such contribution is made but, in any event, not later than 60 days after
the end of such period.
3.4. LIMITATIONS ON INCOME DEFERRALS. In no event shall
the actual deferral percentage (as defined below) of the highly compensated
participants (as defined in subsection 3.6) for any plan year exceed the greater
of:
(a) the actual deferral percentage of all other
participants for such plan year multiplied by 1.25;
or
(b) the actual deferral percentage of all other
participants for such plan year multiplied by 2.00;
provided that the actual deferral percentage of the
highly compensated participants does not exceed that
of all other participants by more than two percentage
points.
The "actual deferral percentage" of a group of participants for a plan year
means the average of the ratios (determined separately for each participant in
such group) of A to B where A equals the income deferral contributions credited
to each such participant's income deferral contribution account for each plan
year and B equals the participant's "compensation" for such plan year. For
purposes of this subsection, the term "compensation" shall mean compensation as
defined in Section 414(s) of the Code, including income deferral contributions.
The committee shall determine from time to time based on the income deferral
elections then on file with the committee whether the foregoing limitations will
be satisfied and, to the extent necessary to ensure compliance with such
limitation, shall reduce, on an individual-by-individual basis, for each highly
compensated participant who is exceeding such deferral percentage the applicable
percentage of income deferral contributions to be withheld for such highly
compensated participant beginning with the highly compensated participant with
the highest deferral
-11-
<PAGE>
percentage first and then reducing the applicable percentage for such subsequent
highly compensated participant until such excess contributions are eliminated.
In addition, if at any time a portion of the income deferrals withheld from a
highly compensated participant's compensation cannot be credited to his income
deferral contribution account because the limitations described above would be
applicable, such amounts will be not be considered contributions under
subsection 3.1 and the amount of such excess contributions (and any income
allocable to such contributions) will be distributed to such highly compensated
participant no later than two and one-half (2-1/2) months after the close of the
plan year for which such excess contribution was made. For purposes of
determining the amount of any income for a plan year attributable to any excess
contributions by a highly compensated participant (as defined in subsection 3.6)
to be returned to such participant, the following formula will be used:
(i) first, the value of his income deferral contribution
account as of the beginning of the plan year and as
of the last day of the plan year shall be determined;
(ii) next, the gain or loss on such income deferral
contribution account shall be determined after first
reducing the difference between the balance of the
account as at the end of the year and the balance as
at the beginning of the year by income deferral
contributions made for such year; and
(iii) finally, the amount calculated under paragraph (ii)
shall be multiplied by a fraction the numerator of
which is the excess income deferral contributions
made by the participant for such year and the
denominator of which is such participant's income
deferral contribution account as of the last day of
such year reduced by the amount of any gain for such
year and increased by the amount of any loss for such
year. The amount calculated under this paragraph
shall be the amount of income to be returned to the
participant for such year.
-12-
<PAGE>
The actual deferral percentage of a highly compensated participant to whom the
family attribution rules described in subsection 3.6 apply shall be the greater
of:
(i) the actual deferral ratio obtained by aggregating the
income deferral contributions and compensation of
only those family members who are highly compensated
participants; or
(ii) the actual deferral ratio obtained by aggregating the
income deferral contributions and compensation of all
family members who are participants.
For purposes of this subsection, certain former employees (as determined under
Section 414(q)(9) of the Code) shall be treated as employees for purposes of
determining highly compensated participants.
3.5. LIMITATIONS ON MATCHING EMPLOYER CONTRIBUTIONS AND
PARTICIPANT CONTRIBUTIONS. In no event shall the contribution percentage (as
defined below) of the highly compensated participants (as defined in subsection
3.6) for any plan year exceed the greater of:
(a) the contribution percentage of all other participants
for such plan year multiplied by 1.25; or
(b) the contribution percentage of all other participants
for such plan year multiplied by 2.00; provided that
the contribution percentage of the highly compensated
participants does not exceed that of all other
participants by more than two (2) percentage points.
The "contribution percentage" of a group of participants for a plan year means
the average of the ratios (determined separately for each participant in such
group) of A to B where A equals the sum of the matching employer contributions
under subsection 3.3 and the participant contributions under subsection 4.1, if
any, credited to such participant's accounts for such plan year and B equals the
participant's compensation (as defined in subsection 3.4) for such plan
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year. The committee shall determine from time to time based on such
participant's matching employer contributions and participant contributions
whether the foregoing limitations will be satisfied and, to the extent necessary
to ensure compliance with such limitation, shall reduce, on an
individual-by-individual basis, for each highly compensated participant who is
exceeding such contribution percentage, the applicable percentage of participant
contributions, if any, to be withheld for such highly compensated participant,
beginning with the highly compensated participant with the highest contribution
percentage first and then reducing the applicable percentage for each subsequent
highly compensated participant until such contribution percentage satisfies the
foregoing test. If, after reducing such participant contributions, such
contribution percentage still exceeds such limitation, the matching employer
contributions to be contributed for such highly compensated participants shall
be reduced, beginning with the highly compensated participant with the highest
matching employer contributions first and then reducing the applicable
percentage for each subsequent highly compensated participant until such
contribution percentage satisfies the foregoing test. If, because of the
foregoing limitations, a portion of the matching employer contributions made on
behalf of a highly compensated participant may not be credited to his account
for a plan year, such portion (and the income allocable to such amount) will be
forfeited and returned to the employer making such contribution not later than
two and one-half months after the end of that plan year. The determination of
any excess aggregate matching contributions under this subparagraph shall be
made after determining any excess income deferral contributions under subsection
3.4. Income on such excess participant contributions and, if applicable,
matching employer contributions shall be calculated in the same manner as
provided in subparagraphs (i) - (iii) of subsection 3.4
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except that such calculations shall be made using the participant's participant
contribution account balance and the participant's contributions and excess
participant contributions made for such plan year and then, if necessary, such
participant's matched employer contribution account balance and the employer's
matching employer contributions and excess matching employer contributions made
for such plan year. In the event that both the actual deferral percentage and
the contribution percentage do not satisfy the requirements of subparagraphs
3.4(a) and 3.5(a) above, the following additional limitation shall apply to
participant contributions and then to employer matching contributions of highly
compensated participants under the plan. After the appropriate tests under
subparagraphs 3.4(a) or (b) above and subparagraphs 3.5(a) or (b) have been made
and any excess income deferral contributions and participant contributions have
been returned to the participant and any excess employer matching contributions
are forfeited, the 'Aggregate Limit' test will be applied. The 'Aggregate Limit'
will be the sum of: (1) 125 percent of the greater of the actual deferral
percentage or the contribution percentage for participants who are not highly
compensated participants and (2) the lesser of (a) the actual deferral
percentage or the contribution percentage, whichever is smaller, for
participants who are not highly compensated participants plus two (2) percentage
points or (b) the actual deferral percentage or contribution percentage,
whichever is smaller, for participants who are not highly compensated
participants multiplied by 2.0. If the sum of the actual deferral percentage and
the contribution percentage for the highly compensated participants exceeds the
Aggregate Limit, participant contributions and then employer matching
contributions will be further reduced until the Aggregate Limit test is
satisfied.
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3.6. HIGHLY COMPENSATED PARTICIPANTS. For purposes of
subsections 3.4 and 3.5 of the plan, a "highly compensated participant" means
any participant who, during the current or immediately preceding plan year:
(a) was a five percent (5%) owner of an employer or
controlled group member;
(b) received annual compensation from an employer and/or
controlled group member of more than $75,000;
(c) received annual compensation from an employer and/or
controlled group member of more than $50, 000 and was
in the top paid twenty percent (20%) of the
employees; or
(d) was an officer of an employer and/or controlled group
member receiving annual compensation greater than
fifty percent (50%) of the limitation in effect under
Section 415(b)(1)(A) of the Internal Revenue Code;
provided, that for purposes of this subparagraph (d),
no more than 50 employees of the employer [or if
lesser, the greater of 3 employees or ten percent
(10%) of the employees] shall be treated as officers.
A participant not described in (b), (c), or (d) above for the immediately
preceding year will not be considered a highly compensated participant for the
current plan year under (b), (c) or (d) unless such participant is included
within the group of the 100 highest paid employees of the employer and
controlled group members for such current year. For purposes of this subsection,
"compensation" shall be defined as provided in subsection 3.4 of the plan. If
any participant is a family member of a highly compensated participant who is
either a 5 percent owner or one of the ten most highly compensated participants
with respect to any plan year, that participant shall not be treated as a
separate participant for purposes of this subsection and such individual's
compensation will be treated as if paid to such highly compensated participant;
provided that, a "family member" of a highly compensated participant means such
participant's spouse, lineal
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ascendants or descendants and the spouses of such lineal ascendants or
descendants. The compensation thresholds in (b), (c) and (d) above will be
adjusted in accordance with Section 414(q)(1) of the Code.
3.7. VERIFICATION OF EMPLOYER CONTRIBUTIONS. A certificate
of an independent certified public accountant selected by the employer shall be
conclusive on all persons as to the amount of an employer's contributions under
the plan for any plan year.
3.8. NO INTEREST IN EMPLOYERS. The employers shall have no
right, title, or interest in the trust fund, nor will any part of the trust fund
at any time revert or be repaid to an employer, unless:
(a) the Internal Revenue Service determines that the plan
does not meet the requirements of Section 401(a) of
the Internal Revenue Code of 1986, in which event
contributions made to the plan by such employer
conditioned upon such qualification shall be returned
to the employer within one year after the date notice
of such determination is issued to the employer; or
(b) a contribution is made by such employer by mistake of
fact and such contribution is returned to the
employer within one year after payment to the
trustee; or
(c) a contribution is disallowed as an expense for
federal income tax purposes and such contribution (to
the extent disallowed) is returned to the employer
within one year after the disallowance of the
deduction.
The amount of any contribution that may be returned to an employer pursuant to
subparagraph (b) or (c) above shall be reduced by any portion thereof previously
distributed from the trust fund and by any losses of the trust fund allocable
thereto and in no event may the return of such contribution cause any
participant's account balances to be less than the amount of such balances had
the contribution not been made under the plan.
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SECTION 4
PARTICIPANT CONTRIBUTIONS
4.1. AMOUNT OF PARTICIPANT CONTRIBUTIONS. In lieu of any
income deferral contributions made by a participant under subsection 3.1 and
subject to any limitations contained in the plan, a participant, if he so
desires, may elect to make voluntary contributions under the plan for any plan
year in an amount of not less than one percent (1%) nor more than sixteen
percent (16%) of his adjusted compensation (as defined in subsection 3.2) for
that year. Each such election by a participant under this subsection shall be
made at such time, in such manner and in accordance with such rules as the
committee shall determine.
4.2. DEDUCTION OR PAYMENT OF PARTICIPANT CONTRIBUTIONS. A
participant's contribution may be made by regular payroll deductions [in
multiples of one percent (1%)] or in any other way approved by the committee.
Participant contributions deducted by an employer will be paid to the trustee as
soon as practicable after the date the contributions are made.
4.3. VARIATION, DISCONTINUANCE, RESUMPTION, AND WITHDRAWAL
OF PARTICIPANT CONTRIBUTIONS. A participant may elect to change his contribution
rate (but not retroactively) within the limits specified above, to discontinue
making contributions or to resume making such contributions. As of the first day
of any plan year quarter, a participant may withdraw all or any portion of the
then net credit balance in his participant contribution account. Each election
by a participant under this subsection 4.3 shall be made at such time and in
such manner as the
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committee shall determine, and shall be effective only in accordance with such
rules as may be established from time to time by the committee.
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SECTION 5
PERIOD OF PARTICIPATION
5.1. TERMINATION DATE. A participant's "termination date"
will be the date on which his employment with all of the employers is terminated
because of the first to occur of the following:
(a) NORMAL OR LATE RETIREMENT. The date of the
participant's retirement on or after attaining age 65
years (his "normal retirement age"). A participant's
right to all account balances shall be nonforfeitable
on and after his normal retirement age.
(b) EARLY RETIREMENT. The date of the participant's
retirement on or after attaining age 60 years but
before attaining age 65 years.
(c) DISABILITY RETIREMENT. The date the participant is
retired from the employ of all of the employers at
any age because of disability (physical or mental),
as determined by a qualified physician selected by
the committee. A participant will be considered
disabled for purposes of this subparagraph if, on
account of a disability, he is no longer capable of
performing the duties assigned to him by his
employer.
(d) DEATH. The date of the participant's death.
(e) RESIGNATION OR DISMISSAL. The date the participant
resigns or is dismissed from the employ of all of the
employers before he attains age 60 years and for a
reason other than disability retirement.
If a participant is transferred from employment with an employer to employment
with a controlled group member, his termination date will not be considered to
have occurred until his employment with all employers and controlled group
members has terminated, but his participation in the plan will be restricted as
provided in subsection 5.2.
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5.2. RESTRICTED PARTICIPATION. If (i) payment of all of a
participant's account balances is not made prior to the accounting date next
following his termination date, or (ii) a participant transfers to a controlled
group member which is not an employer, or (iii) a participant transfers to a
group or class of employees who are not eligible to participate in the plan
pursuant to the requirements of subparagraph 2.1(a) or (b), the participant or
his beneficiary will be treated as a participant for all purposes of the plan,
except as follows:
(a) The participant may not make income deferral
contributions and will not share in employer
contributions and forfeitures (as defined in
subsection 7.3) under Section 3 after his termination
date, or during any period described in (i), (ii), or
(iii) above, except as provided in subsection 6.5.
(b) The participant may not make contributions under
Section 4 after his termination date or during any
period described in (i), (ii), or (iii) above.
(c) The beneficiary of a decreased participant cannot
designate a beneficiary under subsection 7.6.
If such participant subsequently again satisfies the requirements for
participation in the plan, he will become an active participant in the plan on
the date he satisfies the requirements of subparagraph 2.1(a) and (b) and will
be eligible to make income deferral contributions under subsection 3.2 effective
with the first payment date (i.e., a date on which regular salary payments are
made to employees of the employer) coincident with or next following the date
that he satisfies the requirements of subsection 2.4.
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SECTION 6
ACCOUNTING
6.1. SEPARATE ACCOUNTS. The committee will maintain the
following accounts in the name of each participant:
(a) INCOME DEFERRAL CONTRIBUTION ACCOUNT. If a
participant elects to make income deferral
contributions under subsection 3.1 of the plan, this
account will reflect such contributions and the
income, losses, appreciation, and depreciation
attributable thereto.
(b) MATCHED EMPLOYER CONTRIBUTION ACCOUNT. If a
participant has elected to make income deferral
contributions under the plan, this account will
reflect the matching employer contributions made
under subsection 3.3 of the plan and certain
forfeitures arising under the plan, and the income,
losses, appreciation, and depreciation attributable
thereto.
(c) PARTICIPANT CONTRIBUTION ACCOUNT. If a participant
has elected to make voluntary participant
contributions under subsection 4.1 of the plan, this
account will reflect such participant contributions
and the income, losses, appreciation, and
depreciation attributable thereto.
(d) PRIOR PLAN ACCOUNT. If a participant has amounts
attributable to his participation in any prior plan
transferred to this plan as provided in Section 8,
this account will reflect such amounts and the
income, losses, appreciation, and depreciation
attributable thereto.
The committee also may maintain such other accounts (including accounts
reflecting amounts invested in any particular investment fund) in the names of
participants or otherwise as it considers advisable. Unless the context
indicates otherwise, references in the plan to a participant's "accounts" means
all accounts maintained in his name under the plan.
6.2. ACCOUNTING DATES. A "regular accounting date" is the
last day of each month. A "special accounting date" is any date designated as
such by the committee and a
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special accounting date occurring under subsection 11.4. The term "accounting
date" includes both a regular accounting date and a special accounting date.
6.3. ADJUSTMENT OF PARTICIPANTS' ACCOUNTS. As of each
accounting date, the committee shall:
(a) FIRST, charge to the proper accounts all payments,
distributions, or withdrawals made since the last
preceding accounting date that have not been charged
previously;
(b) NEXT, adjust the credit balances in the accounts of
all participants upward or downward, pro rata,
according to the credit balances so that the total of
the credit balances will equal the then adjusted net
worth (as defined below) of the trust fund or any
separate investment fund (as defined below)
established for such accounts;
(c) NEXT, subject to the provisions of subsection 6.7,
credit any income deferral contributions that are to
be credited as of that date in accordance with
subsection 3.1;
(d) NEXT, credit matching employer contributions and
forfeitures, if any, that are to be credited as of
that date in accordance with subsection 3.3;
(e) FINALLY, credit any participant contributions that
are to be credited as of that date in accordance with
subsection 4.2.
The "trust fund" as at any date will consist of all property of every kind then
held by the trustee. The "adjusted net worth" of the trust fund as at any date
means the then net worth of the trust fund as determined by the trustee, less an
amount equal to the sum of employer and participant contributions not yet
credited to the accounts of participants. The committee may establish one or
more investment funds for the investment of employer and participant
contributions under the plan and may adjust participant accounts in accordance
with the accounting provisions established under any such investment funds. The
investment funds established by the
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committee are described in subsection 6.6. The term "investment fund" includes
any trust account, group annuity contract, separate account, or other investment
vehicle established under a contract with a licensed insurance company or under
a trust agreement with a trustee.
6.4. STATEMENT OF ACCOUNT. Each participant will be
furnished with a statement reflecting the condition
of his accounts in the trust fund as of the last day
of each plan year or more frequently, if so provided
by the committee. No participant, except one
authorized by the committee, shall have the right to
inspect the records reflecting the accounts of any
other participant.
6.5. CONTRIBUTION LIMITATIONS. Notwithstanding any
provisions in the plan to the contrary, the following
limitations shall apply to each participant in the
plan:
(a) If such participant is not an active participant
in any other defined contribution or defined benefit
plan [as defined in Section 415(k) of the Internal
Revenue Code of 1986] maintained by an employer or a
controlled group member which is not an employer, the
maximum "annual additions" (as defined below) to such
participant's accounts for any plan year shall not
exceed the lesser of $30,000 (or, if greater, 1/4 of
the dollar limitation in effect under Section
415(b)(1)(a) of the Code for the calendar year which
begins with or within that plan year] or twenty-five
percent (25%) of the participant's compensation for
the plan year. A participant's "annual additions"
shall mean the sum of (i) employer contributions and
forfeitures to be allocated and credited to his
employer contribution account for the year, (ii) any
income deferral contributions credited to his income
deferral contribution account for the year, and (iii)
participant contributions credited to his participant
contribution account for such year. For purposes of
this subparagraph, annual additions shall include
excess aggregate contributions (as defined in Section
401(m)(6)(B) of the Code) and excess income deferrals
(as described in Section 402(g) of the Code),
regardless of whether such amounts are distributed or
forfeited. For purposes of this subsection,
"compensation" means compensation as defined for
purposes of Section 415 of the Internal Revenue Code.
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(b) If such participant is an active participant in any
other defined contribution plan maintained by an
employer or a controlled group member which is not an
employer, the maximum "annual additions" provided in
subparagraph (a) above shall apply to this plan and
all such other defined contribution plans as if all
such plans were one plan.
(c) If such participant is an active participant in any
other defined benefit plan maintained by an employer
or a controlled group member which is not an
employer, the limitations provided in subparagraph
(a) or (b) above, whichever is applicable, shall
apply, and, in addition, the following additional
limitation shall be applicable. If such participant's
"defined contribution fraction" (as described below)
when added to his "defined benefit fraction,"
determined under such other defined benefit plan as
of the end of each plan year, exceeds 1.0 as
calculated under Section 415(e) of the Code, the
annual additions under this plan, the annual
additions under such other defined contribution plan,
or the annual additions under such other defined
contribution plan, or the annual benefit expected to
be paid under the defined benefit plan shall be
adjusted, in the sole discretion of the plan
administrators under the plans, so that the defined
contribution fraction when added to the defined
benefit fraction will not exceed 1.0. A participant's
defined contribution fraction as of the end of any
plan year shall consist of a numerator which is the
sum of the annual additions to such participant's
accounts for all years, computed under subparagraph
(a) or (b) above, whichever is applicable, and the
denominator of which is the sum of the adjusted
limitations for each year of such participant's
service with the employers or controlled group
members. For purposes of this subparagraph, the
"adjusted limitation" for a year shall mean the
lesser of: (i) $30,000 [or, if greater, 1/4 of the
dollar limitation in effect under Section
415(b)(1)(A) of the Code for the calendar year which
begins with or within that plan year] multiplied by
one hundred twenty-five percent (125%), and (ii)
twenty-five percent (25%) of such participant's
compensation for such year multiplied by one hundred
forty percent (140%).
If, as a result of the limitations provided above, any participant contributions
cannot be credited to a participant's participant contribution account, the
committee, after consulting with the participant, may in its sole discretion:
(a) Reduce any future participant contributions to be
made by the participant for such plan year.
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(b) Return to the participant any participant
contributions which, because of the limitations
contained in this subsection, cannot be credited to
his participant contribution account for the year,
without interest or earnings.
Any employer contributions which cannot be credited to a participant's account
because of the foregoing limitations will be used to reduce employer
contributions for the next plan year (and succeeding plan years in order of
time).
6.6. INVESTMENT FUNDS. Each participant may elect,
subject to the following provisions, to have a portion or all of his income
deferral contributions, matching employer contributions, and participant
contributions invested in one or more investment funds established by the
committee. As at January 1, 1993, the following investment funds have been
established:
(a) CONSERVATIVE EQUITY FUND. This fund will be
primarily invested in equity securities that are
deemed to have "defensive" characteristics, the
investment objective being a favorable rate of return
paralleling the pattern of the general stock market,
but the variability of its results expected to be
lower than those of the general stock market.
(b) AGGRESSIVE EQUITY FUND. This fund will be primarily
invested in equity securities that are deemed to have
"aggressive" characteristics, the investment
objective being a favorable rate of return
paralleling the pattern of the general stock market,
but the variability of its results expected to be
greater than those of the general stock market.
(c) INTEREST ACCUMULATION INVESTMENT FUND. This fund will
be invested with any insurance company under a group
annuity contract or in an eligible pooled fund or
funds consisting of such guaranteed investment
contracts, or in a money market fund or funds, the
investment objective being the preservation of
principal and a favorable rate of interest on such
principal.
(d) PARENT COMPANY STOCK FUND. This fund will be invested
solely in the shares of common stock issued by
Western Publishing Group, Inc., the parent of the
company.
An election by a participant will be subject to the following requirements:
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(a) Each election made in accordance with this
subsection must be in writing and filed with the
committee at such time as the committee determines.
(b) Each election shall be effective on the firs day of
any plan year quarter (after all adjustments as of
the next preceding accounting date have been made)
for which a new election is effective. If no election
is in effect with respect to a participant, such
participant's income deferral contributions, matching
employer contributions and participant contributions
will be invested in the Interest Accumulation
Investment Fund.
(c) Any election made in accordance with this subsection
to have amounts invested in one or more investment
funds shall be in increments of 10 percent of such
participant's contributions or account balances.
(d) Effective as of the dates specified in subparagraph
(b) above, a participant may elect to have a portion
or all of the amounts credited to his income deferral
contribution account, matching employer contribution
account, participant contribution account or prior
plan account (after all adjustments as of the next
preceding accounting date have been made) transferred
from one investment fund to another investment fund.
Each such election shall be subject to the provisions
of subparagraphs (a) and (c) above and no election to
transfer from the Interest Accumulation Investment
Fund to another investment fund shall be effective
unless such transfer is permitted under the Interest
Accumulation Investment Fund, without penalty.
(e) With respect to each participant who has an interest
in the Parent Company Stock Fund (as defined in
subparagraph 6.6(d) above), the trustee shall provide
a copy of the notice and proxy statement for each
meeting of the holders of common stock issued by
Western Publishing Group, Inc., together with an
appropriate form for the participant's use in
instructing the trustee with respect to the voting of
the shares of such stock that, at the record date for
the determination of the shareholders entitled to
such notice, and to vote at, such meeting, are
allocable to such participant under the Parent
Company Stock Fund as of such date. If a participant
furnishes timely instructions to the trustee, the
trustee (in person or by proxy) shall vote the shares
(including fractional shares) of the common stock of
Western Publishing Group, Inc. allocable to such
participant in the Parent Company Stock Fund in
accordance with the directions of the participant.
Shares of such stock allocable to participants in the
Parent Company Stock Fund for which timely voting
instructions are not received by the trustee shall be
voted by the trustee as directed by the committee.
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SECTION 7
PAYMENT OF ACCOUNT BALANCES
7.1. RETIREMENT OR DEATH. If a participant's employment
with all of the employers and controlled group members is terminated because of
retirement under subparagraph 5.1(a), (b), or (c), or if a participant dies
while in the employ of an employer, any income deferral contributions or
participant contributions made by him previously but not credited to his
appropriate account will be returned to him or, in the event of his death, to
his beneficiary. The balances in all of his accounts as at the accounting date
coincident with or next following his termination date (after all adjustments
required under the plan as of that date have been made) shall be nonforfeitable
and shall be distributable to him or, in the event of his death, to his
beneficiary, under subsection 7.4.
7.2. RESIGNATION OR DISMISSAL. If a participant who
immediately prior to July 1, 1987 was an active participant in the Western
Publishing Company Employees' Savings & Security Plan and who became a
participant in this plan on July 1, 1987 resigns or is dismissed from the employ
of all of the employers before retirement under subparagraph 5.1(a), (b) or (c)
, any income deferral contributions or participant contributions made by him
previously but not credited to his appropriate account will be returned to him
and the balances in all of his accounts as at the accounting date coincident
with or next following his termination date (after all adjustments required
under the plan as of that date have been made) shall be nonforfeitable and shall
be distributable to him under subsection 7.4. In the case of any other
participant who resigns or is dismissed under subparagraph 5.1(a) (b) or (c),
any income deferral contributions or
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participant contributions made by him previously but not credited to his
appropriate account will be returned to him and the balances in his income
deferral contribution account, participant contribution account and prior plan
account, if any, as at the accounting date coincident with or next following his
termination date (after all adjustments required under the plan as of that date
have been made) shall be nonforfeitable and shall be distributable to him under
subsection 7.4 along with the vested balance in his matched employer
contribution account as at the accounting date coincident with or next following
his termination date (after all adjustments required under the plan as of that
date have been made) determined in accordance with the following schedule:
Years of continuous
employment under Vested Percentage of matched
SUBSECTION 2.2 EMPLOYER CONTRIBUTION ACCOUNT
----------------------- -----------------------------
Less than 1 0%
1 25%
2 50%
3 75%
4 or more 100%
7.3. FORFEITURES. The amount by which a participant's
matched employer contribution account is reduced under subsection 7.2 shall be
treated as a "forfeiture" on the earlier of the date of distribution of such
participant's account balances or the date such participant incurs five
consecutive one-year breaks in employment. Prior to that date, such accounts
will continue to be adjusted pursuant to the provisions of subparagraph 6.3(b).
Forfeitures attributable to a participant's matched employer contribution
account will be used to reduce the employer's contribution otherwise required
under subsection 3.4 and shall be credited to the matched employer contribution
accounts of other participants in accordance with that
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subsection. If a participant is reemployed by an employer or controlled group
member before he incurs five consecutive one-year breaks in employment, any
forfeitures attributable to such participant shall be recredited to such
participant's matched employer contribution account on the accounting date
coincident with or next following the date of such participant's reemployment if
the participant repays the total amount of any previous distribution
attributable to his matched employer contribution account within five years of
his date of reemployment. Such participant's matched employer contribution
account shall be recredited from current unallocated forfeitures or, to the
extent there are insufficient unallocated forfeitures for this purpose, from
supplemental employer contributions necessary to restore such amount. The actual
amount restored to such participant's account shall be the amount of such
forfeitures, without investment adjustments.
7.4. MANNER OF DISTRIBUTION. After each participant's
termination date, and subject to the conditions set forth below and in
subsections 7.5 and 7.11, distribution of the net credit balance in the
participant's accounts will be made to or for the benefit of the participant or,
in the case of his death, to or for the benefit of his beneficiary, by one or
both of the following methods:
(a) By purchase of an annuity subject to the following
requirements:
(i) Except as otherwise provided in subparagraph
(v) below, if such participant has a spouse
to whom he is legally married as of the date
payment of his account balances is to
commence as a result of his termination of
employment for a reason other than death,
the participant's account balances shall be
applied to purchase an annuity for the life
of the participant with a survivor annuity
payable for the life of his spouse which is
one-half of the annuity payable during the
joint lives of the participant and his
spouse.
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(ii) Except as otherwise provided in subparagraph
(v) below, if such participant has a spouse
to whom he is legally married as of the date
of his death, an annuity providing payments
for the life of the spouse shall be
purchased for the spouse with at least fifty
percent (50%) of the participant's account
balances unless such amount is less than
$3,500, in which case, such amount shall be
distributed to the spouse in a lump sum.
Such spouse may elect in writing to have any
amounts payable to the spouse paid in a lump
sum.
(iii) The portion of a participant's account
balances, if any, which is not paid to the
participant's spouse under subparagraph (ii)
shall be paid to such participant's
designated beneficiary under one or more of
the methods described in subparagraph (v)
below; provided such distributions commence
within one year of the participant's death.
(iv) The premium paid to the insurance company
for a contract will be charged to the
participant's accounts when paid. The
committee may direct the trustee to cause
the contract to be assigned or delivered to
the person or persons then entitled to
payments under it but, prior to assignment
or delivery of the contract, it shall be
rendered nontransferable and noncommutable.
(v) In the event a participant does not have a
spouse as of the date payment of his account
balances is to commence to him or upon his
death, or such participant elects, with the
written consent of his spouse (which consent
acknowledges the effect of such election and
is witnessed by a plan representative or
notary public), not to receive distribution
in the form of an annuity described in (i)
or (ii) above, the committee, after
consulting with the participant, will direct
the trustee to distribute such participant's
benefits to him or, in the event of his
death, to or for the benefit of his
designated beneficiary, by any one or more
of the following methods:
(1) An annuity for life, with or
without a refund feature.
(2) An annuity for life and a period
certain, which period certain may
not exceed the joint life expectancy
of the participant and his
designated beneficiary.
(3) An annuity for the joint life
expectancy of the participant and
his designated beneficiary.
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(4) With the written consent o the
participant and, where applicable,
his spouse, a lump sum under
subparagraph (b) below.
If such participant's designated beneficiary is not
the participant's spouse and is more than 10 years
younger than the participant, an annuity shall be
paid over a period not exceeding the joint life
expectancy of the participant and a designated
beneficiary 10 years younger than the participant.
(vi) Within a reasonable period of time prior to
the earliest date on which a married
participant could receive payment of
benefits under the plan, the committee will
furnish him with a written explanation of
the terms and conditions of the form of
payment specified in subparagraph (a)(i)
above, and the financial effect of making an
election not to receive payment in such
form. An election not to receive payment in
the form specified in subparagraph (a)(i)
shall be in writing and signed by the
participant and consented to by his spouse
and may be made or revoked by the
participant at any time during the 90-day
period prior to commencement of his
benefits. Within the three plan year period
beginning (i) on the first day of the plan
year in which a participant attains age 32
or (ii) if such employee becomes a
participant in the plan after attaining age
32, with the plan year in which such
employee becomes a participant, the
committee will furnish him with a written
explanation of the terms and conditions of
the form of payment specified in
subparagraph (a) (ii) above and the
financial effect of making an election not
to receive payment in such form. An election
not to receive payment in the form specified
in subparagraph (a) (ii) may be made by a
participant at any time on or after the
first day of the plan year in which he
attains age 35 years. Such election shall be
in writing and consented to by his spouse
and may be made or revoked by the
participant at any time prior to his death.
(b) Subject to the provisions of subparagraph (a) , by
payment in a lump sum.
Subject to the requirements of subparagraph (a) above, the participant may elect
the method of distributing his benefits to him and may direct how his benefits
are to be paid to his beneficiary. The committee shall select the method of
distributing the participant's benefits to his beneficiary
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if the participant has not filed a direction with the committee. The trustee may
make distributions in cash or property, or partly in each, provided property is
distributed at its fair market value as at the date of distribution as
determined by the trustee. All distributions under the plan shall comply with
the requirements of Section 401(a)(9) of the Code and the regulations
thereunder.
7.5. COMMENCEMENT OF DISTRIBUTIONS. Except as provided in
the following sentence, payment of a participant's benefits will be made within
a reasonable time after his termination date, but not later than 60 days after
(a) the end of the plan year in which his termination date occurs, or (b) such
later date on which the amount of the payment can be ascertained by the
committee. However, if a participant's termination date occurs before he attains
age 65 and if the aggregate nonforfeitable balance in his accounts at his
termination date or at the time of any prior distribution exceeds $3,500, then
payment of such benefits shall be deferred to his attainment of age 65 (or, if
elected by the participant, age 70-1/2) unless the participant (or, in the event
of his death, his surviving spouse) consents in writing to an immediate
distribution. A (i) participant or (ii) former participant who previously made
an election to defer commencement of his benefits whose nonforfeitable balance
in his accounts as at his termination date (after any required adjustments) was
less than $3,500 will automatically receive his distribution in a lump sum. A
participant who previously made an election to defer commencement of his
benefits may elect, not more frequently than once each plan year and in an
amount not less than $1,000 in each such plan year, to receive a distribution
from his account(s) in a lump sum payment.
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7.6. DESIGNATION OF BENEFICIARY. Each participant from
time to time, by signing a form furnished by the committee, may designate any
person or persons (who may be designated concurrently, contingently, or
successively) to whom his benefits are to be paid if he dies before he receives
all of his benefits. A beneficiary designation form will be effective only when
the form is filed with the committee while the participant is alive and will
cancel all beneficiary designation forms previously filed with the committee. If
a deceased participant failed to designate a beneficiary as provided above, or
if the designated beneficiary dies before the participant or before complete
payment of the participant's benefits, the committee, in its discretion, may
direct the trustee to pay the participant's benefits as follows:
(a) To or for the benefit of any one or more of his
relatives by blood, adoption, or marriage and in such
proportions as the committee determines; or
(b) To the legal representative or representatives of the
estate of the last to die of the participant and his
designated beneficiary.
The term "designated beneficiary" as used in the plan means the person or
persons (including a trustee or other legal representative acting in a fiduciary
capacity) designated by a participant as his beneficiary in the last effective
beneficiary designation form filed with the committee under this subsection and
to whom a deceased participant's benefits are payable under the plan. The term
"beneficiary" as used in the plan means the natural or legal person or persons
to whom a deceased participant's benefits are payable under this subsection.
7.7. MISSING PARTICIPANTS OR BENEFICIARIES. Each
participant and each designated beneficiary must file with the committee from
time to time in writing his post office address and each change of post office
address. Any communication, statement, or notice
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addressed to a participant or beneficiary at his last post office address filed
with the committee, or if no address is filed with the committee then, in the
case of a participant, at his last post office address as shown on the
employer's records, will be binding on the participant and his beneficiary for
all purposes of the plan. Neither the employers nor the committee will be
required to search for or locate a participant or beneficiary. If the committee
notifies a participant or beneficiary that he is entitled to a payment and also
notifies him of the provisions of this subsection, and the participant or
beneficiary fails to claim his benefits or make his whereabouts known to the
committee within three years after the notification, the benefits of the
participant or beneficiary will be disposed of, to the extent permitted by
applicable law, as follows:
(a) If the whereabouts of the participant then is
unknown to the committee, but the whereabouts of the
participant's designated beneficiary then is known to
the committee, payment will be made to the designated
beneficiary;
(b) If the whereabouts of the participant and the
participant's designated beneficiary then is unknown
to the committee, but the whereabouts of one or more
relatives by blood, adoption, or marriage of the
participant is known to the committee, the committee
may direct the trustee to pay the participant's
benefits to one or more of such relatives and in such
proportions as the committee decides; or
(c) If the whereabouts of such relatives and the
participant's designated beneficiary then is unknown
to the committee, the benefits of such participant or
beneficiary will be disposed of in an equitable
manner permitted by law under rules adopted by the
committee.
7.8. FACILITY OF PAYMENT. When a person entitled to
benefits under the plan is under legal disability, or in the committee's
opinion, is in any way incapacitated so as to be unable to manage his financial
affairs, the committee may direct the trustee to pay the benefits to
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such person's legal representatives, or to a relative or friend of such person
for such person's benefits, or the committee may direct the application of such
benefits for the benefit of such person. Any payment made in accordance with the
preceding sentence shall be a full and complete discharge of any liability for
such payment under the plan.
7.9. LATEST DATE FOR DISTRIBUTION. Notwithstanding any
provision of the plan to the contrary, payment of benefits to a participant
shall be made (or commence) no later than the April 1 of the calendar year
following the calendar year in which the participant has attained age 70-1/2.
7.10. LOANS TO PARTICIPANTS. While it is the primary
purpose of the plan to accumulate funds for participants when they retire, it is
recognized that under some circumstances it is in the best interests of
participants to permit loans to be made to them while they continue in the
active service of the employers. Accordingly, the committee, pursuant to such
rules as it may from time to time establish, and upon written application by a
participant supported by such evidence as the committee may request, may direct
the trustee to make a loan to a participant subject to the following:
(a) Subject to the provisions of this subsection, each
participant may borrow from his accounts (other than
his matched employer contribution account) for
general purposes or for residential purposes by
filing a written application with the committee
requesting such loan. The minimum amount which can be
borrowed for any loan will be $1,000. All loans shall
be made on a pro rata basis from a participant's
income deferral contribution account, participant
contribution account and prior plan account and no
more than two loans may be outstanding at any time.
(b) For loans made before October 18, 1989, the
principal amount of any loan made to a participant,
when added to the outstanding balance of all other
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loans made to the participant from all qualified
plans maintained by the employers, shall not exceed
the least of: (i) $50,000, reduced by the excess (if
any) of the highest outstanding balance during the
one-year period ending immediately preceding the date
of the loan, over the outstanding balance of all such
loans from all such plans on the date of the loan;
(ii) 50 percent of the amount to which the
participant would be entitled under all such plans if
he were to terminate his employment with the
employers on the date the loan is made, or $10,000,
whichever is greater; and (iii) the sum of a
participant's income deferral contribution account,
participant contribution account and prior plan
account (excluding any amounts in such account
attributable to the Western IRA Plan).
(c) For loans made on or after October 18, 1989, the
principal amount of any loan made to a participant,
when added to the outstanding balance of all other
loans made to the participant from all qualified
plans maintained by the employers, shall not exceed
the least of: (i) $50,000, reduced by the excess (if
any) of the highest outstanding balance during the
one-year period ending immediately preceding the date
of the loan, over the outstanding balance of all such
loans from all such plans on the date of such loan;
(ii) 50 percent of the participant's vested account
balances under the plan; or (iii) the sum of a
participant's income deferral contribution account,
participant contribution account and prior plan
account (excluding any amounts in such account
attributable to the Western IRA Plan).
(d) Each loan must be evidenced by a written note in a
form approved by the committee, shall require
substantially level amortization payments (with
payments at least quarterly), shall be repaid by
regular payroll deduction and shall be secured by the
participant's account balances. Each loan made before
October 18, 1989 shall bear interest at the rate then
payable under the guaranteed investment contract
established under subsection 6.6 at the time such
loan is made. Each loan made on or after October 18,
1989 shall bear interest at the rate established by
the committee and be commensurate with rates charged
by commercial lenders on similar loans. Any loan to a
married participant must be consented to by the
participant's spouse. Such spousal consent shall be
obtained no earlier than the beginning of the
ninety-day period ending on the date of the loan,
must acknowledge the effect of the loan and must be
witnessed by a plan representative or notary public.
Such consent shall be binding with respect to the
consenting spouse or any subsequent spouse with
respect to that loan unless such loan is
renegotiated, extended, renewed or otherwise revised.
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(e) Each loan shall specify a repayment period which
shall not be less than 18 months (or 12 months, if
the loan is made on or after October 18, 1989), nor
more than 60 months for general purposes and not less
than 18 months (or 120 months, if the loan is made on
or after October 18, 1989) nor more than 360 months
(or 240 months if the loan is made on or after
October 18, 1989) for residential loans used to
acquire, construct, reconstruct or substantially
rehabilitate any dwelling unit which within a
reasonable time is to be used (determined at the time
the loan is made) as a principal residence of the
participant. No repayment period shall extend beyond
a participant's normal retirement date. Amounts
repaid by the participant will be recredited to the
participant's accounts in the same ratio as the loan
is made from such accounts.
(f) If, on a participant's termination date (other than a
termination date described in paragraph 5.1(c)), any
loan or portion of a loan made to him under the plan,
together with the accrued interest thereon, remains
unpaid, the entire amount of the unpaid loan and
accrued interest shall be due and payable by the
participant; provided that, if such amount is not
repaid by the end of the calendar month beginning
after his termination date, an amount equal to the
outstanding balance of the loan, together with the
accrued interest thereon, shall be charged to the
participant's accounts after all other adjustments
required under the plan, but before any distribution
pursuant to subsection 7.4. A participant who has a
termination date under subparagraph 5.1(c) need not
repay the entire amount of the loan by the end of the
calendar month beginning after his termination date,
but if payments are in default at the end of any
calendar month, such loan shall be charged against
the participant's accounts as provided in the
preceding sentence.
(g) In determining the adjusted net worth of the trust
fund as of each accounting date, the committee shall
disregard any promissory notes held by the trustee
evidencing loans made to participants, together with
any interest and principal payments on such loans
received by the trustee since the preceding
accounting date. For purposes of adjusting
participants' accounts under subsection 6.3, the
committee shall exclude from the credit balance of a
participant's accounts the unpaid amount of any loan
made to him (disregarding any principal payments made
since the last preceding accounting date). Interest
paid by a participant on a loan made to him under
this subsection 7.10 shall be credited to the
accounts of the participant as of the accounting date
which ends the accounting period during which such
interest payment was made, after all adjustments
required under the plan as of the date have been
made.
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(h) Notwithstanding any provision to the contrary, the
participant's ability to withdraw amounts from his
participant contribution account under subsection 4.3
and from his prior plan account under subsection 8.3
shall be restricted to the extent that the
outstanding principal and interest due on a loan
equals or exceeds 50% of his vested account balances.
7.11. DIRECT TRANSFER OF ELIGIBLE ROLLOVER DISTRIBUTIONS.
Effective January 1, 1993, if payment of benefits to a participant, a
participant's surviving spouse, or the spouse or former spouse of the
participant who is an alternate payee under a qualified domestic relations order
(as defined in Section 414(p) of the Code) constitutes an "eligible rollover
distribution" under Section 402(c)(4) of the Code, then the participant or the
participant's spouse (or former spouse) may elect to have such distribution paid
directly to an eligible retirement plan described in Section 402(c)(8)(B) of the
Code (except that in the case of an eligible rollover distribution to a
participant's surviving spouse on the death of a participant, the definition of
an eligible retirement plan is limited to an individual retirement account or
individual retirement annuity). Each election by a participant under this
subsection shall be made at such time and in such manner as the committee shall
determine and shall be effective only in accordance with such rules as shall be
established from time to time by the committee. Any election by a participant
under this subsection will be subject to the requirements of subparagraph
7.4(a)(v) of the plan.
7.12 WITHDRAWAL OF INCOME DEFERRAL CONTRIBUTIONS. With
the consent of the committee, a participant may elect to withdraw any income
deferral contributions made by such participant because of a "hardship" (as
defined below) causing an immediate and heavy financial need on the participant.
For purposes of this subsection a hardship shall include:
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(a) Medical expenses incurred (or not yet incurred but
necessary to obtain such medical care) by the
participant, the participant's spouse or the
participant's dependents (as defined in Section 152
of the Internal Revenue Code) which are not
reimbursed by insurance or otherwise;
(b) Purchase of a principal residence for the
participant, excluding mortgage payments;
(c) Payment of tuition and related educational fees for
the next twelve months of post-secondary education
for the participant or the participant's spouse,
children or dependents;
(d) The need to prevent the eviction of the participant
from his principal residence or foreclosure under the
mortgage on the participant's principal residence;
(e) Casualty losses or catastrophes such as flooding,
hurricanes or tornadoes; or
(f) Any other hardship which in the opinion of the
committee creates an immediate and heavy financial
need on the participant.
A withdrawal will be considered necessary to satisfy an immediate and heavy
financial need only if the participant represents in writing to the committee
that the need cannot reasonably be relieved (i) through reimbursement or
compensation by insurance or otherwise, (ii) by liquidation of the employee's
assets and the assets of the employee's spouse and minor children that are
reasonably available to the employee, (iii) from other available distributions
and loans under this plan or any other qualified retirement plan maintained by
the employers or by borrowing from commercial sources on reasonable commercial
terms in amounts sufficient to satisfy the need; or (iv) the cessation of income
deferral contributions or voluntary contributions to the plan. Each such
election shall be in writing, shall be filed with the committee at such time and
in such-manner as the committee shall determine and shall be effective in
accordance with such rules as the committee may establish from time to time. Any
withdrawal by a married participant
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must be consented to in writing by the participant's spouse, must acknowledge
the effect of the withdrawal and must be witnessed by a plan representative or
notary public.
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SECTION 8
PRIOR PLAN ACCOUNT
8.1. TRANSFER OF PRIOR PLAN BALANCE. Each participant in
the plan who, prior to July 1, 1987, was covered by the Western Publishing
Company Employees' Savings and Security Plan ("savings and security plan") has
had his account balance under such plan transferred in a lump sum to this plan.
The balance attributable to such participant's participation in such plan (a
"prior plan") will be subject to the provisions of this section.
8.2. PRIOR PLAN ACCOUNTS. All such amounts which have
been transferred to this plan from a prior plan will be held in a separate prior
plan account established for the participant which will be fully vested and
nonforfeitable at all times. Such prior plan account will be adjusted from time
to time in accordance with the provisions of Section 6 and, except as otherwise
provided in subsection 8.3, will be distributed in accordance with the
provisions of Section 7. Appropriate subaccounts will be maintained reflecting
each participant's interest in a prior plan.
8.3. WITHDRAWALS FROM PRIOR PLAN ACCOUNTS. No withdrawals
of any portion of a participant's prior plan account will be permitted prior to
distribution in accordance with Section 7 of the plan unless such amounts are
attributable to such participant's participation in the Savings and Security
Plan or unless such amounts are attributable "rollover" amounts as described in
subsection 8.4. As of any day during any plan year quarter (but not more
frequently than once in each plan year quarter), a participant may withdraw all
or any portion of the net
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credit balance in his prior plan account reflecting his participation in the
savings and security plan.
8.4. OTHER TRANSFERRED AMOUNTS AND ROLLOVERS. Subject to
such rules and requirements as the committee may establish, a participant may
direct the trustee to receive a "rollover" amount either in the form of a direct
rollover (as defined in Section 401(a)(31) of the Code) or an indirect rollover
as defined in Section 402(c)(5) or Section 408(d)(3) of the Code attributable to
such participant's participation in any other qualified pension or profit
sharing plan under Section 401(a) of the Code. Any such rollover amount shall be
credited to a prior plan account and will be subject to the provisions of
subsection 8.2. At the direction of a participant and with the consent of the
committee, the trustee, under this plan, may receive assets held for a
participant under any other plan pursuant to a trust-to-trust transfer between
such qualified pension or profit sharing plan and this plan. Any such
transferred amounts will be credited to a prior plan account and shall be
subject to the provisions of subsection 8.2.
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SECTION 9
THE COMMITTEE
9.1. MEMBERSHIP. A committee consisting of three or more
persons (who may but need not be employees of the employers) shall be appointed
by the company. The secretary of the company shall certify to the trustee from
time to time the appointment to (and termination of) office of each member of
the committee and the person who is selected as secretary of the committee.
9.2. COMMITTEE'S GENERAL POWERS, RIGHTS, AND DUTIES.
Except as otherwise specifically provided and in addition to the powers, rights,
and duties specifically given to the committee elsewhere in the plan and the
trust agreement, the committee shall have the following powers, rights, and
duties:
(a) To select a secretary, if it believes it advisable,
who may but need not be a committee member.
(b) To determine all questions arising under the plan,
including the power to determine the rights or
eligibility of employees or participants and any
other persons to benefit under the plan, and the
amount of their benefits under the plan, and to
remedy ambiguities, inconsistencies, or omissions.
(c) To adopt such rules of procedures and regulations as
in its opinion may be necessary for the proper and
efficient administration of the plan and as are
consistent with the plan and trust agreement.
(d) To enforce the plan in accordance with the terms of
the plan and the trust agreement and the rules and
regulations adopted by the committee.
(e) To direct the trustee as respects payments or
distributions from the trust fund in accordance with
the provisions of the plan.
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(f) To furnish the employers with such information as nay
be required by them for tax or other purposes in
connection with the plan.
(g) To employ agents, attorneys, accountants, or other
persons (who also may be employed by the employers)
and to allocate or delegate to them such powers,
rights, and duties as the committee may consider
necessary or advisable to properly carry out
administration of the plan, provided that such
allocation or delegation and the acceptance thereof
by such agents, attorneys, accountants, or other
persons shall be in writing.
9.3. MANNER OF ACTION. During a period in which two or
more committee members are acting, the following provisions apply where the
context admits:
(a) A committee member by writing may delegate any or all
of his rights, powers, duties, and discretions to any
other member, with the consent of the latter.
(b) The committee members may act by meeting or by
writing signed without meeting, and may sign any
document by signing one document or concurrent
documents.
(c) An action or a decision of a majority of the members
of the committee as to a matter shall be as effective
as if taken or made by all members of the committee.
(d) If, because of the number qualified to act, there is
an even division of opinion among the committee
members as to a matter, a disinterested party
selected by the committee shall decide the matter,
and his decision shall control.
(e) Except as otherwise provided by law, no member of the
committee shall be liable or responsible for an act
or omission of the other committee members in which
the former has not concurred.
(f) The certificate of the secretary of the committee or
of a majority of the committee members that the
committee has taken or authorized any action shall be
conclusive in favor of any person relying on the
certificate.
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9.4. INTERESTED COMMITTEE MEMBER. If a member of the
committee is also a participant in the plan, he may not decide or determine any
matter or question concerning distributions of any kind to be made to him or the
nature or mode of settlement of his benefits unless such decision or
determination could be made by him under the plan if he were not serving on the
committee.
9.5. RESIGNATION OR REMOVAL OF COMMITTEE MEMBERS. A
member of the committee may be removed by the company at any time by ten days'
prior written notice to him and the other members of the committee. A member of
the committee may resign at any time by giving ten days' prior written notice to
the company and the other members of the committee. The company may fill any
vacancy in the membership of the committee provided, however, that if a vacancy
reduces the membership of the committee to less than three, such vacancy shall
be filled as soon as practicable. The company shall give prompt written notice
thereof to the other members of the committee. Until any such vacancy is filled,
the remaining members may exercise all of the powers, rights, and duties
conferred on the committee.
9.6. COMMITTEE EXPENSES. All costs, charges, and expenses
reasonably incurred by the committee will be paid by the employers in such
proportions as the company may direct. No compensation will be paid to a
committee member as such.
9.7. INFORMATION REQUIRED BY COMMITTEE. Each person
entitled to benefits under the plan shall furnish the committee with such
documents, evidence, data, or information as the committee considers necessary
or desirable for the purpose of administering the plan. The
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employers shall furnish the committee with such data and information as the
committee may deem necessary or desirable in order to administer the plan. The
records of the employers as to an employee's or participant's period of
employment, termination of employment, and the reason therefor, leave of
absence, reemployment, compensation, and adjusted compensation, will be
conclusive on all persons unless determined to the committee's satisfaction to
be incorrect.
9.8. UNIFORM RULES. The committee shall administer the
plan on a reasonable and nondiscriminatory basis and shall apply uniform rules
to all persons similarly situated.
9.9. REVIEW OF BENEFIT DETERMINATIONS. The committee will
provide notice in writing to any participant or beneficiary whose claim for
benefits under the plan is denied, and the committee shall afford such
participant or beneficiary a full and fair review of its decision if so
requested.
9.10. COMMITTEE'S DECISION FINAL. Subject to applicable
law, any interpretation of the provisions of the plan and any decisions on any
matter within the discretion of the committee made in good faith shall be
binding on all persons. A misstatement or other mistake of fact shall be
corrected when it becomes known, and the committee shall make such adjustment on
account thereof as it considers equitable and practicable.
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SECTION 10
GENERAL PROVISIONS
10.1. ADDITIONAL EMPLOYERS. Any United States subsidiary
of the company may adopt the plan and become a party to the trust agreement by:
(a) Filing with the company, the committee, and the
trustee a written instrument to that effect; and
(b) Filing with the committee and the trustee a certified
copy of a resolution of the company's Board of
Directors consenting to such action.
10.2. ACTION BY EMPLOYERS. Any action required or
permitted to be taken by an employer under the plan shall be by resolution of
its Board of Directors, by resolution of a duly authorized committee of its
Board of Directors, or by a person or persons authorized by resolution of its
Board of Directors or such committee.
10.3. WAIVER OF NOTICE. Any notice required under the plan
may be waived by the person entitled to such notice.
10.4. CONTROLLING LAW. Except to the extent superseded by
laws of the United States, the laws of Wisconsin shall be controlling in all
matters relating to the plan.
10.5. EMPLOYMENT RIGHTS. The plan does not constitute a
contract of employment, and participation in the plan will not give any employee
the right to be retained in the employ of an employer, nor any right or claim to
any benefit under the plan, unless such right or claim has specifically accrued
under the terms of the plan.
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10.6. LITIGATION BY PARTICIPANTS. If a legal action begun
against the trustee, an employer or the committee or any member thereof by or on
behalf of any person results adversely to that person, or if a legal action
arises because of conflicting claims to a participant's or other person's
benefits, the cost to the trustee, the employers, or the committee or any member
thereof of defending the action will be charged to the extent permitted by law
to the sums, if any, which were involved in the action or were payable to the
person concerned.
10.7. INTERESTS NOT TRANSFERABLE. The interests of persons
entitled to benefits under the plan are not subject to their debts or other
obligations and, except as may be required by the tax withholding provisions of
the Internal Revenue Code or any state's income tax act or pursuant to any
qualified domestic relations order as defined in Section 414 (p) of the Code,
may not be voluntarily or involuntarily sold, transferred, alienated, assigned
or encumbered, except as otherwise provided in Section 401(a)(13) of the Code.
Notwithstanding any other provisions of the plan, the committee may direct the
trustee to distribute benefits to an alternate payee on the earliest date
specified in a qualified domestic relations order, without regard to whether
such distribution is made or commences prior to the participant's earliest
retirement age (as defined in Section 414(p)(4)(B) of the Code) or the earliest
date that the participant could commence receiving benefits under the plan.
10.8. ABSENCE OF GUARANTY. Neither the committee nor the
employers in any way guarantee the trust fund from loss or depreciation. The
liability of the trustee or the
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committee to make any payment under the plan will be limited to the assets held
by the trustee which are available for that purpose.
10.9. EVIDENCE. Evidence required of anyone under the plan
may be by certificate, affidavit, document, or other information which the
person acting on it considers pertinent and reliable, and signed, made, or
presented by the proper party or parties.
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SECTION 11
AMENDMENT AND TERMINATION
11.1. AMENDMENT. While the employers expect and intend to
continue the plan, the company reserves the right to amend the plan from time to
time, except as follows: (a) The duties and liabilities of the committee cannot
be changed substantially without its consent;
(b) No amendment shall reduce the accrued benefit (as
defined in Section 411(d)(6) of the Code) the
participant would be entitled to receive if he had
resigned from the employ of all the employers on the
date of the amendment; and
(c) Except as provided in subsection 3.8, under no
condition shall an amendment result in the return or
repayment to any employer of any part of the trust
fund or the income from it or result in the
distribution of the trust fund for the benefit of
anyone other than persons entitled to benefits under
the plan.
11.2. TERMINATION. The plan will terminate as to all
employees (i) on any date specified by the company if 30 days' advance written
notice of the termination is given to the committee, the trustee, and the other
employers, or (ii) on the date that contributions by all employers are
completely discontinued under the plan. A partial termination of the plan may
occur as to an individual employer or as to a group or class of employees on any
date so specified by the company or as required by law.
11.3. REORGANIZATIONS. No plan termination will occur
solely as a result of the judicially declared bankruptcy or insolvency of an
employer, or the dissolution, merger, consolidation, or reorganization of an
employer, or the sale by that employer of all or
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substantially all of its assets, or the termination or complete discontinuance
of contributions by any one employer. However, arrangement may be made with the
consent of the company whereby the plan will be continued by any successor to
that employer or any purchaser of all or substantially all of its assets, in
which case the successor or purchaser will be submitted for that employer under
the plan and trust agreement provided that, if an employer is merged, dissolved,
or in any other way organized into, or consolidated with, any other employer,
the plan as applied to the former employer will automatically continue in effect
without a termination thereof.
11.4. VESTING AND DISTRIBUTION ON TERMINATION. On
termination or partial termination of the plan, the date of termination will be
a "special accounting date" and, after all adjustments then required have been
made, each affected participant's benefits will be nonforfeitable. If, on
termination of the plan, the participant remains an employee of an employer, the
amount of his benefits shall be retained in the trust fund until his termination
of employment with all of the employers and then shall be paid to him in
accordance with the provisions of subsection 7.4. In the event that the
participant's employment with all of the employers is terminated coincident with
the termination of the plan, his benefits shall be paid to him in a lump sum,
subject to the provisions of subsection 7.4.
11.5. NOTICE OF AMENDMENT OR TERMINATION. Participants
will be notified of an amendment or termination of the plan within a reasonable
time.
11.6. PLAN MERGER, CONSOLIDATION, ETC. In the case of any
merger or consolidation of this plan with, or the transfer of assets or
liabilities of this plan to any other plan,
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each participant's benefits if such plan terminated immediately after such
merger, consolidation, or transfer shall be equal to or greater than the
benefits he would have been entitled to receive if this plan had terminated
immediately before the merger, consolidation, or transfer.
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SECTION 12
TOP-HEAVY RULES
12.1. PURPOSE AND EFFECT. The purpose of this section is
to comply with the requirements of Section 416 of the Code. The provisions of
this section shall be effective for each plan year in which the plan is a
"top-heavy plan" within the meaning of Section 416(g) of the Code.
12.2. TOP-HEAVY PLAN. In general, the plan will be a top-
heavy plan for any plan year if, in the case of the first plan year, on the last
day of such plan year, and in the case of any subsequent plan year, as of the
last day of the preceding plan year (the "determination date"), the sum of the
amounts in (a), (b), and (c) below for key employees (defined below and in
Section 416(i)(1) of the Code) exceeds sixty percent (60%) of the sum of such
amounts for all employees who are covered by a defined contribution plan or
defined benefit plan which is aggregated in accordance with subsection 12.4
below:
(a) The aggregate account balances of participants under
this plan.
(b) The aggregate account balances of participants under
any other defined contribution plan included in
subsection 12.4.
(c) The present value of cumulative accrued benefits of
participants calculated under any defined benefit
plan included in subsection 12.4.
In determining the account balances of participants under this plan, (i) such
participant's account balances shall be increased by the aggregate
distributions, if any, made with respect to the participant during the five-year
period ending on the determination date, (ii) the account balances
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of a participant who was previously a key employee, but who is no longer a key
employee, shall be disregarded, (iii) the accounts of a beneficiary of a
participant shall be considered accounts of the participant, and (iv) the
account balances of a participant who has not performed any services for an
employer during the 5-year period ending on the determination date shall be
disregarded.
12.3. KEY EMPLOYEE. In general, a "key employee" is an
employee who, at any time during the plan year ending on the determination date
or during any of the four preceding plan years, is:
(a) an officer of employer or a controlled group member
whose compensation (as defined in subparagraph
6.5(a)) exceeds fifty percent (50%) of the dollar
limitation specified in Section 415(b)(1)(A) of the
Code for a plan year (including only the greater of
three or ten percent of the total employees of the
employer and controlled group members but not
exceeding 50);
(b) one of the ten employees owning the largest interests
in an employer and all other controlled group members
in excess of a one-half percent interest and whose
compensation [as defined in subparagraph 6.5(a)]
exceeds the dollar limitation specified in
subparagraph 6.5(a);
(c) a five percent (5%) owner of an employer or
controlled group member; or
(d) a one percent (1%) owner of an employer or controlled
group member receiving annual compensation from the
employer and all other controlled group members of
more than $150,000.
A "key employee" for purposes of any other plan included in subsection 12.4
means a key employee as determined in accordance with such plan.
12.4. AGGREGATED PLANS. Each other defined contribution
plan and defined benefit plan maintained by an employer or controlled group
member which covers a "key
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<PAGE>
employee" as a participant or which is maintained by such employer or controlled
group member in order for a plan covering a key employee to be qualified shall
be aggregated in determining whether this plan is top-heavy. In addition, any
other defined contribution or defined benefit plan or an employer or controlled
group member may be included if all such plans which are included when
aggregated will not discriminate in favor of officers, shareholders, or highly
compensated employees.
12.5. MINIMUM CONTRIBUTION. For any plan year in which the
plan is at top-heavy plan, employer contributions and forfeitures (other than
income deferral contributions) credited to each participant who is not a key
employee shall not be less than 3 percent of such participant's adjusted
compensation for that year, except that, in no event shall the employer
contributions and forfeitures credited in any year to a participant who is not a
key employee (expressed as a percentage of such participant's adjusted
compensation) exceed the maximum employer contributions, income deferral
contributions and forfeitures credited in that year to a key employee expressed
as a percentage of such key employee's adjusted compensation up to $200,000 or
such greater amount as may be determined by the Commissioner of Internal Revenue
for that year.
12.6. MAXIMUM EARNINGS. For any plan year in which the
plan is a top-heavy plan, a participant's adjusted compensation in excess of
$200,000 (or such greater amount as may be determined by the Commissioner of
Internal Revenue for that plan year) shall be disregarded for purposes of
subsections 3.4, and 6.5 of the plan.
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<PAGE>
12.7. NO DUPLICATION OF BENEFITS. If a participant is
covered by another plan maintained by an employer or controlled group member,
appropriate modification may be made in the plan in accordance with regulations
issued by the Internal Revenue Service to prevent inappropriate duplication of
minimum contributions or benefits under Section 416 of the Code.
12.8. ADJUSTMENT OF COMBINED BENEFIT LIMITATIONS. For any
plan year in which the plan is a top-heavy plan, the determination of the
defined contribution plan fraction and defined benefit plan fraction under
subsection 6.5 of the plan shall be adjusted in accordance with the provisions
of Section 416(h) of the Code.
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SUPPLEMENT A
TO
GOLDEN RETIREMENT SAVINGS PROGRAM
1. This Supplement A to the Golden Retirement Savings Program (the "plan")
extends the plan to certain employees and former employees who are included
in the following groups or classes of employees employed by Western
Publishing Company, Inc. (the "employer"), as of the effective dates
specified below:
GROUP OR CLASS EFFECTIVE DATE
(a) Hourly rated Employees who are not represented July 1, 1987
by a collective bargaining agent and certain
other former employees as designated by the
company.
(b) Employees who are members of the collective July 1, 1988
bargaining unit represented by Local 254M of the
Graphic Communications International Union.
(c) Employees who are members of the collective July 1, 1987
bargaining unit represented by Local 223B
of the Graphic Communications International Union.
(d) Employees who are members of the collective July 1, 1987
bargaining unit represented by Local 309 of the
International Union of Operating Engineers.
(e) Employees who are members of the collective July 1, 1987
bargaining unit represented by Local 43 of the
International Brotherhood of Teamsters,
Chauffeurs, Warehousemen, and Helpers of America.
(f) Employees who are members of the collective July 1, 1988
bargaining unit represented by Local 1007 of the
International Union, United Automobile, Aerospace
& Agricultural Implement Workers of America, UAW.
(g) Former employees who are members of the July l, 1988
collective bargaining unit represented by Local
62B of the Graphic Communications International
Union.
A-1
<PAGE>
2. All provisions of the plan to the extent such provisions are not
inconsistent with this Supplement A shall apply to plan participants
covered by this Supplement A.
3. This Supplement A is effective as of July 1, 1988.
A-2
<PAGE>
FIRST AMENDMENT
OF
GOLDEN RETIREMENT SAVINGS PROGRAM
(As Amended and Restated Effective January 1, 1993)
WHEREAS, this corporation maintains the Golden Retirement
Savings Program (the "plan"); and
WHEREAS, the plan was completely amended and restated
effective January 1, 1993, and further amendment of the plan is now considered
desirable;
NOW, THEREFORE, IT IS RESOLVED that, by virtue and in exercise
of the power reserved to this corporation under subsection 11.1 of the plan, the
plan, as previously amended, be and it hereby is further amended, effective as
of January 1, 1994, by adding the following sentence at the end of subsection
3.2 of the plan:
"Beginning with the plan year commencing January 1, 1994, in
no event shall compensation in excess of $150,000 (or such
greater amount as may be permitted under Section 401(a)(17)(B)
of the Code) be included in a participant's compensation for
any plan year."
* * *
I, _________________________, Secretary of Western Publishing
Company, Inc. hereby certify that the foregoing is a correct copy of a
resolution duly adopted by the Board of Directors of said corporation on
December ___, 1994 and that said resolution has not been changed or repealed.
Dated this ____day of ________, 1994.
------------------------------------
Secretary as Aforesaid
(Corporate Seal)
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<PAGE>
* * *
The undersigned, as committee members under the Golden
Retirement Savings Program, hereby acknowledge receipt of a certified copy of
the foregoing amendment and hereby consent thereto this ____ day of December,
1994.
-------------------------------
-------------------------------
-------------------------------
-------------------------------
As Committee Members As Aforesaid
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<PAGE>
(Annex A)
SECOND AMENDMENT
OF
GOLDEN RETIREMENT SAVINGS PROGRAM
(As Amended and Restated Effective as of January 1, 1993)
WHEREAS, this corporation maintains the Golden Retirement
Savings Program (As Amended and Restated Effective as of January 1, 1993) (the
"plan"); and
WHEREAS, the plan has been amended, and further amendment
thereof is now considered desirable;
NOW, THEREFORE, IT IS RESOLVED that, by virtue and in exercise
of the power reserved to this corporation under subsection 11.1 of the plan, the
plan, as previously amended, be and it hereby is further amended in the
following particulars:
1. By substituting the following for subsection 2.1 of
the plan:
"2.1. ELIGIBILITY. Subject to the conditions and
limitations of the plan, each employee of an employer who was an active
participant in the plan immediately prior to January 1, 1996 will
continue to participate in the plan on and after that date. Each other
employee of an employer will be eligible to become a participant in the
plan if he meets the following requirements:
(a) He is a member of a group of employees to which the
plan has been and continues to be extended by his
employer, either unilaterally or through collective
bargaining, as described in Supplement A.
(b) He has completed twelve months of continuous
employment (as defined in subsection 2.2) or, if the
employee was hired by an employer before January 1,
1996, six months of continuous employment.
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<PAGE>
Each employee who meets the requirements of subparagraphs (a) and (b)
above will become a participant in the plan on the entry date specified
in (c) or (d) below, whichever applies:
(c) If the employee is hired by an employer before
January 1, 1996, on the first January 1, April 1,
July 1 or October 1 (the 'quarterly entry date')
coincident with or next following the date he meets
the requirements of subparagraphs (a) and (b); or
(d) If the employee is hired by an employer on or after
January 1, 1996, on the first day of the calendar
month (the 'monthly entry date') coincident with or
next following the date he meets the requirements of
subparagraphs (a) and (b).
Each employee will be notified of the date as of which he becomes a
participant in the plan and will be furnished with a summary plan
description in accordance with governmental rules and regulations. An
employee who would be eligible to participate in the plan on the
applicable quarterly entry date or monthly entry date except for the
requirement of subparagraph 2.1(a) will become a participant on the
date he satisfies the conditions for participation under such
subparagraph, but will not be eligible to make income deferral
contributions (as defined in subsection 3.1) or voluntary participant
contributions until the quarterly entry date or the monthly entry date,
as the case may be, coincident with or next following the date he
becomes a participant."
2. By substituting the following for the indented
paragraph in subparagraph 2.2(g) of the plan:
"If a former employee of the employers who is not vested with respect
to any portion of his matched employer contribution account balance or
his employer contribution account balance, if any, is reemployed by an
employer or controlled group member after he has incurred five
consecutive one-year breaks in employment and if such consecutive
one-year breaks in employment equal or exceed his years of continuous
employment, his period of continuous employment with the employers or
controlled group members prior to such five consecutive one-year breaks
in employment shall be disregarded for all purposes of the plan upon
his reemployment, and such employee shall be treated as a new employee
for all purposes of the plan. In no event shall a period of continuous
employment after an employee has incurred five consecutive one-year
breaks in employment be taken into account in determining the vested
portion of his matched employer contribution account balance or his
employer contribution account balance, if any, attributable to
employment prior to such five consecutive one-year breaks in
employment."
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<PAGE>
3. By substituting the following for subsection 2.4 of
the plan:
"2.4. REEMPLOYED FORMER PARTICIPANT. If a former participant
in the plan is reemployed by an employer after incurring a one-year
break in employment, he will again become a participant in the will be
plan on the date he meets the requirements of subparagraph 2.1(a) and
eligible to make income deferral contributions under subsection
3.1 or voluntary participant contributions under subsection 4.1 on the
monthly entry date (or, for former participants reemployed before 1996,
the quarterly entry date) coincident with or next following the date he
becomes a participant."
4. By adding the following new subsection 2.6 to the
plan immediately following subsection 2.5 thereof:
"2.6. TRANSFERRED PARTICIPANTS. If a participant in the
plan is transferred from employment covered by the plan to employment
with a controlled group member that is a participating employer under
any other defined contribution plan of a member of the controlled
group, the participant's accounts under this plan shall be transferred
to such other plan and shall thereafter be subject to all of the terms
and conditions of such other plan.
Conversely, if a participant in one of the aforementioned defined
contribution plans is transferred to employment covered by this plan,
such participant's accounts under the other plan shall be transferred
to this plan. Each of a participant's transferred accounts shall be
combined with the like account established for the participant under
subsection 6.1 of this plan, and the combined total of each such
account shall thereafter be subject to all of the terms and conditions
of this plan, unless and until such participant's accounts are again
transferred to one of the aforementioned plans. Each transfer of
account balances under this subsection shall be made in accordance with
Sections 401(a)(12) and 414(l) of the Code and the regulations
thereunder."
5. By deleting the phrase "by writing filed with the
committee," from the first sentence of subsection 3.1 of the plan.
6. By substituting the following sentences for the last
two sentences of subsection 3.1 of the plan:
"A participant may elect to change the rate of his deferrals, or
suspend or resume such deferrals, within the limits stated above, by
making a new election. Each election under this subsection shall be
made at such time, in such manner and in
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<PAGE>
accordance with such rules as the committee shall determine, and shall
be effective beginning with the first full pay period of any month,
provided the participant has made a proper election before the
fifteenth day of the preceding month."
7. By substituting the following sentences for the first
sentence of subsection 3.3 of the plan:
"Subject to the limitations of the plan and in addition to the income
deferral contributions made under subsection 3.1, each employer will
contribute to the trustee such amount, if any, as the employer may
determine in its sole discretion before the beginning of each plan
year. Such amount may be stated in terms of an aggregate dollar
contribution or a dollar or percentage match of income deferral
contributions up to a stated amount or in any other manner. Matching
employer contributions as determined under this subsection shall be
reduced by any forfeitures to be credited to a participant's matched
employer contribution account for such period as provided under
subsection 7.3."
8. By adding the following new sentence as the final
sentence of subsection 3.3 of the plan:
"Employer contributions payable under this subsection may be paid in
cash or in shares of common stock of Western Publishing Group, Inc.
('parent company shares'), or any combination thereof, as the employer
may elect."
9. By substituting the following for the penyltimate
sentence of subsection 4.3 of the plan:
"Once each month, a participant may withdraw all or a portion of his
participant contribution account."
10. By substituting the following for clause (i) of the
first sentence of subsection 5.2 of the plan:
"(i) payment of all of a participant's account balances is not made
immediately following his termination date,"
11. By deleting the phrase "or (b)" from clause (iii) of
the first sentence of subsection 5.2 of the plan.
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<PAGE>
12. By substituting the following sentences for the last
sentence of subsection 5.2 of the plan:
"If a participant described in (ii) or (iii) above subsequently meets
the requirements for participation in the plan, he will become an
active participant in the plan on the date he satisfies the
requirements of subparagraph 2.1(a), and will be eligible to make
income deferral contributions under subsection 3.1 or voluntary
participant contributions under subsection 4.1 on the monthly entry
date (or, for participants first hired before 1996, the quarterly entry
date) coincident with or next following the date he becomes an active
participant. If a participant described in (i) above is later
reemployed, his subsequent participation will be determined in
accordance with the provisions of subsection 2.4."
13. By adding the following new subparagraph (e) to
subsection 6.1 of the plan immediately following subparagraph (d) thereof:
"(e) EMPLOYER CONTRIBUTION ACCOUNT. This account will
reflect his employer contribution account, if any,
transferred to the plan under subsection 2.6, and the
income, losses, appreciation and depreciation
attributable thereto subsequent to the date of
transfer."
14. By substituting the following for the first sentence
of subsection 6.2:
"A 'regular accounting date' shall occur on each business day."
15. By substituting the following for subsection 6.3 of
the plan:
"6.3. VALUATION OF PARTICIPANTS' ACCOUNTS. Pursuant to
rules established by the committee and applied on a uniform and
nondiscriminatory basis, participants' accounts will be valued on each
accounting date to reflect the fair market value (as determined by the
trustee) of the various investment funds as of such date, including
adjustments to reflect any distributions (including withdrawals and
loans), contributions, rollovers, transfers between investment funds,
income, losses, appreciation, or depreciation with respect to such
accounts since the previous accounting date."
16. By substituting the following for subsection 6.6 of
the plan:
"6.6. INVESTMENT FUNDS. The committee may designate in its
discretion one or more funds for the investment of participants'
accounts. One such investment fund shall be designated as the Parent
Company Stock Fund, which
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<PAGE>
fund will be invested solely in parent company shares. The committee,
in its discretion, may from time to time designate or establish new
investment funds or eliminate existing investment funds for investment
purposes under the plan. Each of the investment funds established under
this subsection shall comply with the investment guidelines set forth
in the Investment Policy Statement issued by the committee, which
Investment Policy Statement (and any subsequent Statement that modifies
or replaces it, as determined by the committee from time to time) is
incorporated herein by reference. If employer contributions are not
made in parent company stock, such contributions will be invested in
accordance with the participant's election under subsection 6.7."
17. By adding the following new subsection 6.7 to the
plan immediately following subsection 6.6 thereof:
"6.7. INVESTMENT FUND ELECTIONS. Each participant may elect,
subject to the following provisions, to have a portion or all of his
accounts invested in one or more of the investment funds, subject to
the following requirements:
(a) once in each calendar quarter, a participant may
make an investment election with respect to future
contributions to be made by him or on his behalf.
Notwithstanding the next preceding sentence, if the
employer elects to make employer contributions
under subsection 3.3 in the form of parent company
shares, such contributions shall be invested in the
Parent Company Stock Fund unless and until the
participant makes an election to transfer such
amounts in accordance with subparagraph (d)
below.
(b) Each investment election under (a) above shall be
effective as soon as administratively possible after
the election has been made, and shall be subject to
the provisions of subparagraph (c) below. If no new
election is made by a participant, all future
contributions will be invested in accordance with the
participant's last election under (a) above or, if
there is no prior election, in the same percentages
as such participant's accounts are invested under (d)
below.
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<PAGE>
(c) Each election under this subsection shall be made in
increments of 10 percent, in accordance with such
rules as the committee determines.
(d) Once in each calendar quarter, a participant may
elect to have a portion or all of the amounts
previously credited to his accounts transferred
among any available investment funds. Such an
election shall be effective as soon as
administratively possible after the election has been
made; and shall be subject to the provisions of
subparagraph (c) above. Notwithstanding the
foregoing, when an employer contribution under
subsection 3.3 is made in the form of parent
company shares, each participant may make an
additional investment election during the plan year
to transfer all or a portion of the employer
contribution from the Parent Company Stock Fund
to any of the other investment funds.
(e) Notwithstanding the foregoing, any elections by a
participant who is an officer or director of Western
Publishing Group, Inc. or a significant subsidiary
with respect to contributions to or withdrawals
from, and elections to transfer amounts between the
Parent Company Stock Fund and any other fund,
may be limited in accordance with any regulations
issued by the Securities and Exchange Commission
under Section 16 of the Securities Exchange Act of
1934."
18. By adding the following new subsection 6.8 to the
plan immediately following subsection 6.7 thereof:
"6.8. VOTING AND TENDERING OF PARENT COMPANY SHARES. The
voting of parent company shares held in the trust, and if a tender
offer is made for parent company shares, the tendering of such shares,
shall be subject to the provisions of the Employee Retirement Income
Security Act of 1974 (`ERISA') and the following provisions, to the
extent such provisions are not inconsistent with ERISA:
(a) VOTING OF PARENT COMPANY SHARES. With respect to
each participant who has an interest in the Parent
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<PAGE>
Company Stock Fund, the trustee shall provide a copy
of the notice and proxy statement for each meeting of
the holders of common stock issued by Western
Publishing Group, Inc., together with an appropriate
form for the participant's use in instructing the
trustee with respect to the voting of parent company
shares that, at the record date for the determination
of the shareholders entitled to such notice, and to
vote at, such meeting, are allocable to such
participant under the Parent Company Stock Fund as of
such date. If a participant furnishes timely
instructions to the trustee, the trustee (in person
or by proxy) shall vote the parent company shares
(including fractional shares) allocable to such
participant in the Parent Company Stock Fund in
accordance with the directions of the participant.
Parent company shares allocable to participants in
the Parent Company Stock Fund for which timely voting
instructions are not received by the trustee shall be
voted by the trustee as directed by the committee.
(b) TENDERING OF PARENT COMPANY SHARES. The trustee shall
furnish to each participant who has an interest in
the Parent Company Stock Fund notice of any tender
offer for, or a request or invitation for tenders of,
parent company shares made to the trustee. The
trustee shall request from each such participant
instructions as to the tendering of parent company
shares that are allocable to such participant under
the Parent Company Stock Fund. For this purpose, the
trustee shall provide participants with a reasonable
period of time in which they may consider any such
tender offer for, or request or invitation for
tenders of, parent company shares made to the
trustee. The trustee shall tender parent company
shares that are allocable to such participant under
the Parent Company Stock Fund as to which the trustee
has received instructions to tender from participants
within the time specified by the trustee. Parent
company shares that are allocable to a participant
under the Parent Company Stock Fund as to which the
trustee has not received instructions from
participants shall not be tendered.
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<PAGE>
(c) APPOINTMENT OF FIDUCIARY. The committee shall be
designated, under Section 404(c) of ERISA, as the
fiduciary responsible for ensuring that (i) the
procedures adopted by the plan administrator with
respect to the exercise of the foregoing voting and
tender rights are sufficient to safeguard the
confidentiality of information related to such
exercise; (ii) such procedures are being followed by
the plan administrator; and (iii) an independent
fiduciary is appointed whenever the committee
deems it appropriate for the proper exercise of the
foregoing voting and tender rights."
19. By substituting the word "on" for the phrase "as at the
accounting date coincident with or next following" where the latter occurs in
the last sentence of subsection 7.1 of the plan.
[PAGES MISSING FROM MASTER.]
26. By substituting the following for the final sentence
of subparagraph 7.10(e) of the plan:
"Amounts repaid by the participant will be recredited to the
participant's accounts and investment funds in the same ratio that such
participant's accounts are invested under subparagraph 6.7(d) of the
plan at the time of repayment."
27. By substituting the following for subparagraph
7.10(g) of the plan:
"(g) Interest paid by a participant on a loan made to him
under this subsection 7.10 shall be credited to the
accounts of the participant as soon as
administratively possible after such interest payment
was made."
28. By adding the following new subparagraph 7.10(i) to
the plan immediately following subparagraph 7.10(h) thereof:
"(i) For loans initiated on or after April 1, 1996, there
shall be charges for setting up the loan, which
charges shall be assessed against the borrowing
participant's loan proceeds. There also shall be
annual maintenance charges, which
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<PAGE>
charges shall be applied to reduce the borrowing
participant's accounts on a pro rata basis. The
committee shall determine reasonable amounts for such
charges from time to time."
29. By substituting the following for the penultimate
sentence of subsection 7.12 of the plan:
"Each such election shall be made at such time and in such manner as
the committee shall determine and shall be effective in accordance with
such rules as the committee may establish from time to time."
30. By substituting the following for the first sentence
of subsection 8.1 of the plan:
"Each participant in the plan who was previously covered by the Western
Publishing Company Employees' Savings and Security Plan ('savings and
security plan') and/or Western Profit Sharing Trust Plan has had his
account balance(s) under such plan(s) transferred in a lump sum to this
plan."
31. By substituting the following for the final sentence
of subsection 8.3 of the plan:
"Once each month, a participant may withdraw all or a portion of the
amounts specified in the next preceding sentence."
32. By deleting subsection 12.6 of the plan and by
renumbering subsections 12.7 and 12.8 as subsections 12.6 and 12.7,
respectively.
IT IS FURTHER RESOLVED that particulars 18, 26 and 32 above
shall be effective as of January 1, 1994; particulars 7, 8 and 21 shall be
effective December 31, 1995; particulars 1 through 3, 11, 12, 13, 20 and 30
above shall be effective January 1, 1996; and the remaining particulars shall be
effective April 1, 1996.
-10-
<PAGE>
THIRD AMENDMENT
OF
GOLDEN RETIREMENT SAVINGS PROGRAM
(As Amended and Restated Effective January 1, 1993)
WHEREAS, this corporation maintains the GOLDEN RETIREMENT
SAVINGS PROGRAM (the "plan"); and
WHEREAS, the plan was completely amended and restated
effective January 1, 1993, and further amendment of the plan is now considered
desirable;
NOW THEREFORE, IT IS RESOLVED that by virtue and in exercise
of the amending power reserved to this corporation under subsection 11.1 of the
plan, the plan, as previously amended, be and it is hereby further amended,
effective December 1, 1997, by adding the following sentence to Subsection 11.2
of the plan:
"in the event of the termination of employment of employees of the
employer associated with the Cambridge, Maryland facility as a result
of the sale of the Cambridge, Maryland facility, all participants
employed by the employer associated with the Cambridge, Maryland
facility on the date of the such sale whose employment with the
employer is terminated, shall be fully vested and have a 100%
nonforfeitable interest in their matched employer contribution account
under the plan."
* * *
I, ____________________, Secretary of Golden Books Publishing Company, Inc.
hereby certify that the foregoing is a correct copy of resolutions duly adopted
by the Board of Directors of said corporation on _________, 1997, and that said
resolutions have not been changed or repealed.
-------------------------------
Secretary as Aforesaid
* * *
The undersigned, as committee members under the Golden Retirement Savings
Program, hereby acknowledge receipt of a certified copy of the foregoing
amendment, and hereby consent thereto, this ____ day of __________1997.
-------------------------------
-------------------------------
-------------------------------
-------------------------------
As Committee Members As Aforesaid
<PAGE>
FOURTH AMENDMENT
OF
GOLDEN RETIREMENT SAVINGS PROGRAM
(As Amended and Restated Effective January 1, 1993)
WHEREAS, this corporation maintains the GOLDEN RETIREMENT SAVINGS
PROGRAM (the "plan"); and
WHEREAS, the plan was completely amended and restated effective January
1, 1993, and further amendment of the plan is now considered desirable;
NOW, THEREFORE, IT IS RESOLVED that by virtue and in exercise of the
amending power reserved to this corporation under subsection 11.1 of the plan,
the plan, as previously amended, be and it is hereby further amended, effective
July 1, 1998, in the following particulars:
1. By substituting the following for subsection 2.1 of the plan:
"2.1 ELIGIBILITY. Subject to the conditions and limitations of the
plan, each employee of an employer who was an active participant in the
plan immediately prior to July 1, 1998 will continue to participate in
the plan on and after that date. Each other employee of an employer
will be eligible to become a participant in the plan if he meets the
following requirements:
(a) He is a member of a group of employees to which the
plan has been and continues to be extended by his
employer, either unilaterally or through collective
bargaining, as described in Supplement A.
(b) He has completed twelve months of continuous
employment (as defined in subsection 2.2) or, if the
employee was hired by an employer before January 1,
1996, six months of continuous employment, or if the
employee is an hourly rated employee who is not
represented by a collective bargaining agent, one
month of continuous employment.
Each employee who meets the requirements of both subparagraphs (a) and
(b) above will become a participant on the entry date specified in (c)
or (d) below, whichever applies:
(c) If the employee is hired by an employer before
January 1, 1996, on the first January 1, April 1,
July 1, or October 1 (the 'quarterly entry date')
coincident with or next following the date he meets
the requirements of (a) and (b); or
(d) If the employee is hired by an employer on or after
January, 1996, on the first day of the calendar month
(the 'monthly entry date') coincident with
<PAGE>
or next following the date he meets the requirements
of subparagraph (a) and (b)."
2. By substituting the following sentence for the first sentence of
subsection 3.3 of the plan:
"Subject to the limitations of the plan and in addition to the income
deferral contributions made under subsection 3.1, each employer will
contribute for a participant who is not represented by a collective
bargaining agent and who has completed one year (1) of continuous
service with the company, and for all other participants who are
represented by a collective bargaining agent without regard to length
of service, an amount equal to fifty percent (50%) of the income
deferral contributions (but not exceeding $9,500 or such other amount
as determined pursuant to Section 402(g) of the Code for plan years
beginning on or after January 1, 1993) made (an behalf of the
participant's matched employer contributions account for such period as
provided under subsection 7.3."
* * *
I, Philip Galanes, Secretary of Golden Books Publishing Company, Inc. hereby
certify that the foregoing is a correct copy of resolutions duly adopted by the
Board of Directors of said corporation on May 1, 1998, and that said resolutions
have not been changed or repealed.
/s/
---------------------------------
Secretary as Aforesaid
The undersigned, as committee members under the Golden Retirement Savings
Program, hereby acknowledge receipt of a certified copy of the foregoing
amendment, and hereby consent thereto, this 30th day of June, 1998.
/s/
---------------------------------
/s/
---------------------------------
/s/
---------------------------------
---------------------------------
As Committee Members As Aforesaid
<PAGE>
FIFTH AMENDMENT
OF
GOLDEN RETIREMENT SAVINGS PROGRAM
(As Amended and Restated Effective January 1, 1993)
WHEREAS, this corporation maintains the GOLDEN RETIREMENT SAVINGS
PROGRAM (the "plan"); and
WHEREAS, the plan was completely amended and restated effective January
1, 1993, and further amendment of the plan is now considered desirable;
NOW THEREFORE, IT IS RESOLVED that by virtue and in exercise of the
amending power reserved to this corporation under subsection 11.1 of the plan,
the plan, as previously amended, be and it is hereby further amended in the
following particulars:
1. By substituting the following for subsection 6.7(a) of the plan:
"(a) On a daily basis, a participant may make an investment
election with respect to future contributions to be made by him or on
his behalf. Notwithstanding the next preceding sentence, if the
employer elects to make employer contributions under subsection 3.3 in
the form of parent company shares, such contributions shall be invested
in the Parent Company Stock Fund unless and until the participant makes
an election to transfer such amounts in accordance with subparagraph
(d) below."
2. By substituting the following for subsection 6.7(d) of the plan:
"(d) On a daily basis, a participant may elect to have a portion
or all of the amounts previously credited to his accounts transferred
among any available investment funds. Such an election shall be
effective as soon as administratively possible after the election has
been made; and shall be subject to the provisions of subparagraph (c)
above."
3. By substituting the following for subsection 7.5 of the plan:
"7.5. COMMENCEMENT OF DISTRIBUTIONS. Except as provided in the
following sentence, payment of a participant's benefits will be made
within a reasonable time after his termination date, but not later than
60 days after (a) the end of the plan year in which his termination
occurs, or (b) such later date on which the amount of the payment can
be ascertained by the committee. However, if a participant's
termination date occurs before he attains age 65 and if the aggregate
nonforfeitable balance in his accounts at his termination date or at
the time of any prior distribution exceeds $5,000 (or the dollar limit
under section 411(a)(11) if the Internal Revenue Code, if greater),
then payment of such benefits shall be deferred to his attainment of
age 65 (or, if elected by the participant, age 70 1/2) unless the
participant (or, in the event of his death, his surviving spouse)
consents to an immediate distribution. A (i) participant or (ii) former
participant who previously
<PAGE>
made an election to defer commencement of his benefits whose
nonforfeitable balance in his accounts as at his termination date
(after any required adjustments) was less than $5,000 (or the dollar
limit under section 411(a) of the Internal Revenue Code, if greater)
will automatically receive his distribution in a lump sum. A
participant who previously made an election to defer commencement of
his benefits may elect, not more frequently than once each plan year
and in an amount not less than $1,000 in each such plan year, to
receive a distribution from his account(s) in a lump sum payment."
IT IS FURTHER RESOLVED that particulars 1 and 2 above shall be
effective February 18, 1999; and particular 3 shall be effective January 1,
1999.
I, ___________________________, Secretary of Golden Books Publishing Company,
Inc. hereby certify that the foregoing is a correct copy of resolutions duly
adopted by the Board of Directors of said corporation on ___________________,
1999, and that said resolutions have not been changed or repealed.
-------------------------------
Secretary as Aforesaid
* * *
The undersigned, as committee members under the Golden Retirement Savings
Program, hereby acknowledge receipt of a certified copy of the foregoing
amendment, and hereby consent thereto, this ___ day of _________________, 1999.
-------------------------------
-------------------------------
-------------------------------
-------------------------------
As Committee Members As Aforesaid
<PAGE>
TABLE OF CONTENTS
PAGE
SECTION 1 INTRODUCTION...............................................-1-
1.1. Purpose....................................................-1-
1.2. Effective Date and Plan Year...............................-1-
1.3. Employers..................................................-1-
1.4. Plan Administration........................................-2-
1.5. Trustee, Trust Agreement, and Trust Fund...................-2-
1.6. Examination of Plan Documents..............................-2-
1.7. Notices....................................................-2-
1.8. Gender and Number..........................................-3-
1.9. Supplements................................................-3-
SECTION 2 ELIGIBILITY AND PARTICIPATION..............................-4-
2.1. Eligibility................................................-4-
2.2. Continuity of Employment...................................-5-
2.3. Leave of Absence...........................................-7-
2.4. Reemployed Former Participant..............................-7-
2.5. Leased Employment..........................................-7-
SECTION 3 EMPLOYER CONTRIBUTIONS.....................................-9-
3.1. Income Deferral Contributions..............................-9-
3.2. Compensation and Adjusted Compensation....................-10-
3.3. Matching Employer Contribution............................-10-
3.4. Limitations on Income Deferrals...........................-11-
3.5. Limitations on Matching Employer Contributions
and Participant Contributions......................-13-
3.6. Highly Compensated Participants...........................-16-
3.7. Verification of Employer Contributions....................-17-
3.8. No Interest in Employers..................................-17-
SECTION 4 PARTICIPANT CONTRIBUTIONS.................................-18-
4.1. Amount of Participant Contributions.......................-18-
4.2. Deduction or Payment of Participant Contributions.........-18-
4.3. Variation, Discontinuance, Resumption, and
Withdrawal of Participant Contributions............-18-
SECTION 5 PERIOD OF PARTICIPATION...................................-20-
5.1. Termination Date..........................................-20-
5.2. Restricted Participation..................................-21-
SECTION 6 ACCOUNTING................................................-22-
-i-
<PAGE>
6.1. Separate Accounts.........................................-22-
6.2. Accounting Dates..........................................-22-
6.3. Adjustment of Participants' Accounts......................-23-
6.4. Statement of Account......................................-24-
6.5. Contribution Limitations..................................-24-
6.6. Investment Funds..........................................-26-
SECTION 7 PAYMENT OF ACCOUNT BALANCES...............................-28-
7.1. Retirement or Death.......................................-28-
7.2. Resignation or Dismissal..................................-28-
7.3. Forfeitures...............................................-29-
7.4. Manner of Distribution....................................-30-
7.5. Commencement of Distributions.............................-33-
7.6. Designation of Beneficiary................................-34-
7.7. Missing Participants or Beneficiaries.....................-34-
7.8. Facility of Payment.......................................-35-
7.9. Latest Date for Distribution..............................-36-
7.10. Loans to Participants.....................................-36-
7.11. Direct Transfer of Eligible Rollover Distributions........-39-
7.12 Withdrawal of Income Deferral Contributions...............-39-
SECTION 8 PRIOR PLAN ACCOUNT........................................-42-
8.1. Transfer of Prior Plan Balance............................-42-
8.2. Prior Plan Accounts.......................................-42-
8.3. Withdrawals from Prior Plan Accounts......................-42-
8.4. Other Transferred Amounts and Rollovers...................-43-
SECTION 9 THE COMMITTEE.............................................-44-
9.1. Membership................................................-44-
9.2. Committee's General Powers, Rights, and Duties............-44-
9.3. Manner of Action..........................................-45-
9.4. Interested Committee Member...............................-46-
9.5. Resignation or Removal of Committee Members...............-46-
9.6. Committee Expenses........................................-46-
9.7. Information Required by Committee.........................-46-
9.8. Uniform Rules.............................................-47-
9.9. Review of Benefit Determinations..........................-47-
9.10. Committee's Decision Final................................-47-
SECTION 10 GENERAL PROVISIONS........................................-48-
10.1. Additional Employers......................................-48-
10.2. Action by Employers.......................................-48-
10.3. Waiver of Notice..........................................-48-
10.4. Controlling Law...........................................-48-
-ii-
<PAGE>
10.5. Employment Rights.........................................-48-
10.6. Litigation by Participants................................-49-
10.7. Interests Not Transferable................................-49-
10.8. Absence of Guaranty.......................................-49-
10.9. Evidence..................................................-50-
SECTION 11 AMENDMENT AND TERMINATION.................................-51-
11.1. Amendment.................................................-51-
11.2. Termination...............................................-51-
11.3. Reorganizations...........................................-51-
11.4. Vesting and Distribution on Termination...................-52-
11.5. Notice of Amendment or Termination........................-52-
11.6. Plan Merger, Consolidation, Etc...........................-52-
SECTION 12 TOP-HEAVY RULES...........................................-54-
12.1. Purpose and Effect.......................................-54-
12.2. Top-Heavy Plan............................................-54-
12.3. Key Employee..............................................-55-
12.4. Aggregated Plans..........................................-55-
12.5. Minimum Contribution......................................-56-
12.6. Maximum Earnings..........................................-56-
12.7. No Duplication of Benefits................................-57-
12.8. Adjustment of Combined Benefit Limitations................-57-
SUPPLEMENT A.................................................................A-1
-iii-
<PAGE>
EXHIBIT 10.10
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
1999 EQUITY AWARD PLAN
ARTICLE I.
PURPOSE
The purpose of the Golden Books Family Entertainment, Inc. 1999 Equity
Award Plan is to enhance the profitability and value of the Company for the
benefit of its stockholders by enabling the Company to offer employees and
consultants of the Company and its Affiliates who are in 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 Plan is effective as of the date set forth in Article XIV.
ARTICLE II.
DEFINITIONS
For purposes of the Plan, the following terms shall have the following
meanings:
2.1. "Acquisition Events" shall have the meaning set forth in Section
4.2(d).
2.2. "Affiliate" shall mean other than the Company, (i) any
corporation in an unbroken chain of corporations beginning with the
Company, or in the event the Company is a Subsidiary, beginning with the
Company's Parent, which owns stock possessing fifty percent (50%) or more
of the total combined voting power of all classes of stock in one of the
other corporations in such chain; (ii) any corporation, trade or business
(including, without limitation, a partnership or limited liability company)
which is controlled fifty percent (50%) or more (whether by ownership of
stock, assets or an equivalent ownership interest or voting interest) by
the Company or one of its Affiliates; or (iii) any other entity, approved
by the Committee as an Affiliate under the Plan, in which the Company or
any of its Affiliates has a material equity interest.
2.3. "Award" shall mean, individually or collectively, a grant under
this Plan of Stock Options or Restricted Stock or Performance Shares.
2.4. "Award Agreement" shall mean the written agreement, as approved
by the Committee, entered into between a Participant and the Company
setting forth the terms and conditions of any Award hereunder.
2.5. "Board" shall mean the Board of Directors of the Company.
1
<PAGE>
2.6. "Cause" shall mean , unless otherwise determined by the Committee
at grant, or, if no rights of the Participant are reduced, thereafter,
termination due to a Participant's, fraud, willful misconduct or refusal to
attempt to perform services (for any reason other than illness or
incapacity), as determined by the Committee in its sole discretion;
provided that with respect to any Eligible Employee who has entered into an
Employment Agreement with the Company or any Affiliate, "Cause" shall have
the meaning specified in such agreement at the time of grant.
2.7. "Change of Control" shall have the meaning set forth in Article X
of this Plan.
2.8. "Code" shall mean the Internal Revenue Code of 1986, as amended.
Any reference to any section of the Code shall also be a reference to any
successor provision.
2.9. "Committee" shall mean a committee or subcommittee of the Board
appointed from time to time by the Board, which committee or subcommittee
shall be intended to consist of two (2) or more non-employee directors,
each of whom shall be, to the extent required by Rule 16b-3 a "non-employee
director" as defined in Rule 16b-3 and, to the extent required by Section
162(m) of the Code, an "outside director" as defined under Section 162(m)
of the Code. Notwithstanding the foregoing, if and to the extent that no
Committee exists which has the authority to administer the Plan, the
functions of the Committee under this Plan shall be exercised by the Board.
If for any reason the appointed Committee does not meet the requirements of
Rule 16b-3 or Section 162(m) of the Code, such noncompliance with the
requirements of Rule 16b-3 or Section 162(m) of the Code shall not affect
the validity of the Awards, grants, interpretations or other actions of the
Committee.
2.10. "Common Stock" shall mean, subject to Section 4 hereof, the
common stock, $.01 par value per share, of the Company.
2.11. "Company" shall mean Golden Books Family Entertainment, Inc., a
Delaware corporation, and its successors and assigns.
2.12. "Consultant" shall mean any person who is engaged to perform
services for the Company and/or its Affiliates other than as an employee or
director of the Company or any Affiliate.
2.13. "Disability" shall mean, unless otherwise determined by the
Committee at grant or, if no rights of the Participant are reduced,
thereafter, an individual's inability, as determined by the Committee, to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result
in death or which has lasted or can be expected to last for a continuous
period of not less than twelve (12) months, provided, that with respect to
any Eligible Employee who has entered into an Employment Agreement with the
Company or any Affiliate, "Disability" shall have the meaning specified in
such agreement at the time of grant.
2
<PAGE>
2.14. "Eligible Employee" shall mean an employee of the Company or an
Affiliate who is eligible to be granted Stock Options, Restricted Stock and
Performance Shares under the Plan.
2.15. "Employment Agreement" shall mean an agreement between the
Eligible Employee and the Company or any Affiliate, that governs an
Eligible Employee's employment relationship with the Company or any
Affiliate, as amended from time to time.
2.16. "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
2.17. "Fair Market Value" for purposes of the Plan, unless otherwise
required by any applicable provision of the Code or any regulations issued
thereunder, shall mean, as of any date, the last sales price reported for
the Common Stock on the applicable date (i) as reported on the principal
national securities exchange on which it is then traded or the Nasdaq Stock
Market, Inc. or (ii) if not traded on any such national securities exchange
or the Nasdaq Stock Market, Inc., as quoted on an automated quotation
system sponsored by the National Association of Securities Dealers. If the
Common Stock is not readily tradable on a national securities exchange, the
Nasdaq Stock Market, Inc., or any automated quotation system sponsored by
the National Association of Securities Dealers, its Fair Market Value shall
be set in good faith by the Committee. For purposes of the grant of any
Stock Option, the applicable date shall be the date on which the Option is
granted or, if the sale of the Common Stock shall not have been reported or
quoted on such date, on the first day prior thereto on which the sale of
the Common Stock was reported or quoted. Notwithstanding anything in this
Section 2.17 to the contrary, unless otherwise required by any applicable
provision of the Code or any regulations issued thereunder, the "Fair
Market Value" of any Stock Option granted under this Plan as of the
"effective date" (as defined in the Joint Plan of Reorganization) (the
"Reorganization Effective Date"), shall mean the average of the last sales
price reported for the Common Stock on the Nasdaq Stock Market, Inc for
each of the trading days during the thirty (30) day period commencing on
the Reorganization Effective Date.
2.18. "Good Reason" with respect to any Eligible Employee who has
entered into an Employment Agreement with the Company or any Affiliate,
shall have the meaning specified in such agreement as of the Award's grant
date (which meaning shall be incorporated into the Eligible Employee's
Award Agreement). With respect to any other Eligible Employee, unless
otherwise determined by the Committee at grant, or, if no rights of the
Participant are reduced, thereafter, without an Eligible Employee's consent
(i) a change in the employee's location of employment beyond a 75 mile
radius from New York City that is not part of a general relocation of
corporate officers, (ii) a material diminution in the nature and scope of
the Eligible Employee's authority and duties from those exercised or
performed by the employee as of the Reorganization Effective Date or (iii)
a reduction in the Eligible Employee's salary or benefits unless such
reduction is applicable to substantially all officers of the Company or any
applicable Affiliate;
3
<PAGE>
provided that the Eligible Employee shall be deemed to have consented to
any such action if the employee does not notify the Company in writing to
the contrary within sixty (60) days following the occurrence of any such
event, and further provided that the Company shall have thirty (30) days
after receipt of such notice to cure the deficiency.
2.19. "Incentive Stock Option" shall mean any Stock Option awarded
under the Plan intended to be and designated as an "incentive stock option"
within the meaning of Section 422 of the Code.
2.20. "Joint Plan of Reorganization" shall mean the Golden Books
Family Entertainment, Inc. Joint Plan of Reorganization Under Chapter 11 of
the Bankruptcy Code, dated as of May 13, 1999.
2.21. "Non-Qualified Stock Option" shall mean any Stock Option awarded
under the Plan that is not an Incentive Stock Option.
2.22. "Parent" shall mean any parent corporation of the Company within
the meaning of Section 424(e) of the Code.
2.23. "Participant" shall mean any Eligible Employee or Consultant to
whom an Award has been made under this Plan.
2.24. "Performance Criteria" shall have the meaning set forth in
Exhibit A appended hereto.
2.25. "Performance Goal" shall mean the objective performance goals
established by the Committee in accordance with Section 162(m) of the Code
and based on or more Performance Criteria.
2.26. "Performance Period" shall have the meaning set forth in Section
8.1.
2.27. "Performance Share" shall mean an Award made pursuant to Article
VIII of this Plan of the right to receive Common Stock or, as determined by
the Committee in its sole discretion, cash of an equivalent value at the
end of the Performance Period or thereafter.
2.28. "Plan" shall mean the Golden Book Family Entertainment, Inc.
1999 Equity Award Plan.
2.29. "Restricted Stock" shall mean any Common Stock issued pursuant
to Article VII herein.
2.30. "Restriction Period" shall mean the period set forth in Section
7.3(a) with respect to Restricted Stock.
4
<PAGE>
2.31. "Retirement" shall mean a Termination of Employment by a
Participant who has attained (i) at least age sixty-five (65); or (ii) such
earlier date after age fifty-five (55) as approved by the Committee, in its
sole discretion, without regard to whether the termination is treated as a
"retirement" for any other purposes.
2.32. "Rule 16b-3" shall mean Rule 16b-3 under Section 16(b) of the
Exchange Act as then in effect or any successor provisions.
2.33. "Stock Option" shall mean any option to purchase shares of
Common Stock granted to an Eligible Employee or Consultant under the Plan.
2.34. "Subsidiary" shall mean any subsidiary corporation of the
Company within the meaning of Section 424(f) of the Code.
2.35. "Ten Percent Stockholder" shall mean a person owning stock of
the Company possessing more than 10% of the total combined voting power of
all classes of stock of the Company or its Subsidiaries or its Parent.
2.36. "Termination of Consultancy" shall mean the termination of a
Consultant's consultancy arrangement with the Company and all Affiliates.
In the event an entity shall cease to be an Affiliate, there shall be
deemed a Termination of Consultancy of any individual who is not otherwise
a Consultant to the Company or another Affiliate at the time the entity
ceases to be an Affiliate.
2.37. "Termination of Employment," except as provided in the next
sentence, shall mean (i) a termination of a Participant's employment with
the Company and all Affiliates (for reasons other than a military or
personal leave of absence granted by the Company or any Affiliate); or (ii)
when an entity that is employing a Participant ceases to be an Affiliate,
unless the Participant thereupon is or becomes employed by the Company or
another Affiliate. The Committee may otherwise define Termination of
Employment in the Option grant or, if no rights of the Participant are
reduced, may otherwise define Termination of Employment thereafter,
including, but not limited to, defining Termination of Employment with
regard to entities controlling, under common control with or controlled by
the Company rather than just the Company and its Affiliates and/or entities
that provide substantial services to the Company or its Affiliates to which
the Participant has transferred directly from the Company or its Affiliates
at the request of the Company.
2.38. "Transfer" or "Transferred" shall mean anticipate, alienate,
attach, sell, assign, pledge, encumber, charge or otherwise transfer.
5
<PAGE>
ARTICLE III.
ADMINISTRATION
3.1. THE COMMITTEE. The Plan shall be administered and interpreted by
the Committee.
3.2. AWARDS. The Committee shall have full authority to grant,
pursuant to the terms of the Plan, Awards to Eligible Employees and
Consultants and to otherwise administer the Plan. All Awards shall be
granted by, confirmed by, and subject to the terms of an Award Agreement.
In particular, the Committee shall have the authority:
(a) to select the Eligible Employees and Consultants to whom
Awards may from time to time be granted hereunder;
(b) to determine whether and to what extent Awards are to be
granted hereunder to one or more Eligible Employees or Consultants;
(c) to determine, in accordance with the terms of the Plan, the
number of shares of Common Stock to be covered by each Award granted
hereunder;
(d) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Award granted hereunder (including, but
not limited to, the exercise or purchase price (if any), any
restriction or limitation, any vesting schedule or acceleration
thereof, or any forfeiture restrictions or waiver thereof, regarding
any Award, and the shares of Common Stock relating thereto, based on
such factors, if any, as the Committee shall determine, in its sole
discretion);
(e) to determine whether, to what extent and under what
circumstances to provide loans that shall be on a recourse basis and
shall bear interest at the rate the Committee shall provide) to
Eligible Employees and Consultants in order to exercise Stock Options
under this Plan or to purchase Restricted Stock under the Plan;
(f) to determine whether a Stock Option is an Incentive Stock
Option or Non-Qualified Stock Option or whether an Award is intended
to satisfy Section 162(m) of the Code; and
(g) to determine whether to require an Eligible Employee or
Consultant, as a condition of the granting of any Award, not to sell
or otherwise dispose of shares of Common Stock acquired pursuant to
the exercise of a Stock Option or any other Award for a period of time
as determined by the Committee, in its sole discretion, following the
date of the acquisition of such Stock Option or Award.
6
<PAGE>
3.3. GUIDELINES. Subject to Article XI hereof, the Committee shall
have the authority to adopt, alter and repeal such administrative rules,
guidelines and practices governing the Plan and perform all acts, including
the delegation of its administrative responsibilities, as it shall, from
time to time, deem advisable; to construe and interpret the terms and
provisions of the Plan and any Award issued under the Plan (and any
agreements relating thereto); and to otherwise supervise the administration
of the Plan. The Committee may correct any defect, supply any omission or
reconcile any inconsistency in the Plan or in any agreement relating
thereto in the manner and to the extent it shall deem necessary to carry
the Plan into effect, but only to the extent any such action would be
permitted under the applicable provisions of both Rule 16b-3 and Section
162(m) of the Code. The Committee may adopt special guidelines and
provisions for persons who are residing in, or subject to, the taxes of,
countries other than the United States to comply with applicable tax and
securities laws. To the extent applicable, the Plan is intended to comply
with the applicable requirements of Rule 16b-3 and Section 162(m) of the
Code and shall be limited, construed and interpreted in a manner so as to
comply therewith.
3.4. DECISIONS FINAL. Any decision, interpretation or other action
made or taken in good faith by or at the direction of the Company, the
Board, or the Committee (or any of its members) arising out of or in
connection with the Plan shall be within the absolute discretion of the
Company, the Board or the Committee, as the case may be, and shall be
final, binding and conclusive on the Company and all employees and
Participants and their respective heirs, executors, administrators,
successors and assigns.
3.5. RELIANCE ON COUNSEL. The Company, the Board or the Committee may
consult with legal counsel, who may be counsel for the Company or other
counsel, with respect to its obligations or duties hereunder, or with
respect to any action or proceeding or any question of law, and shall not
be liable with respect to any action taken or omitted by it in good faith
pursuant to the advice of such counsel.
3.6. PROCEDURES. The Board may, but need not, designate one of
the members of the Committee as chairman and the Committee shall hold
meetings, subject to the By-Laws of the Company, at such times and
places including, without limitation, by telephone conference or by
written consent, as the Committee shall deem advisable. A majority of
the Committee members shall constitute a quorum. All determinations of
the Committee shall be made by a majority of its members. Any decision
or determination reduced to writing and signed by all the Committee
members in accordance with the By-Laws of the Company shall be fully
as effective as if it had been made by a vote at a meeting duly called
and held. The Committee may keep minutes of its meetings and may make
such rules and regulations for the conduct of its business as it shall
deem advisable.
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3.7. DESIGNATION OF CONSULTANTS/LIABILITY.
(a) The Committee may designate officers of the Company and
professional advisors to assist the Committee in the administration of
the Plan and may grant authority to officers to execute agreements or
other documents on behalf of the Committee.
(b) The Committee may employ such legal counsel, consultants and
agents as it may deem desirable for the administration of the Plan and
may rely upon any opinion received from any such counsel or consultant
and any computation received from any such consultant or agent.
Expenses incurred by the Committee or Board in the engagement of any
such counsel, consultant or agent shall be paid by the Company. The
Committee, its members and any person designated pursuant to paragraph
(a) above shall not be liable for any action or determination made in
good faith with respect to the Plan. To the maximum extent permitted
by applicable law, no officer of the Company or member or former
member of the Committee or of the Board shall be liable for any action
or determination made in good faith with respect to the Plan or any
Award granted under it. To the maximum extent permitted by applicable
law and the Certificate of Incorporation and By-Laws of the Company
and to the extent not covered by insurance, each officer and member or
former member of the Committee or of the Board shall be indemnified
and held harmless by the Company against any cost or expense
(including reasonable fees of counsel reasonably acceptable to the
Company) or liability (including any sum paid in settlement of a claim
with the approval of the Company), and advanced amounts necessary to
pay the foregoing at the earliest time and to the fullest extent
permitted, arising out of any act or omission to act in connection
with the Plan, except to the extent arising out of such officer's,
member's or former member's own fraud or bad faith. Such
indemnification shall be in addition to any rights of indemnification
the officers, directors or members or former officers, directors or
members may have under applicable law or under the Certificate of
Incorporation or By-Laws of the Company or Affiliate. Notwithstanding
anything else herein, this indemnification will not apply to the
actions or determinations made by an individual with regard to Awards
granted to him under the Plan.
ARTICLE IV.
SHARE AND OTHER LIMITATIONS
4.1. SHARES.
(a) GENERAL LIMITATION. The aggregate number of shares of Common
Stock that may be issued under the Plan shall not exceed ten percent
(10%), on a fully diluted basis, of the shares of the Common Stock
outstanding on the
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Reorganization Effective Date (subject to any increase or decrease
pursuant to Section 4.2), which may be either authorized and unissued
Common Stock or Common Stock held in or acquired for the treasury of
the Company or both. Notwithstanding the preceding sentence, the
aggregate number of shares of Common Stock that may be issued under
the Plan subject to the Award of ISO's shall be 400,000. To the extent
that an Incentive Stock Option is disqualified and no longer an
Incentive Stock Option, the number of shares of Common Stock
underlying the Stock Option shall continue to count against the
aggregate limit of shares of Common Stock that may be subject to
Awards hereunder. If any Stock Option granted under this Plan expires,
terminates or is canceled for any reason without having been exercised
in full or the Company repurchases any Stock Option, the number of
shares of Common Stock underlying such unexercised or repurchased
Stock Option shall again be available for the purposes of Awards under
this Plan. If any shares of Restricted Stock or Performance Shares
awarded under this Plan to a Participant are forfeited or repurchased
by the Company for any reason, the number of forfeited or repurchased
shares of Restricted Stock or Performance Shares shall again be
available for the purposes of Awards under this Plan.
(b) INDIVIDUAL PARTICIPANT LIMITATIONS. (i) The maximum number of
shares of Common Stock subject to any award of Performance Shares or
shares of Restricted Stock for which the grant of such Award or the
lapse of the relevant Restriction Period is subject to the attainment
of Performance Goals, that may be granted under this Plan during any
fiscal year of the Company to an Eligible Employee or Consultant shall
be 500,000 shares per type of Award (subject to any increase or
decrease pursuant to Section 4.2).
(ii) The maximum number of shares of Common Stock subject to
the award of any Stock Option that may be granted under this Plan
during any fiscal year by the Company to an Eligible Employee or
Consultant shall be 500,000 shares.
(iii) There are no annual individual Eligible Employee or
Consultant share limitations on Restricted Stock for which the
grant of such Award or the lapse of the relevant Restriction
Period is not subject to attainment of Performance Goals in
accordance with Section 7.3(a)(ii) hereof.
(iv) The individual Participant limitations set forth in
this Section 4.1(b) shall be cumulative; that is, to the extent
that shares of Common Stock for which Awards are permitted to be
granted to an Eligible Employee or a Consultant during a fiscal
year are not covered by an Award to such Eligible Employee or
Consultant in a fiscal year, the number of shares of Common Stock
available for Awards to such Eligible
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Employee or Consultant shall automatically increase in the
subsequent fiscal years during the term of the Plan until used.
4.2. CHANGES.
(a) The existence of the Plan and the Awards granted hereunder
shall not affect in any way the right or power of the Board or the
stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's
capital structure or its business, any merger or consolidation of the
Company or Affiliates, any issue of bonds, debentures, preferred or
prior preference stock ahead of or affecting Common Stock, the
authorization or issuance of additional shares of Common Stock, the
dissolution or liquidation of the Company or Affiliates, any sale or
transfer of all or part of its assets or business or any other
corporate act or proceeding.
(b) Subject to Section 4.2(d), in the event of any change in the
capital structure or business of the Company by reason of any stock
dividend or extraordinary dividend, stock split or reverse stock
split, recapitalization, reorganization, merger, consolidation,
split-up, combination or exchange of shares, non-cash distributions
with respect to its outstanding Common Stock or capital stock other
than Common Stock, reclassification of its capital stock, any sale or
transfer of all or part of the Company's assets or business, or any
similar change affecting the Company's capital structure or business
and the Committee determines in good faith that an adjustment is
necessary or appropriate under the Plan to prevent substantial
dilution or enlargement of the rights granted to, or available for,
Participants under the Plan or as otherwise necessary to reflect the
change, then the aggregate number and kind of shares which may be
issued under Section 4.1 of the Plan, the number and kind of shares or
other property (including cash) subject to outstanding Awards under
the Plan and the purchase or exercise price thereof shall be
appropriately adjusted consistent with such change in such manner as
the Committee may deem equitable to prevent substantial dilution or
enlargement of the rights granted to, or available for, Participants
under the Plan or as otherwise necessary to reflect the change, and
any such adjustment determined by the Committee in good faith shall be
binding and conclusive on the Company and all Participants and
employees and their respective heirs, executors, administrators,
successors and assigns.
(c) Fractional shares of Common Stock resulting from any
adjustment in Awards pursuant to Section 4.2(a) or (b) shall be
aggregated until, and eliminated at, the time of exercise. No
fractional shares of Common Stock shall be issued under the Plan. The
Committee may, in its sole discretion, pay cash in lieu of any
fractional shares of Common Stock in settlement of Awards under the
Plan. Notice of any adjustment shall be given by the Committee to each
Participant whose Award has been adjusted and such adjustment (whether
or not such notice is given) shall be effective and binding for all
purposes of the Plan.
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(d) In the event of a merger or consolidation in which the
Company is not the surviving entity or in the event of any transaction
that results in the acquisition of all or substantially all of the
Company's outstanding Common Stock by a single person or entity or by
a group of persons and/or entities acting in concert, or in the event
of the sale or transfer of all or substantially all of the Company's
assets (all of the foregoing being referred to as "Acquisition
Events"), then the Committee may, in its sole discretion, terminate
all outstanding Stock Options granted to Eligible Employees and
Consultants, effective as of the date of the Acquisition Event, by
delivering notice of termination to each such Participant at least
twenty (20) days prior to the date of consummation of the Acquisition
Event; provided, that during the period commencing on the date on
which such notice of termination is delivered to the Participant and
ending immediately prior to the consummation of the Acquisition Event,
each such Participant shall have the right to exercise in full all of
his other Stock Options that are then outstanding (whether vested or
not vested and without regard to any limitations on exercisability
otherwise contained in the Stock Option) but any such exercise
contingent on the occurrence of the Acquisition Event, and, provided
that, if the Acquisition Event does not take place within a specified
period after giving such notice for any reason whatsoever, the notice
and exercise shall be null and void. If an Acquisition Event occurs,
to the extent the Committee does not terminate the outstanding Stock
Options pursuant to this Section 4.2(d), then the provisions of
Section 4.2(b) shall apply.
ARTICLE V.
ELIGIBILITY
5.1. GENERAL ELIGIBILITY. All Eligible Employees and Consultants and
prospective employees of and consultants to the Company and its Affiliates are
eligible to be granted Non-Qualified Stock Options, Restricted Stock and
Performance Shares under this Plan. Eligibility for the grant of an Award and
actual participation in this Plan shall be determined by the Committee in its
sole discretion. The vesting and exercise of Awards granted to a prospective
employee or consultant shall be conditioned upon such individual actually
becoming an Eligible Employee or Consultant.
5.2. INCENTIVE STOCK OPTIONS. All Eligible Employees of the Company, its
Subsidiaries and Parent are eligible to be granted Incentive Stock Options under
this Plan. Eligibility for the grant of an Award and actual participation in
this Plan shall be determined by the Committee in its sole discretion.
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ARTICLE VI.
STOCK OPTION GRANTS
6.1. OPTIONS. Stock Options granted hereunder shall be one of two types:
(i) an Incentive Stock Option or (ii) a Non-Qualified Stock Option.
6.2. GRANTS. The Committee shall have the authority to grant to any
Eligible Employee one or more Incentive Stock Options, Non-Qualified Stock
Options, or both types of Stock Options. To the extent that any Stock Option
does not qualify as an Incentive Stock Option (whether because of its provisions
or the time or manner of its exercise or otherwise), such Stock Option or the
portion thereof which does not so qualify, shall constitute a separate
Non-Qualified Stock Option. The Committee shall have the authority to grant any
Consultant one or more Non-Qualified Stock Options. Notwithstanding any other
provision of this Plan or any provision of an Award Agreement, any Stock Option
granted to an Eligible Employee of an Affiliate that is not a Parent or
Subsidiary, shall be a Non-Qualified Option.
6.3. TERMS OF STOCK OPTIONS. Stock Options granted under this Article VI
shall be subject to the following terms and conditions and shall be in such form
and contain such additional terms and conditions, not inconsistent with the
terms of the Plan, as the Committee shall deem desirable:
(a) EXERCISE PRICE. The exercise price per share of Common Stock
subject to an Incentive Stock Option or a Non-Qualified Stock Option, shall
be determined by the Committee at the time of grant, but shall not be less
than 100% of the Fair Market Value of a share of Common Stock at the time
of grant; provided, however, that if an Incentive Stock Option is granted
to a Ten Percent Stockholder, the exercise price shall be no less than 110%
of the Fair Market Value of the Common Stock at the time of grant.
(b) STOCK OPTION TERM. The term of each Stock Option shall be fixed by
the Committee, provided that no Stock Option shall be exercisable more than
ten (10) years after the date the Stock Option is granted; and further
provided that, the term of an Incentive Stock Option granted to a Ten
Percent Stockholder shall not exceed five (5) years.
(c) EXERCISABILITY. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by
the Committee at the time of grant. If the Committee provides, in its sole
discretion, that any Stock Option is exercisable subject to certain
limitations (including, without limitation, that such Stock Option is
exercisable only in installments or within certain time periods), the
Committee may waive such limitations on the exercisability at any time at,
or after, grant in whole or in part (including, without limitation, waiver
of the installment exercise provisions or acceleration of the
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time at which such Stock Options may be exercised), based on such factors,
if any, as the Committee shall determine, in its sole discretion.
(d) METHOD OF EXERCISE. Subject to any limitations placed on the
exercisability of a Stock Option under subsection (c) above, Stock Options
may be exercised in whole or in part at any time during the Stock Option
term, by giving written notice of exercise to the Company specifying the
number of shares to be purchased. Such notice shall be accompanied by
payment in full of the purchase price as follows: (i) in cash or by check,
bank draft or money order payable to the order of the Company; (ii) if the
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 whereby the Participant delivers irrevocable instructions to a
broker to deliver promptly to the Company an amount equal to the purchase
price; or (iii) on such other terms and conditions as may be acceptable to
the Committee. No shares of Common Stock shall be issued until payment
therefor, as provided herein, has been made or provided for.
(e) INCENTIVE STOCK OPTION LIMITATIONS. To the extent that the
aggregate Fair Market Value (determined as of the time of grant) of the
Common Stock with respect to which Incentive Stock Options are exercisable
for the first time by an Eligible Employee during any calendar year under
the Plan and/or any other stock option plan of the Company, any Subsidiary
or Parent exceeds $100,000, such Options shall be treated as Stock Options
that are not Incentive Stock Options. In addition, if an Eligible Employee
does not remain employed by the Company, any Subsidiary or Parent at all
times from the time the Stock Option is granted until three (3) months
prior to the date of exercise (or such other period as required by
applicable law), such option shall be treated as Non-Qualified Stock
Option. Should any provision of this Plan not be necessary in order for the
Stock Options to qualify as Incentive Stock Options or should any
additional provisions be required, the Committee may amend this Plan
accordingly, without the necessity of obtaining the approval of the
Stockholders of the Company.
(f) FORM, MODIFICATION, EXTENSION AND RENEWAL OF STOCK OPTIONS.
Subject to the terms and conditions and within the limitations of the Plan,
Stock Options shall be evidenced by an Award Agreement, and the Committee
may (i) modify, extend or renew outstanding Stock Options granted under the
Plan (provided that the rights of a Participant are not reduced without his
consent) and (ii) accept the surrender of outstanding Stock Options (up to
the extent not theretofore exercised) and authorize the granting of new
Stock Options in substitution therefor (to the extent not theretofore
exercised).
(g) OTHER TERMS AND CONDITIONS. Options may contain such other
provisions, which shall not be inconsistent with any of the terms of the
Plan, as the Committee shall deem appropriate.
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ARTICLE VII.
RESTRICTED STOCK
7.1. AWARDS OF RESTRICTED STOCK. Shares of Restricted Stock may be
issued to Eligible Employees or Consultants either alone or in addition to
other Awards granted under this Plan. The Committee shall determine the
eligible persons to whom, and the time or times at which, grants of
Restricted Stock will be made, the number of shares to be awarded, subject
to Section 7.2, the price (if any) to be paid by the recipient, the time or
times within which such Awards may be subject to forfeiture, the vesting
schedule and rights to acceleration thereof, and all other terms and
conditions of the Awards. The Committee may condition the grant or vesting
of Restricted Stock upon the attainment of specified performance goals,
including established Performance Goals in accordance with Section 162(m)
of the Code, or such other factors as the Committee may determine, in its
sole discretion.
7.2. AWARDS AND CERTIFICATES. An Eligible Employee or Consultant
selected to receive Restricted Stock shall not have any rights with respect
to such Award, unless and until such Participant has delivered to the
Company a fully executed copy of the applicable Award Agreement relating
thereto and has otherwise complied with the applicable terms and conditions
of such Award. Further, such Award shall be subject to the following
conditions:
(a) PURCHASE PRICE. The purchase price of Restricted Stock shall
be fixed by the Committee, provided that any 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.
(b) ACCEPTANCE. Awards of Restricted Stock must be accepted
within a period of 90 days (or such shorter period as the Committee
may specify at grant) after the Award date by executing a Restricted
Stock Award Agreement and by paying whatever price (if any) the
Committee has designated thereunder.
(c) LEGEND. Each Participant receiving shares of Restricted Stock
shall be issued a stock certificate in respect of such shares of
Restricted Stock, unless the Committee elects to use another system,
such as book entries by the transfer agent, as evidencing ownership of
shares of Restricted Stock. Such certificate shall be registered in
the name of such Participant, and shall bear an appropriate legend
referring to the terms, conditions, and restrictions applicable to
such Award, substantially in the following form:
"The anticipation, alienation, attachment, sale, transfer,
assignment, pledge, encumbrance or charge of the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Golden Books
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Family Entertainment Inc. (the "Company") 1999 Equity Award Plan (the
"Plan") and an Agreement entered into between the registered owner and
the Company dated ____________. Copies of such Plan and Agreement are
on file at the principal office of the Company."
(d) CUSTODY. The Committee may require that any stock
certificates evidencing such shares be held in custody by the Company
until the restrictions thereon shall have lapsed and that, as a
condition to the grant of such Award of Restricted Stock, the
Participant shall have delivered a duly signed stock power, endorsed
in blank, relating to the Common Stock covered by such Award.
7.3. RESTRICTIONS AND CONDITIONS ON RESTRICTED STOCK AWARDS. Shares of
Restricted Stock awarded pursuant to this Plan shall be subject to Article
IX and the following restrictions and conditions:
(a) RESTRICTION PERIOD; VESTING AND ACCELERATION OF VESTING.
(i) Shares of Restricted Stock shall (x) vest in accordance
with the terms and conditions determined by the Committee in its
sole discretion, (including, without limitation, any service and
Performance Goal criteria) and (y) may not be Transferred during
the period or periods set by the Committee (the "Restriction
Period"). The Committee may, in its sole discretion, (x) provide
for the lapse of any restrictions in installments (in whole or in
part), (y) accelerate the vesting of all or any portion of any
Restricted Stock Award or (z) waive the deferral limitations for
all or any part of any Restricted Stock Award.
(ii) OBJECTIVE PERFORMANCE GOALS, FORMULAE OR STANDARDS. If
the grant of shares of Restricted Stock or the lapse of
restrictions is based on the attainment of Performance Goals, the
Committee shall establish the Performance Goals and the
applicable vesting percentage of the Restricted Stock award
applicable to each Participant or class of Participants in
writing prior to the beginning of the applicable fiscal year or
at such later date as otherwise determined by the Committee and
while the outcome of the Performance Goals are substantially
uncertain. Such Performance Goals may incorporate provisions for
disregarding (or adjusting for) changes in accounting methods,
corporate transactions (including, without limitation,
dispositions and acquisitions) and other similar type events or
circumstances. With regard to a Restricted Stock Award that is
intended to comply with Section 162(m) of the Code, to the extent
any such provision would create impermissible discretion under
Section 162(m) of the Code or otherwise violate Section 162(m) of
the Code, such provision shall be of no force or effect. The
applicable Performance Goals shall be based on one or more of the
Performance Criteria set forth in Exhibit A hereto.
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(b) RIGHTS AS STOCKHOLDER. Except as provided in this subsection
(b) and subsection (a) above and as otherwise determined by the
Committee, a Participant shall have, with respect to the shares of
Restricted Stock, all of the rights of a holder of shares of Common
Stock of the Company 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 Committee may, in its sole
discretion, determine at the time of grant that the payment of
dividends shall be deferred until, and conditioned upon, the
expiration of the applicable Restriction Period.
(c) LAPSE OF RESTRICTIONS. Any stock certificates representing
shares of Restricted Stock awarded hereunder that (i) have not been
forfeited and (ii) have not previously been delivered to a
Participant, shall be delivered to the Participant upon the expiration
of any applicable Restriction Period. All legends shall be removed
from said certificates at the expiration of the Restriction Period
except as otherwise required by applicable law.
ARTICLE VIII.
PERFORMANCE SHARES
8.1. AWARD OF PERFORMANCE SHARES. Performance Shares may be awarded
either alone or in addition to other Awards granted under this Plan. The
Committee shall, in its sole discretion, determine the Eligible Employees
and Consultants to whom and the time or times at which such Performance
Shares shall be awarded, the duration of the period (the "Performance
Period") during which, and the conditions under which, a Participant's
right to Performance Shares will be vested and the other terms and
conditions of the Award in addition to those set forth in Section 8.2.
Each Performance Share awarded shall be referenced to one share of
Common Stock. Except as otherwise provided herein, the Committee shall
condition the right to payment of any Performance Share Award upon the
attainment of objective Performance Goals established pursuant to Section
8.2(c) below and such other non-performance based factors or criteria as
the Committee may determine in its sole discretion.
8.2. TERMS AND CONDITIONS. A Participant selected to receive
Performance Shares shall not have any rights with respect to such shares,
unless and until such Participant has delivered a fully executed copy of a
Performance Share Award Agreement evidencing the Award to the Company and
has otherwise complied with the following terms and conditions:
(a) EARNING OF PERFORMANCE SHARE AWARD. At the expiration of the
applicable Performance Period, the Committee shall determine the
extent to which
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the Performance Goals established pursuant to Section 8.2(c) are
achieved and the percentage of each Performance Share Award that has
been earned.
(b) PAYMENT. Following the Committee's determination in
accordance with subsection (a) above, shares of Common Stock or, as
determined by the Committee in its sole discretion, the cash
equivalent of such shares shall be delivered to the Participant, in an
amount equal to such Participant's earned Performance Share Award.
Notwithstanding the foregoing, except as may be set forth in the Award
Agreement covering the Award, the Committee may, in its sole
discretion and in accordance with Section 162(m) of the Code, award an
amount less than the earned Performance Share Award and/or subject the
payment of all or part of any Performance Share Award to additional
vesting and forfeiture conditions as it deems appropriate.
(c) OBJECTIVE PERFORMANCE GOALS, FORMULAE OR STANDARDS. The
Committee shall establish the objective Performance Goals for the
earning of Performance Shares based on a Performance Period applicable
to each Participant or class of Participants in writing prior to the
beginning of the applicable Performance Period or at such later date
as permitted under Section 162(m) of the Code and while the outcome of
the Performance Goals are substantially uncertain. Such Performance
Goals may incorporate, if and only to the extent permitted under
Section 162(m) of the Code, provisions for disregarding (or adjusting
for) changes in accounting methods, corporate transactions (including,
without limitation, dispositions and acquisitions) and other similar
type events or circumstances. To the extent any such provision would
create impermissible discretion under Section 162(m) of the Code or
otherwise violate Section 162(m) of the Code, such provision shall be
of no force or effect. The applicable Performance Goals shall be based
on one or more of the Performance Criteria set forth in Exhibit A
hereto.
(d) DIVIDENDS AND OTHER DISTRIBUTIONS. At the time of any award
of Performance Shares, the Committee may, in its sole discretion,
award an Eligible Employee or Consultant the right to receive the cash
value of any dividends and other distributions that would have been
received had Eligible Employee or Consultant held each share of Common
Stock referenced by the earned Performance Share Award from the last
day of the first year of the Performance Period until the actual
distribution to such Participant of the related share of Common Stock
or cash value thereof. Such amounts, if awarded, shall be paid to the
Participant as and when the shares of Common Stock or cash value
thereof are distributed to such Participant.
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ARTICLE IX.
NON-TRANSFERABILITY AND TERMINATION OF
EMPLOYMENT/CONSULTANCY
9.1. NON-TRANSFERABILITY. No Stock Option or Performance Share shall
be Transferable by the Participant otherwise than by will or by the laws of
descent and distribution. All Stock Options shall be exercisable, during
the Participant's lifetime, only by the Participant. Shares of Restricted
Stock under Article VII 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 shall, except
as otherwise specifically provided by law or herein, be Transferable in any
manner, and any attempt to Transfer any such Award shall be void, and no
such Award shall in any manner be liable for or subject to the debts,
contracts, liabilities, engagements or torts of any person who shall be
entitled to such Award, nor shall it be subject to attachment or legal
process for or against such person. Notwithstanding the foregoing, the
Committee may determine at the time of grant or thereafter, that a
Non-Qualified Stock Option granted pursuant to Article VI that is otherwise
not transferable pursuant to this Article XII is transferable in whole or
part and in such circumstances, and under such conditions, as specified by
the Committee.
9.2. TERMINATION OF EMPLOYMENT OR TERMINATION OF CONSULTANCY. The
following rules apply with respect to a Participant's Termination of
Employment or Termination of Consultancy (the "Plan Default Termination
Rules"), unless otherwise provided under Section 9.3 or determined by the
Committee at grant or, if no rights of the Participant or Consultant are
reduced, thereafter:
(a) RULES APPLICABLE TO STOCK OPTIONS.
(i) TERMINATION BY REASON OF DEATH, DISABILITY OR
RETIREMENT. If a Participant's Termination of Employment or
Termination of Consultancy is by reason of death, Disability or
Retirement, all Stock Options held by such Participant may be
exercised, to the extent exercisable at the Participant's
Termination of Employment or Termination of Consultancy, by the
Participant (or, in the case of death, by the legal
representative of the Participant's estate) at any time within a
period of one year from the date of such Termination of
Employment or Termination of Consultancy, but in no event beyond
the expiration of the stated respective terms of such Stock
Options; provided, however, that, in the case of Retirement, if
the Participant dies within such exercise period, all unexercised
Stock Options held by such Participant shall thereafter be
exercisable, to the extent to which they were exercisable at the
time of death, for a period of one year from the date of such
death, but in no event beyond the expiration of the stated term
of such Stock Options.
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(ii) TERMINATION BY THE COMPANY WITHOUT CAUSE; TERMINATION
FOR GOOD REASON. If (a) a Participant's Termination of Employment
or Termination of Consultancy is by involuntary termination
without Cause or (b) an Eligible Employee's Termination of
Employment is by such individual for Good Reason, then all Stock
Options held by such Participant may be exercised, to the extent
exercisable at Termination of Employment or Termination of
Consultancy, by such Participant at any time within a period of
90 days from the date of such Termination of Employment or
Termination of Consultancy, but in no event beyond the expiration
of the stated term of such Stock Options.
(iii) VOLUNTARY TERMINATION. If a Participant's Termination
of Employment or Termination of Consultancy is voluntarily
terminated (other than a voluntary termination described in
Section 9(a)(iv)(B) below), all Stock Options held by such
Participant may be exercised, to the extent exercisable at
Termination of Employment or Termination of Consultancy, by the
Participant at any time within a period of 30 days from the date
of such Termination of Employment or Termination of Consultancy,
but in no event beyond the expiration of the stated terms of such
Stock Options and Stock Appreciation Rights.
(iv) TERMINATION FOR CAUSE. If a Participant's Termination
of Employment or Termination of Consultancy (A) is for Cause or
(B) is a voluntary termination (as provided in subsection (iii)
above) within 90 days after an event which would be grounds for a
Termination of Employment or Termination of Consultancy for
Cause, all Stock Options held by such Participant shall thereupon
terminate and expire as of the date of such Termination of
Employment or Termination of Consultancy.
(b) RULES APPLICABLE TO RESTRICTED STOCK. Subject to the
applicable provisions of the Restricted Stock Award Agreement and this
Plan, upon a Participant's Termination of Employment or Termination of
Consultancy for any reason during the relevant Restriction Period, all
Restricted Stock still subject to restriction will vest or be
forfeited in accordance with the terms and conditions established by
the Committee at grant or thereafter.
(c) RULES APPLICABLE TO PERFORMANCE SHARES. Subject to the
applicable provisions of the Award Agreement and this Plan, upon a
Participant's Termination of Employment or Termination of Consultancy
for any reason during a Performance Period or other period or
restriction as may be applicable for a given Award, the Performance
Shares in question will vest (to the extent applicable and to the
extent permissible under Section 162(m) of the Code) or be forfeited
in accordance with the terms and conditions established by the
Committee at grant or thereafter.
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9.3. RULES APPLICABLE TO ELIGIBLE EMPLOYEES WITH EMPLOYMENT
AGREEMENTS. Notwithstanding anything in this Plan to the contrary, to the
extent that the terms of an Eligible Employee's Employment Agreement are
inconsistent with the Plan Termination Default Provisions at the time of
grant of an Award, then, unless otherwise required by law or agreed to by
the employee, the terms of such Employment Agreement shall be incorporated
into the Eligible Employees Award Agreement hereunder.
ARTICLE X.
CHANGE OF CONTROL PROVISIONS
10.1. BENEFITS. Upon the occurrence of a Change of Control of the
Company (as defined below), except as determined by the Committee upon the
grant of an Award or, if no rights of the Participant are reduced,
thereafter, the Participant shall be entitled to the following benefits:
(a) Subject to paragraph (b) and Section 10.3 below, all
outstanding Stock Options granted shall be fully vested and
immediately exercisable in their entirety. The Committee, in its sole
discretion, may provide for the purchase of any Stock Options by the
Company or its Affiliates for an amount of cash equal to the excess of
the Change of Control Price (as defined below) of the shares of Common
Stock covered by such Stock Options, over the aggregate exercise price
of such Stock Options. For purposes of this Section 10.1, Change of
Control Price shall mean the the highest price per share of Common
Stock paid in any transaction related to the Change of Control of the
Company.
(b) Notwithstanding anything to the contrary herein, unless the
Committee provides otherwise, at the time a Stock Option is granted to
a Participant hereunder or, if no rights of the Participant are
reduced, thereafter, no acceleration of exercisability shall occur
with respect to such Stock Option if the Committee reasonably
determines in good faith, prior to the occurrence of the Change of
Control, that the Options shall be honored or assumed, or new rights
substituted therefor (each such honored, assumed or substituted option
hereinafter called an "Alternative Option"), by a Participant's
employer (or the parent or a subsidiary of such employer) immediately
following the Change of Control, provided that any such Alternative
Option must meet the following criteria:
(i) the Alternative Option must be based on stock which is
traded on an established securities market, or which will be so
traded within thirty (30) days of the Change of Control;
(ii) the Alternative Option must provide such Participant
with rights and entitlements substantially equivalent to or
better than the rights,
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terms and conditions applicable under such Option, including, but
not limited to, an identical or more favorable exercise schedule;
and
(iii) the Alternative Option must have economic value
substantially equivalent to the value of such Option (determined
at the time of the Change of Control).
For purposes of Incentive Stock Options, any assumed or substituted
Option shall comply with the requirements of Treasury Regulation ss.
1.425-1 (and any amendments thereto).
(c) Any Period of Restriction or other restrictions with respect
to outstanding Restricted Stock awards shall lapse.
(d) The target payout opportunities attainable under all
outstanding Awards of Restricted Stock Performance Units and
Performance Shares shall be deemed to have been fully earned for the
entire Performance Period(s) as of the effective date of the Change in
Control. The vesting of all Awards denominated in Shares shall be
accelerated as of the effective date of the Change in Control, and
there shall be paid out in cash to Participants within thirty (30)
days following the effective date of the Change in Control a pro rata
amount based upon an assumed achievement of all relevant performance
goals and upon the length of time within the Performance Period which
has elapsed prior to the Change in Control.
10.2. CHANGE OF CONTROL. With respect to any Eligible Employee or a
Consultant, a "Change in Control" shall have the meaning set forth in the
individual's Award Agreement or if any such individual is covered by an
Employment Agreement, the meaning set forth in such Employment Agreement.
ARTICLE XI.
TERMINATION OR AMENDMENT OF THE PLAN
11.1. TERMINATION OR AMENDMENT. Notwithstanding any other provision of
the Plan, the Board or the Committee may at any time, and from time to
time, amend, in whole or in part, any or all of the provisions of the Plan
(including any amendment deemed necessary to ensure that the Company may
comply with any regulatory requirement referred to in this Article XI), or
suspend or terminate it entirely, retroactively or otherwise; provided,
however, that, unless otherwise required by law or specifically provided
herein, 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
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extent required by the applicable provisions of Rule 16b-3 or Section
162(m) of the Code, or to the extent applicable to Incentive Stock Options,
Section 422 of the Code, no amendment may be made that would (i) increase
the aggregate number of shares of Common Stock that may be issued under
this Plan; (ii) increase the maximum individual Participant limitations for
a fiscal year under Section 4.1(b); (iii) change the classification of
employees or consultants eligible for Award grants under the Plan; (iv)
extend the maximum Stock Option term under Section 6.3(b); (v) decrease the
minimum option price of any Stock Option; (vi) extend the maximum option
period under Section 6.3; (vii) materially alter the Performance Criteria
for the Award of Restricted Stock or Performance Shares as set forth in
Exhibit A; or (viii) require stockholder approval in order for this Plan to
continue to comply with the applicable provisions of Section 162(m) of the
Code or, to the extent applicable to Incentive Stock Options, Section 422
of the Code. In no event may this Plan be amended without shareholder
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.
The Committee may amend the terms of any Award theretofore granted,
prospectively or retroactively, but, subject to Article IV above or as
otherwise specifically provided herein, no such amendment or other action
by the Committee shall impair the rights of any Participant without the
Participant's consent.
ARTICLE XII.
UNFUNDED PLAN
12.1. UNFUNDED STATUS OF PLAN. The Plan is intended to constitute an
"unfunded" plan for incentive and deferred compensation. With respect to
any payments as to which a Participant has a fixed and vested interest but
which are not yet made to a Participant by the Company, nothing contained
herein shall give any such Participant any rights that are greater than
those of a general creditor of the Company.
ARTICLE XIII.
GENERAL PROVISIONS
13.1. LEGEND. The Committee may require each person receiving shares
pursuant to an Award under the Plan to represent to and agree with the
Company in writing that the Participant is acquiring the shares without a
view to distribution thereof. In addition to any legend required by the
Plan, the certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on Transfer.
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All certificates for shares of Common Stock delivered under the Plan
shall be subject to such stock transfer orders and other restrictions as
the Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock exchange
upon which the Common Stock is then listed or any national securities
association system upon whose system the Common Stock is then quoted, any
applicable Federal or state securities law, and any applicable corporate
law, and the Committee may cause a legend or legends to be put on any such
certificates to make appropriate reference to such restrictions.
13.2. OTHER PLANS. Nothing contained in the Plan shall prevent the
Board from adopting other or additional compensation arrangements, subject
to stockholder approval if such approval is required; and such arrangements
may be either generally applicable or applicable only in specific cases.
13.3. NO RIGHT TO EMPLOYMENT/CONSULTANCY. Neither the Plan nor the
grant of any Award hereunder shall give any Participant or other employee
or Consultant any right with respect to continuance of employment by the
Company or any Affiliate, nor shall they be a limitation in any way on the
right of the Company or any Affiliate by which an employee or Consultant is
employed to terminate his employment or Consultancy at any time.
13.4. WITHHOLDING OF TAXES. The Company shall have the right to deduct
from any payment to be made to a Participant, or to otherwise require,
prior to the issuance or delivery of any shares of Common Stock or the
payment of any cash hereunder, payment by the Participant of, any Federal,
state or local taxes required by law to be withheld. Upon the vesting of
Restricted Stock, or upon making an election under Section 83(b) of the
Code, a Participant shall pay all required withholding to the Company.
Any such withholding obligation with regard to any Participant may be
satisfied, subject to the consent of the Committee, by reducing the number
of shares of Common Stock otherwise deliverable or by delivering shares of
Common Stock already owned. Any fraction of a share of Common Stock
required to satisfy such tax obligations shall be disregarded and the
amount due shall be paid instead in cash by the Participant.
13.5. LISTING AND OTHER CONDITIONS.
(a) Unless otherwise determined by the Committee, as long as the
Common Stock is listed on a national securities exchange or system
sponsored by a national securities association, the issuance of any
shares of Common Stock pursuant to an Award shall be conditioned upon
such shares being listed on such exchange or system. The Company shall
have no obligation to issue such shares unless and until, such shares
are so listed, and the right to exercise any Option with respect to
such shares shall be suspended until such listing has been effected.
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(b) If at any time counsel to the Company shall be of the opinion
that any sale or delivery of shares of Common Stock pursuant to an
Award is or may in the circumstances be unlawful or result in the
imposition of excise taxes on the Company under the statutes, rules or
regulations of any applicable jurisdiction, the Company shall have no
obligation to make such sale or delivery, or to make any application
or to effect or to maintain any qualification or registration under
the Securities Act of 1933, as amended, or otherwise with respect to
shares of Common Stock or Awards, and the right to exercise any Option
shall be suspended until, in the opinion of said counsel, such sale or
delivery shall be lawful or will not result in the imposition of
excise taxes on the Company.
(c) Upon termination of any period of suspension under this
Section 14.5, any Award affected by such suspension which shall not
then have expired or terminated shall be reinstated as to all shares
available before such suspension and as to shares which would
otherwise have become available during the period of such suspension,
but no such suspension shall extend the term of any Option.
(d) A Participant shall be required to supply the Company with
any certificates, representations and information that the Company
requests and otherwise cooperate with the Company in obtaining any
listing, registration, qualification, exemption, consent or approval
the Company deems necessary or appropriate.
13.6. GOVERNING LAW. The Plan shall be governed and construed in
accordance with the laws of the State of Delaware (regardless of the law
that might otherwise govern under applicable Delaware principles of
conflict of laws).
13.7. CONSTRUCTION. Wherever any words are used in the Plan in the
masculine gender they shall be construed as though they were also used in
the feminine gender in all cases where they would so apply, and wherever
any words are used herein in the singular form they shall be construed as
though they were also used in the plural form in all cases where they would
so apply.
13.8. OTHER BENEFITS. No Award payment under the Plan shall be deemed
compensation for purposes of computing benefits under any retirement plan
of the Company or its Affiliates nor affect any benefits under any other
benefit plan now or subsequently in effect under which the availability or
amount of benefits is related to the level of compensation unless
specifically provided to the contrary under the plan.
13.9. COSTS. The Company shall bear all expenses included in
administering the Plan, including expenses of issuing Common Stock pursuant
to any Awards hereunder.
13.10. NO RIGHT TO SAME BENEFITS. The provisions and terms of Awards
need not be the same with respect to each Participant, and such Awards to
individual Participants need not be the same in subsequent years.
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13.11. DEATH/DISABILITY. The Committee may in its discretion require
the transferee of a Participant to supply it with written notice of the
Participant's death or Disability and to supply it with a copy of the will
(in the case of the Participant's death) or such other evidence as the
Committee deems necessary to establish the validity of the Transfer of an
Award. The Committee may also require that the agreement of the transferee
be bound by all of the terms and conditions of the Plan.
13.12. SECTION 16(B) OF THE EXCHANGE ACT. All elections and
transactions under the Plan by persons subject to Section 16 of the
Exchange Act involving shares of Common Stock are intended to comply with
any applicable exemptive condition under Rule 16b-3. The Committee may
establish and adopt written administrative guidelines, designed to
facilitate compliance with Section 16(b) of the Exchange Act, as it may
deem necessary or proper for the administration and operation of the Plan
and the transaction of business thereunder.
13.13. SEVERABILITY OF PROVISIONS. If any provision of the Plan shall
be held invalid or unenforceable, such invalidity or unenforceability shall
not affect any other provisions hereof, and the Plan shall be construed and
enforced as if such provisions had not been included.
13.14. HEADINGS AND CAPTIONS. The headings and captions herein are
provided for reference and convenience only, shall not be considered part
of the Plan, and shall not be employed in the construction of the Plan.
ARTICLE XIV.
EFFECTIVE DATE OF PLAN
The Plan shall become effective upon adoption by the Board, subject to the
approval of this Plan by the stockholders of the Company in accordance with the
laws of the State of Delaware and the requirements of any applicable national
securities exchange or automated quotation system or such later date as provided
in the adopting resolution, provided, that, the stockholders' approval of the
Joint Plan of Reorganization shall be deemed to satisfy the stockholder and
approval requirement set forth in the foregoing sentence.
ARTICLE XV.
TERM OF PLAN
No Award shall be granted pursuant to the Plan on or after the tenth (10th)
anniversary of the earlier of the date this Plan is adopted or the date of
stockholder approval, but Awards granted prior to such tenth (10th) anniversary
may extend beyond that date.
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ARTICLE XVI.
NAME OF PLAN
The Plan shall be known as the "Golden Books Family Entertainment, Inc.
1999 Equity Award Plan."
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EXHIBIT A
PERFORMANCE CRITERIA
Performance Goals established for purposes of conditioning the grant
of an Award of Restricted Stock based on performance or the vesting of
performance-based Awards of Restricted Stock or Performance Shares shall be
based on one or more of the following performance criteria ("Performance
Criteria"): (i) the attainment of certain target levels of, or a specified
percentage increase in, revenues, income before income taxes and extraordinary
items, net income, earnings before income tax, earnings before interest, taxes,
depreciation and amortization, funds from operation of real estate investments
or a combination of any or all of the foregoing; (ii) the attainment of certain
target levels of, or a percentage increase in, after-tax or pre-tax profits
including, without limitation, that attributable to continuing and/or other
operations; (iii) the attainment of certain target levels of, or a specified
increase in, operational cash flow; (iv) the achievement of a certain level of,
reduction of, or other specified objectives with regard to limiting the level of
increase in, all or a portion of, the Company's bank debt or other long-term or
short-term public or private debt or other similar financial obligations of the
Company, which may be calculated net of such cash balances and/or other offsets
and adjustments as may be established by the Committee; (v) the attainment of a
specified percentage increase in earnings per share or earnings per share from
continuing operations; (vi) the attainment of certain target levels of, or a
specified increase in return on capital employed or return on invested capital;
(vii) the attainment of certain target levels of, or a percentage increase in,
after-tax or pre-tax return on stockholders' equity; (viii) the attainment of
certain target levels of, or a specified increase in, economic value added
targets based on a cash flow return on investment formula; (ix) the attainment
of certain target levels in the fair market value of the shares of the Company's
common stock; and (x) the growth in the value of an investment in the Company's
common stock assuming the reinvestment of dividends. For purposes of item (i)
above, "extraordinary items" shall mean all items of gain, loss or expense for
the fiscal year determined to be extraordinary or unusual in nature or
infrequent in occurrence or related to a corporate transaction (including,
without limitation, a disposition or acquisition) or related to a change in
accounting principle, all as determined in accordance with standards established
by Opinion No. 30 of the Accounting Principles Board.
In addition, such Performance Criteria may be based upon the attainment of
specified levels of Company (or subsidiary, division or other operational unit
of the Company) performance under one or more of the measures described above
relative to the performance of other corporations. To the extent permitted under
Code Section 162(m), but only to the extent permitted under Code Section 162(m)
(including, without limitation, compliance with any requirements for stockholder
approval), the Committee may: (i) designate additional business criteria on
which the Performance Criteria may be based or (ii) adjust, modify or amend the
aforementioned business criteria.
EXHIBIT 10.11
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of January 25, 2000 (this
"Agreement"), by and among GOLDEN BOOKS PUBLISHING COMPANY, INC., a Delaware
corporation ("Publishing"), GOLDEN BOOKS FAMILY ENTERTAINMENT, INC., a Delaware
Corporation ("Parent"), and the Holders (as hereinafter defined) of Registrable
Securities (as hereinafter defined) who are parties to this Agreement. For
purposes of this Agreement, the term "Company" refers to (i) Publishing as it
relates to the registration of Senior Notes, (ii) Parent, as it relates to the
registration of Common Stock and Warrants and, (iii) each of Publishing and
Parent, on a joint and several basis, for purposes of Section 9 of this
Agreement.
This Agreement is being entered into in accordance with the Plan (as
hereinafter defined) in connection with the acquisition of Securities (as
hereinafter defined) by certain holders named on the signature page to this
Agreement pursuant to the Plan. To induce the holders of Registrable Securities
(as hereinafter defined) to vote in favor of the Plan, the Company has
undertaken to register the Registrable Securities under the Act (as hereinafter
defined) and to take certain other actions with respect to the Registrable
Securities. This Agreement sets forth the terms and conditions of such
undertaking.
The parties hereby agree as follows:
1. DEFINITIONS. As used in this Agreement, and unless the context requires
a different meaning, the following terms have the meanings indicated:
"ACT" means the Securities Act of 1933, as amended, and the rules and
regulations of the SEC promulgated hereunder.
"APPROVED UNDERWRITER" has the meaning assigned to such term in Section
4(b).
"APPROVED UNDERWRITER AMOUNT" has the meaning assigned to such term in
Section 4(a).
"BUSINESS DAY" means any day other than a Saturday, Sunday or other day on
which commercial banks in The City of New York are authorized or required by law
or executive order to close.
"COMMON STOCK" means the Common Stock, $0.01 par value, of Parent, or any
other capital stock of Parent into which such stock is reclassified or
reconstituted.
"COMPANY UNDERWRITER" has the meaning assigned to such term in Section
5(a).
"DISADVANTAGEOUS CONDITION" has the meaning assigned to such term in
Section 3(f).
"EFFECTIVE DATE" means the effective date of the Plan pursuant to the terms
thereof.
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"EFFECTIVENESS PERIOD" has the meaning assigned to such term in Section
3(d).
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations of the SEC thereunder.
"HOLDER" has the meaning assigned to such term in Section 2(b).
"INDEMNIFIED PARTY" has the meaning assigned to such term in Section 9(c).
"INDEMNIFYING PARTY" has the meaning assigned to such term in Section 9(c).
"INITIAL SHELF REGISTRATION" has the meaning assigned to such term in
Section 3(a) hereof.
"INITIATING HOLDERS" has the meaning assigned to such term in Section 4(a).
"INSPECTOR" has the meaning assigned to such term in Section 7(a)(ix).
"NASD" has the meaning assigned to such term in Section 7(a)(xv).
"NASDAQ" has the meaning assigned to such term in Section 7(a)(xvii).
"PERSON" means any individual, firm, corporation, company, partnership,
trust, incorporated or unincorporated association, limited liability company,
joint venture, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind, and shall include any
successor (by merger or otherwise) of any such entity.
"PLAN" means the Joint Plan of Reorganization of Golden Books Family
Entertainment, Inc., et al., under Chapter 11 of the United States Bankruptcy
Code filed with the United States Bankruptcy Court for the Southern District of
New York and confirmed by such court on September 24, 1999, as the same may be
amended, modified or supplemented from time to time in accordance with the terms
thereof.
"REGISTRABLE SECURITIES" means, subject to Section 2(a), all securities in
each of the following: (1) a class comprising (a) shares of Common Stock held as
of the date hereof by the stockholders party hereto and (b) securities issued or
issuable in respect of shares of Common Stock issued, issuable or held pursuant
to clause (1)(a) above by way of a dividend or stock split or in connection with
a combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise; (2) a class comprising (a) Senior Notes held as of
the date hereof by the noteholders party hereto and (b) securities issued or
issuable in respect of the Senior Notes issued, issuable or held pursuant to
clause (2)(a) above by way of interest payments or otherwise; and (3) a class
comprising (a) Warrants held as of the date hereof by the warrantholders party
hereto and (b) securities issued or issuable in respect of the Warrant issued,
issuable or held pursuant to clause (3)(a) above by way of exercise or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization or otherwise.
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"REGISTRATION EXPENSES" has the meaning assigned to such term in Section 8.
"REGISTRATION STATEMENT" shall mean any registration statement of the
Company filed with the SEC in the appropriate form pursuant to the Act which
covers any of the shares of Common Stock, the Senior Notes, the Warrants and any
other Registrable Securities pursuant to the provisions of this Agreement and
all amendments and supplements to any such Registration Statement, including
post-effective amendments, in each case including the prospectus contained
therein, all exhibits thereto and all materials incorporated by reference
therein.
"SEC" means the Securities and Exchange Commission.
"SENIOR NOTES" means the 10.75% Senior Secured Notes due 2004 of
Publishing.
"SUBSEQUENT SHELF REGISTRATION" has the meaning assigned to such term in
Section 3(b).
"TOTAL SECURITIES" has the meaning assigned to such term in Section 5(a).
"WARRANTS" means the Warrants to purchase shares of Common Stock of the
Company at an exercise price of $23.03 per share of Common Stock.
2. SECURITIES SUBJECT TO THIS AGREEMENT.
(a) REGISTRABLE SECURITIES. For the purposes of this Agreement, Registrable
Securities will cease to be Registrable Securities when (i) a registration
statement covering such Registrable Securities has been declared effective under
the Act by the SEC and such Registrable Securities have been disposed of
pursuant to such effective registration statement, (ii) such securities have
been sold to the public pursuant to, or are eligible for sale to the public
without volume or manner of sale restrictions under, Rule 144(k) (or any similar
provision then in force, but not Rule 144A) promulgated under the Act, (iii)
such securities shall have been otherwise sold or transferred pursuant to an
exemption from the registration requirements under the Act and new certificates
for such securities not bearing a legend restricting further transfer shall have
been delivered by the Company or its transfer agent and subsequent disposition
of such securities shall not require registration or qualification under the Act
or any similar state law then in force, or (iv) all such Securities shall cease
to be outstanding
(b) HOLDERS OF REGISTRABLE SECURITIES. A Person is deemed to be a holder of
Registrable Securities (a "HOLDER") whenever such Person (i) is a party to this
Agreement (or a permitted transferee thereof who has agreed in writing to be
bound by the terms of this Agreement) and (ii) owns Registrable Securities. If
the Company receives conflicting instructions, notices or elections from two or
more persons with respect to the same Registrable Securities, the Company may
act upon the basis of the instructions, notice or election received from the
registered owner of such Registrable Securities.
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3. SHELF REGISTRATION UNDER THE ACT.
(a) INITIAL SHELF REGISTRATION. The Company shall (i) prepare and cause to
be filed with the SEC as soon as practicable, but not later than 75 days after
the Effective Date a Registration Statement for an offering to be made on a
continuous basis pursuant to Rule 415 under the Act (the "INITIAL SHELF
REGISTRATION") covering all of the Registrable Securities and providing for the
sale of the Registrable Securities by the Holders thereof and (ii) use its
reasonable best efforts to have such Initial Shelf Registration declared
effective by the SEC as promptly as practicable thereafter.
(b) SUBSEQUENT SHELF REGISTRATIONS. If the Company determines to terminate
the effectiveness of the Initial Shelf Registration prior to the end of the
Effectiveness Period, then, subject to the provisions of this Agreement, prior
to such termination the Company shall file, and shall use its reasonable best
efforts to cause the SEC to declare effective, a subsequent Registration
Statement for an offering to be made on a continuous basis pursuant to Rule 415
under the Act (a "SUBSEQUENT SHELF REGISTRATION") covering all of the
Registrable Securities then outstanding. The Subsequent Shelf Registration shall
be filed by the Company at such time, subject to the provisions of this
Agreement, prior to the termination of the effectiveness of the Initial Shelf
Registration which is reasonably calculated to cause the Subsequent Shelf
Registration to become effective on or prior to the date on which the
effectiveness of the Initial Shelf Registration terminates.
(c) AMENDMENTS TO INITIAL SHELF REGISTRATION OR SUBSEQUENT SHELF
REGISTRATIONS. If the Initial Shelf Registration (except as provided in Section
3(b)) or any Subsequent Shelf Registration ceases to be effective for any reason
at any time during the Effectiveness Period for any reason (other than because
of the sale of all of the Registrable Securities covered thereby or Registrable
Securities cease to be outstanding), the Company shall use its reasonable best
efforts to obtain the prompt withdrawal of any order suspending the
effectiveness thereof or take such other actions as may be necessary to
reinstate the effectiveness thereof, and in any event shall, within 60 days of
such cessation of effectiveness, either (i) amend such Initial Shelf
Registration or Subsequent Shelf Registration in a manner reasonably calculated
to obtain the withdrawal of the order suspending the effectiveness thereof, or
(ii) file a Subsequent Shelf Registration covering all Registrable Securities
then outstanding. (Each of the Initial Shelf Registration and any Subsequent
Shelf Registration filed pursuant to paragraph 3(b) or this paragraph 3(c) are
referred to individually herein as a "Shelf Registration" and collectively as
the "Shelf Registrations").
(d) EFFECTIVENESS PERIOD. Subject to Section 3(f) hereof, the Company shall
use its reasonable best efforts to keep the Shelf Registration (including the
Initial Shelf Registration and/or any Subsequent Shelf Registration)
continuously effective under the Act from the date on which the Initial Shelf
Registration was declared effective by the SEC until such time when all
Registrable Securities covered by the Initial Shelf Registration have been sold
(the "Effectiveness Period"). If a Subsequent Shelf Registration is filed,
pursuant to Section 3(b) or 3(c) hereof, the Company shall use its reasonable
best efforts to cause the Subsequent Shelf Registration to be declared effective
as soon as practicable after such filing and to keep such Registration Statement
continuously effective for a period after such effectiveness equal to the
Effectiveness Period.
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(e) SUPPLEMENTS AND AMENDMENTS. The Company shall file one or more
supplements or amendments to the Shelf Registration and the prospectus used in
connection therewith if (i) required by the rules, regulations or instructions
applicable to the registration form used for such Shelf Registration, (ii)
otherwise required by the SEC, or (iii) requested to do so in writing by any
Holder of Registrable Securities to the extent necessary to include such Holder
as a selling securityholder in such registration statement.
(f) BLACKOUT PERIODS. With respect to a Shelf Registration filed or to be
filed pursuant to Section 3 hereof, if a majority of the Board of Directors of
the Company shall determine, in its good faith reasonable judgment, that to
maintain the continued effectiveness of such Shelf Registration or to permit
such Shelf Registration to become effective (or if a Subsequent Shelf
Registration is otherwise required to be filed, to file such Shelf Registration)
would be materially adverse to the Company's financial condition, business or
operations or may require a disclosure that is not in the Company's best
interests and that would be materially adverse to the Company (a
"Disadvantageous Condition") in light of the existence, or in anticipation, of
(i) any acquisition or financing activity involving the Company, or any
subsidiary of the Company, including a proposed public offering of debt or
equity securities, (ii) an undisclosed material event, the public disclosure of
which would have a material adverse effect on the Company, (iii) a proposed
material transaction involving the Company or a substantial amount of its
assets, or (iv) any other circumstance or condition the disclosure of which
would materially disadvantage the Company), and the existence of which would
render a Subsequent Shelf Registration to be filed, or renders any Shelf
Registration then filed or effective, inadequate as failing to include material
information, then the Company may, until Such Disadvantageous Condition no
longer exists (but not with respect to more than one occasion or more than 90
days in the aggregate during any continuous 12-month period) cause such Shelf
Registration to be withdrawn and/or cause the right of Holders to make
dispositions of Registrable Securities pursuant to such Shelf Registration to be
suspended, or, in the case of a Subsequent Shelf Registration that has not yet
been filed, elect not to file Such Subsequent Shelf Registration; PROVIDED,
HOWEVER, that the Company may not take any such action until the elapse of 120
days following the commencement of the Effectiveness Period; and PROVIDED,
FURTHER, that the Company may not take any such action unless it simultaneously
takes similar action with respect to any other Registration Statements of the
Company that are then effective or that are contemplated or required to be
filed. If the Company determines to take any action pursuant to the preceding
sentence, the Company shall deliver a notice to each Holder of Registrable
Securities covered or to be covered under such Shelf Registration, which
indicates that the Shelf Registration is no longer effective or usable or will
not be filed. Upon the receipt of any such notice, such Holders shall forthwith
discontinue any sale of Registrable Securities pursuant to such Shelf
Registration and any use of the prospectus contained in such Shelf Registration.
If any Disadvantageous Condition shall cease to exist, the Company shall
promptly notify any Holders who shall have ceased selling Registrable Securities
pursuant to an effective Shelf Registration as a result of such Disadvantageous
Condition, indicating such cessation and disclosing in reasonable detail the
nature and outcome of such Disadvantageous Condition. The Company shall, if any
Shelf Registration required to be filed or maintained under this Agreement has
been withdrawn or not filed, file promptly, at such time as it in good faith
reasonably deems the earliest practicable time, and shall use its reasonable
best efforts to cause the SEC to declare effective, a new Shelf Registration
covering the Registrable
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Securities that were covered by such withdrawn Shelf Registration or to be
covered by such unfiled Shelf Registration.
4. UNDERWRITTEN OFFERINGS.
(a) REQUEST FOR UNDERWRITING OFFERINGS. At any time, if one or more Holders
holding at least 25% of the Registrable Securities covered by any Initial Shelf
Registration or any Subsequent Shelf Registration ("INITIATING HOLDERS") so
elect, an offering of Registrable Securities pursuant to such Initial Shelf
Registration or Subsequent Shelf Registration may be effected on no more than
three (3) occasions in the form of a firm commitment underwritten offering and
the managing underwriter or underwriters selected for such offering shall be the
Approved Underwriter selected in accordance with Section 4(b). Upon the receipt
of a written request for an underwritten offering, the Company shall promptly
take such steps as are necessary or appropriate to prepare for such offering.
Promptly, but in no event later than ten (10) days after the receipt of such
written request for an underwritten offering, the Company shall give written
notice thereof to all other Holders and include in such underwriting all
Registrable Securities held by any Holder from whom the Company has received a
written request for inclusion therein. In such event, the Company shall use its
reasonable best efforts to include all Registrable Securities of such class
requested by the Holders to be included in such offering. Such offering shall
include any securities requested by the Company to be included in such
registration to the extent permitted herein. Notwithstanding the foregoing
sentence, if the Approved Underwriter advises the Company and the Holders in
writing that, in its opinion, the aggregate amount of such Registrable
Securities requested to be included by the Holders in such offering (including
those securities requested by the Company to be included in such underwritten
offering) is sufficiently large to have an adverse effect on the success of such
offering, then the Company shall include in such registration only the aggregate
amount of Registrable Securities that in the opinion of the Approved Underwriter
may be sold without any such adverse effect on the success of such offering (the
"APPROVED UNDERWRITER AMOUNT"), and (i) if the number of Registrable Securities
to be included in such registration is greater than the Approved Underwriter
Amount, then each Holder shall be entitled to have included in such registration
Registrable Securities of such class equal to its pro rata portion of the
Approved Underwriter Amount, based on the amounts of Registrable Securities of
such class sought to be sold by the Holders in their requests for participation
in the underwritten offering, and the Company and any Person who is not a Holder
shall not be entitled to include any securities therein, and (ii) to the extent
that the number of Registrable Securities of such class to be included by the
Holders is less than the Approved Underwriter Amount, securities that the
Company and any Person who is not a Holder proposes to register may also be
included with such priority as the Company may in its discretion consider
appropriate.
If, as a result of the pro-ration provision of this Section 4(a), any
Holder shall not be entitled to include in a registration all Registrable
Securities of such class that such Holder has requested to be included, such
Holder may elect to withdraw its request to include Registrable Securities of
such class in such registration or may reduce the number requested to be
included; provided, however, that (i) such request must be made in writing prior
to the earlier of the execution of the underwriting agreement or the execution
of the custody agreement with respect to such registration and (ii) such
withdrawal or reduction shall be irrevocable. Notwithstanding the foregoing, if
by the withdrawal
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of such Registrable Securities a greater number of Registrable Securities held
by other Holders may be included in such underwriting (up to the maximum of any
limitation imposed by the underwriters), then the Company shall offer to all
participating Holders who have included Registrable Securities in the
underwritten offering the right to include additional Registrable Securities in
the same proportion used in determining the underwriter limitation in this
Section 4(a).
The Company shall cooperate with the Holders in order to facilitate
communications among such Holders solely for the purpose of obtaining the
consent of sufficient Holders to request an underwritten offering pursuant to
this Section 4, including, without limitation, by providing a list of
stockholders of the Company with their respective ownership of Registrable
Securities and contact information, which shall be used solely for purposes of
this Agreement.
(b) SELECTION OF UNDERWRITERS. If any offering pursuant to an Initial Shelf
Registration or a Subsequent Shelf Registration is in the form of an
underwritten offering, the majority of the Initiating Holders shall (i) select
and obtain an investment banking firm of national reputation to act as the
managing underwriter of the offering (the "APPROVED UNDERWRITER"); provided,
that such underwriter shall be reasonably satisfactory to the Company, and (ii)
the Company and the Holders shall enter into an underwriting agreement in
customary form reasonably satisfactory to the Company with the Approved
Underwriter.
(c) EFFECTIVE UNDERWRITTEN OFFERING. An underwritten offering requested by
the Holders pursuant to Section 4(a) hereof shall not count as one of the three
(3) underwritten offerings to which the Holders are entitled under Section 4(a)
unless (i) all of the Registrable Securities requested to be included in the
underwritten offering are so included and sold pursuant to such underwritten
offering or (ii) Registrable Securities in an amount equal to the Approved
Underwriter Amount is included and sold pursuant to such underwritten offering;
provided that the Approved Underwriter Amount include not less than 75% of all
Registrable Securities requested to be included in such underwritten offering.
5. PIGGY-BACK REGISTRATION
(a) PIGGY-BACK RIGHTS. If the Company proposes to file a registration
statement under the Act with respect to an offering by the Company for its own
account of any class of security (other than a registration statement on Form
S-4 or S-8 or any successor form) under the Act, then the Company shall give
written notice of such proposed filing to each of the Holders, which notice
shall be delivered as soon as practicable (but in no event fewer than 15
business days before the anticipated filing date or 10 business days if the
Company is subject to the filing requirements of the Exchange Act and eligible
to use Form S-3 (or F-3) under the Act) and shall describe in reasonable detail
the proposed registration and intended method of distribution and offer such
Holders the opportunity to register the number of Registrable Securities as each
such Holder may request. The Company shall use its reasonable best efforts to
permit the Holders who have requested to participate in the registration for
such offering within twenty (20) days of the delivery of notice provided for in
the preceding sentence to include such Registrable Securities in such offering
on the same terms and conditions as the securities of the Company included
therein. Notwithstanding the foregoing, if such registration involves an
underwritten offering and the managing underwriters or underwriters (the
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"COMPANY UNDERWRITER") shall advise the Holders of Registrable Securities in
writing that, in its opinion, the total amount of securities requested to be
included in such offering (the "TOTAL SECURITIES") is sufficiently large so as
to have an adverse effect on the success of the distribution of the Total
Securities, then the Company shall include in such registration, first, all
securities that the Company proposed to register for its own account, second,
all securities requested to be registered by the Holders, pro rata among such
Holders (based upon the number of Registrable Securities which each such Holder
requested to be included in such registration), and third, all other securities
proposed to be registered, in each case, to the extent of the number of
securities which the Company is so advised can be sold in (or during the time
of) such offering without having such adverse effect.
(b) PRIORITY OF REGISTRATIONS. If the Company proposes to register
securities for its own account or for the account of any selling stockholder at
a time when Holders have requested an underwritten offering pursuant to Section
4 hereof, then the underwritten offering requested pursuant to Section 4 hereof
shall be given priority.
(c) EXPENSES. The Company shall bear all Registration Expenses in
connection with any registration pursuant to this Section 5 in accordance with
Section 8.
(d) CONDITIONS AND LIMITATIONS ON PIGGYBACK REGISTRATIONS. If, at any time
after giving written notice of its intention to register any securities and
prior to the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason not to
register or to delay registration of such securities, the Company may, at its
election, give written notice of such determination to all Holders of
Registrable Securities and, (i) in the case of a determination not to register,
shall be relieved of its obligation to register the Registrable Securities in
connection with such abandoned registration and (ii) in the case of a
determination to delay the registration of its securities, shall be permitted to
delay the registration of such Registrable Securities for the same period as the
delay in registering such other securities.
Any Holder shall have the right to withdraw its request for inclusion of
its Registrable Securities in any registration statement pursuant to this
Section 5 by giving written notice to the Company of its request to withdraw;
PROVIDED, HOWEVER, that (i) such request must be made in writing prior to the
earlier of the execution of the underwriting agreement or the execution of the
custody agreement with respect to such registration and (ii) such withdrawal
shall be irrevocable and, after making such withdrawal, a Holder shall no longer
have any right to include Registrable Securities in the registration as to which
such withdrawal was made.
6. HOLDBACK AGREEMENTS.
(a) RESTRICTIONS ON PUBLIC SALE BY HOLDERS. Each Holder whose Registrable
Securities are covered by a Registration Statement filed pursuant to Section 4
or Section 5 agrees not to effect any public sale or distribution of any
Registrable Securities being registered or of any securities convertible into or
exchangeable or exercisable for such Registrable Securities, including a sale
pursuant to Rule 144 under the Act, during a period of not more than one hundred
and twenty (120 days (which period, in any case, shall not exceed the applicable
period under Section 6(b)) commencing on the effective date of such piggyback
registration or underwritten offering pursuant
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to Section 4 hereof (except as part of such registration) (the "Lock-Up
Period"), as may be requested by the Approved Underwriter or the Company
Underwriter, in the case of an underwritten public offering; PROVIDED, HOWEVER,
that if any other holder of securities of the Company shall be subject to a
shorter period, then the Lock-Up Period shall be such shorter period. Each
Holder also agrees that during the Lock-Up Period, it shall not, to the extent
requested by the Company and such underwriter, directly or indirectly sell,
offer to sell, contract to sell (including, without limitation, any short sale),
grant any option to purchase or otherwise transfer or dispose of (other than to
donees who agree to be similarly bound) any Registrable Securities held by it at
any time during such period (except Registrable Securities included in such
registration).
(b) RESTRICTIONS ON PUBLIC SALE BY THE COMPANY. The Company agrees not to
effect any public sale or distribution of any Registrable Securities for its own
account (except pursuant to registrations on Form S-4 or S-8 or any successor
form under the Act) during a period of not more than ninety (90) days commencing
on the effective date of any registration statement in which the Holders are
participating, as may be reasonably requested by the Approved Underwriter or the
Company Underwriter (except for securities being sold by the Company for its own
account under such registration statement).
7. REGISTRATION PROCEDURES.
(a) OBLIGATIONS OF THE COMPANY. Whenever registration of Registrable
Securities is required pursuant to Section 3, 4 or 5 of this Agreement, the
Company shall use its reasonable best efforts to effect the registration and
sale of such Registrable Securities in accordance with the intended method of
distribution thereof as quickly as practicable, and in connection with any such
request, the Company shall, as expeditiously as possible:
(i) prepare and file with the SEC (in any event not later than ninety
(90) Days after receipt of a request to file a registration statement with
respect to Registrable Securities, or with respect to the Initial Shelf
Registration not later than sixty (60) days after the Effective Date) a
registration statement on any form on which the Company then qualifies, which
counsel for the Company shall deem appropriate and pursuant to which such
offering may be made in accordance with the intended method of distribution
thereof (except that the registration statement shall contain such information
required to be included in a registration statement on Form S-1 as may
reasonably be requested for marketing or other purposes by the Approved
Underwriter or the Company Underwriter), and use its reasonable best efforts to
cause any Shelf Registration requested hereunder to become effective as soon as
reasonably practicable after the initial filing thereof (and in any event not
later than seventy-five (75) days thereafter), subject to the provisions of
Section 4(f) and Section 5(d) of this Agreement;
(ii) notify each seller of Registrable Securities under any
registration statement of any stop order issued or threatened by the SEC and
take all reasonable action required to prevent the entry of such stop order or
to remove it if entered;
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(iii) prepare and file with the SEC such amendments, including
post-effective amendments to each Registration Statement as may be necessary to
keep such Registration Statement continuously effective for the applicable time
period required hereunder; cause the related prospectus to be supplemented by
any required prospectus supplement, and as so supplemented to be filed pursuant
to Rule 424 (or any similar provisions then in force) promulgated under the Act;
and comply with the provisions of the Act and the Exchange Act with respect to
the disposition of all securities covered by such Registration Statement during
such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such Registration Statement as so amended or in
such prospectus as so supplemented;
(iv) as soon as reasonably possible, furnish to each seller of
Registrable Securities to be included in a registration statement, prior to
filing a registration statement or any supplement or amendment thereto, copies
of such registration statement, supplement or amendment as it is proposed to be
filed, and after such filing such number of copies of such registration
statement, each amendment and supplement thereto (in each case including all
exhibits thereto), the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as each such
seller may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller;
(v) use its reasonable best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller of Registrable Securities may request, and to
continue such qualification in effect in each such jurisdiction for as long as
is permissible pursuant to the laws of such jurisdiction, or for as long, as any
such seller requests or until all of such Registrable Securities are sold,
whichever is shortest, and do any and all other acts and things which may be
reasonably necessary or advisable to enable any such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller; provided, however, that the Company shall not be required to (A) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 7(a)(v), (B) subject itself to taxation
in any such jurisdiction or (C) consent to general service of process in any
such jurisdiction;
(vi) use its reasonable best efforts to obtain all other approvals,
consents, exemptions or authorizations from such governmental agencies or
authorities as may be necessary to enable the sellers of such Registrable
Securities to consummate the disposition of such Registrable Securities;
(vii) notify each seller of Registrable Securities at any time when a
prospectus relating thereto is required to be delivered under the Act upon
discovery that, or upon the happening of any event as a result of which, the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances under which they were made, and the Company shall promptly
prepare a supplement or amendment to such prospectus so that, after delivery of
such supplement or amendment to the purchasers of such Registrable Securities,
such prospectus, as so amended or supplemented, shall not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or
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necessary to make the statements therein not misleading in light of the
circumstances under which they were made;
(viii) enter into customary agreements (including an underwriting
agreement in customary form) and take such other actions as may be reasonably
required in order to expedite or facilitate the disposition of such Registrable
Securities;
(ix) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent retained by
any seller or underwriter (each, an "Inspector" and, collectively, the
"INSPECTORS"), all financial and other books and records, pertinent corporate
documents and properties of the Company and any subsidiaries thereof as shall be
reasonably necessary to enable them to exercise their due diligence
responsibility under the Act, and cause the Company's and any subsidiaries'
officers, directors and employees, and counsel to the Company and the
independent public accountants of the Company, to supply all information
reasonably requested by any such Inspector in connection with such registration
statement;
(x) if requested by any underwriter of Registrable Securities,
obtain a "cold comfort" letter from the Company's independent public accountants
in customary form and covering such matters of the type customarily covered by
"cold comfort" letters, as the managing underwriter may reasonably request;
(xi) if requested by any underwriter of Registrable Securities,
furnish on the date such securities are delivered to the underwriters for sale
pursuant to such registration, an opinion, dated such date, of counsel
representing the Company for the purposes of such registration, addressed to the
underwriters, covering such legal matters with respect to the registration in
respect of which such opinion is being given as such underwriter may reasonably
request and as are customarily included in such opinions;
(xii) otherwise use its reasonable best efforts to comply with
all applicable rules and regulations of the SEC, and make available to its
security holders, as soon as reasonably practicable but no later than fifteen
(15) months after the effective date of the registration statement, an earnings
statement covering a period of twelve (12) months beginning after the effective
date of the registration statement, in a manner which satisfies the provisions
of Section 11(a) of the Act and Rule 158 thereunder;
(xiii) keep a single representative of the sellers of each class of
Registrable Securities (appointed by the Holders of a majority of the respective
classes of Registrable Securities in the registration) advised as to the
initiation and progress of any registration under Section 3, 4 or 5 hereunder;
(xiv) provide officers' certificates and other customary closing
documents;
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(xv) cooperate with each seller of Registrable Securities and
each underwriter participating in the disposition of such Registrable Securities
and underwriters' counsel in connection with any filings required to be made
with the National Association of Securities Dealers, Inc. (the "NASD");
(xvi) cause appropriate officers as are requested by an Approved
Underwriter or a Company Underwriter to participate in a "road show" or similar
marketing effort being conducted by such underwriter with respect to an
underwritten offering pursuant to a Shelf Registration or underwritten piggyback
registration including Registrable Securities;
(xvii) use its reasonable best efforts to cause all such Registrable
Securities (other than the Warrants) to be listed on each securities exchange on
which similar securities issued by the Company are then listed and, with respect
to Registrable Securities constituting Common Stock, if no such securities are
so listed, to use its reasonable best efforts to cause such Registrable
Securities to be listed on the New York Stock Exchange, the American Stock
Exchange or the Nasdaq Stock Market ("NASDAQ") and, if listed on Nasdaq, use its
reasonable best efforts to (A) secure designation of all such Registrable
Securities as a Nasdaq "national market system security" within the meaning of
Rule 11 Aa2-1 under the Exchange Act and (B) cause such Registrable Securities
to be listed on the Nasdaq National Market or, failing that, to secure Nasdaq
authorization for such Registrable Securities; and
(xviii) use its reasonable best efforts to take all other actions
necessary to effect the registration of the Registrable Securities contemplated
hereby.
(b) SELLER INFORMATION. The Company may require as a condition precedent of
the Company's obligations tinder this Section 7 that each seller of Registrable
Securities as to which any registration is being effected furnish to the Company
such information regarding such seller and the distribution of such Registrable
Securities as the Company may from time to time reasonably request in writing.
(c) NOTICE TO DISCONTINUE. Each Holder whose Registrable Securities are
covered by a Registration Statement filed pursuant to Sections 3, 4 or 5 agrees
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 7(a)(vii), such Holder shall forthwith
discontinue disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until such Holder's receipt of
the copies of the supplemented or amended prospectus contemplated by Section
7(a)(vii) and, if so directed by the Company in the case of an event described
in Section 7(a)(vii), such Holder shall deliver to the Company (at the Company's
expense) all copies, other than permanent file copies then in such Holder's
possession, of the prospectus covering such Registrable Securities which is
current at the time of receipt of such notice. If the Company shall give any
such notice, the Company shall extend the period during which such registration
statement shall be maintained effective pursuant to this Agreement (including,
without limitation, the period referred to in Section 7(a)(ii) by the number of
days during the period from and including the date of the giving of such notice
pursuant to Section 7(a)(vii) to and including the date when the Holder shall
have received the copies of the
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supplemented or amended prospectus contemplated by, and meeting the requirements
of, Section 7(a)(vii).
8. REGISTRATION EXPENSES. The Company shall pay all of the expenses (other
than underwriting discounts and commissions) arising from or incident to the
performance of, or compliance with, this Agreement, including, without
limitation, (a) SEC, stock exchange and NASD registration and filing fees, (b)
all fees and expenses incurred in connection with complying with securities or
blue sky laws (including, without limitation, reasonable fees, charges and
disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), (c) all printing, messenger and delivery expenses, (d)
the fees, charges and disbursements of counsel to the Company and of its
independent public accountants and any other accounting and legal fees, charges
and expenses incurred by the Company (including, without limitation, any
expenses arising from any special audits required in connection with any
registration) and (e) the reasonable fees, charges and disbursements of any
special experts retained by the Company in connection with any registration
pursuant to the terms of this Agreement, regardless of whether the registration
statement filed in connection with such registration is declared effective. The
Company shall also pay the reasonable fees, charges and disbursements of a
single counsel to all of the Holders participating in any requested underwritten
offering pursuant to Section 4 hereof. All of the expenses described in this
Section 8 are referred to in this Agreement as "REGISTRATION EXPENSES".
Notwithstanding the foregoing provisions of this Section 8, in connection with
any registration or underwritten offering hereunder, each Holder of Registrable
Securities being registered shall pay all underwriting discounts and
commissions, all expenses of counsel (except as set forth in the preceding
sentence) and experts retained by such Holder, and any capital gains, income or
transfer taxes, if any, attributable to the sale of such Registrable Securities
(pro rata in the case of payments of discounts and commissions in accordance
with the number of shares sold in the offering).
9. INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify and
hold harmless to the full extent permitted by law each Holder, its directors,
officers, partners, employees, advisors and agents, and each Person who controls
(within the meaning of the Act or the Exchange Act) such Holder, from and
against any and all losses, claims, damages, expenses (including, without
limitation, reasonable costs of investigation and fees, disbursements and other
charges of counsel) or other liabilities resulting from or arising out of or
based upon any untrue, or alleged untrue, statement of a material fact contained
in any registration statement, prospectus or preliminary prospectus (as amended
or supplemented) or any document incorporated by reference in any of the
foregoing or resulting from or arising out of or based upon any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein (in the case of a prospectus, in
light of the circumstances under which they were made), not misleading, except
insofar as the same are caused by or contained in any material information
furnished in writing to the Company by such Holder expressly for use therein.
The Company shall also indemnify any underwriters of the Registrable Securities,
their officers, directors and employees, and each Person who controls any such
underwriter (within the meaning of the Act and the Exchange Act) to the same
extent as provided above with respect to the indemnification of the Holders of
Registrable Securities.
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(b) INDEMNIFICATION BY HOLDERS. In connection with any proposed
registration in which a Holder is participating pursuant to Section 3, 4 or 5
hereof, each such Holder shall furnish to the Company in writing such
information with respect to such Holder as the Company may reasonably request or
as may be required by law for use in connection with any registration statement
or prospectus or preliminary prospectus to be used in connection with such
registration and each Holder agrees to indemnify and hold harmless the Company,
any underwriter retained by the Company and their respective directors,
officers, employees and each Person who controls (within the meaning of the Act
and the Exchange Act) the Company or such underwriter to the same extent as the
foregoing indemnity from the Company to the Holders (subject to the exceptions
set forth in the foregoing indemnity, the proviso to this sentence and
applicable law), but only with respect to any such information furnished in
writing by such Holder expressly for use therein; provided, however, that the
liability of any Holder under this Section 9(b) shall be limited to the amount
of the net proceeds received by such Holder in the offering giving rise to such
liability.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to
indemnification hereunder (the "INDEMNIFIED PARTY") agrees to give prompt
written notice to the indemnifying party (the "INDEMNIFYING PARTY") after the
receipt by the Indemnified Party of any written notice of the commencement of
any action, suit, proceeding or investigation or threat thereof made in writing
for which the Indemnified Party intends to claim indemnification or contribution
pursuant to this Agreement; provided that, the failure so to notify the
Indemnifying Party shall not relieve the Indemnifying Party of any liability
that it may have to the Indemnified Party hereunder unless such Indemnifying
Party is materially prejudiced by such failure. If notice of commencement of any
such action is given to the Indemnifying Party as above provided, the
Indemnifying Party shall be entitled to participate in and, to the extent it may
wish, jointly with any other Indemnifying Party similarly notified, to assume
the defense of such action at its own expense, with counsel chosen by it and
reasonably satisfactory to such Indemnified Party. The Indemnified Party shall
have the right to employ separate counsel in any such action and participate in
the defense thereof, but the fees and expenses of such counsel shall be paid by
the Indemnified Party unless (i) the Indemnifying Party agrees to pay the same,
(ii) the Indemnifying Party fails to assume the defense of such action with
counsel satisfactory to the Indemnified Party in its reasonable judgment, or
(iii) the named parties to any such action (including any impleaded parties)
have been advised by such counsel that representation of such Indemnified Party
and the Indemnifying Party by the same counsel would be inappropriate under
applicable standards of professional conduct; PROVIDED, HOWEVER, that the
Indemnifying Party shall only have to pay the fees and expenses of one firm of
counsel for all Indemnified Parties in each jurisdiction. In the case of clause
(ii) and (iii) above, the Indemnifying Party shall not have the right to assume
the defense of such action on behalf of such Indemnified Party. No Indemnifying
Party shall be liable for any settlement entered into without its written
consent, which consent shall not be unreasonably withheld. No Indemnifying Party
shall, without the written consent of the Indemnified Party, effect the
settlement or compromise of, or consent to the entry of any judgment with
respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
Indemnified Party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (A) includes an unconditional
release of the Indemnified Party from all liability arising out of such action
or claim and (B) does not include a statement as to, or an admission of, fault,
culpability or a failure to act by or on behalf of any Indemnified Party. The
rights afforded to any
14
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Indemnified Party hereunder shall be in addition to any rights that such
Indemnified Party may have at common law, by separate agreement or otherwise.
(d) CONTRIBUTION. If the indemnification provided for in Section 9 from the
Indemnifying Party is unavailable to an Indemnified Party in respect of any
losses, claims, damages, expenses or other liabilities referred to therein, then
the Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, expenses or other liabilities in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and the Indemnified Party as well as any other relevant equitable
considerations. The relative faults of such Indemnifying Party and Indemnified
Party shall be determined by reference to, among other things, whether any
action in question, including any untrue or alleged untrue statement of a
material fact or omission or alleged omission to state a material fact, was made
by, or relates to information supplied by, such Indemnifying Party or
Indemnified Party, and the Indemnifying Party's and Indemnified Party's relative
intent, knowledge, access to information and opportunity to correct or prevent
such action; PROVIDED, HOWEVER, that the liability of any Holder under this
Section 9(d) shall be limited to the amount of the net proceeds received by such
Holder in the offering giving rise to such liability. The amount paid or payable
by a party as a result of the losses, claims, damages, expenses or other
liabilities referred to above shall be deemed to include, subject to the
limitations set forth in Sections 9(a), 9(b) and 9(c), any legal or other fees,
charges or expenses reasonably incurred by such party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 9(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution pursuant to this Section
9(d).
10. RULE 144; OTHER EXEMPTIONS. With a view to making available to the
Holders the benefits of Rule 144 promulgated under the Act and any other rule or
regulation of the SEC that may at any time permit a Holder to sell securities of
the Company to the public without registration or pursuant to a registration on
Form S-3, the Company covenants that it shall file in a timely manner all
reports required to be filed by it under the Exchange Act and the rules and
regulations adopted by the SEC thereunder, and that it shall take such further
action as each Holder may reasonably request (including, but not limited to,
providing any information necessary to comply with Rules 144 and 144A (if
available with respect to resales of the Registrable Securities) under the Act),
all to the extent required from time to time to enable such Holder to sell
Registrable Securities without registration under the Act within the limitation
of the exemptions provided by (i) Rule 144 or Rule 144A (if available with
respect to resales of the Registrable Securities) under the Act, as such rules
may be amended from time to time, or (ii) any other rules or regulations now
existing or hereafter adopted by the SEC.
11. CERTAIN LIMITATIONS ON REGISTRATION RIGHTS. In the case of a
registration under Section 5, if the Company has determined to enter into an
underwriting agreement in connection therewith, no Holder may participate in
such registration unless such Holder (a) agrees to sell such Holder's
15
<PAGE>
securities on the basis provided therein and (b) completes and executes all
questionnaires, powers-of-attorney, custody agreements, indemnities, lock-up
agreements, underwriting agreements and other documents required under the terms
of such underwriting agreement.
12. MISCELLANEOUS.
(a) TERMINATION. This Agreement shall terminate at such time when no
Registrable Securities are outstanding.
(b) NO INCONSISTENT AGREEMENTS; OTHER REGISTRATION RIGHTS. The Company
shall not enter into any agreement with respect to its securities that is
inconsistent with the rights granted to the Holders in this Agreement other than
any lock-up agreement with the underwriters in connection with an underwritten
offering pursuant to which the Company agrees, for a period not in excess of one
hundred eighty (180) days, not to register for sale, and not to sell or
otherwise dispose of, Common Stock or any securities convertible into or
exercisable or exchangeable for Common Stock. The Company shall not grant any
other contractual registration rights in respect of the Common Stock which would
be inconsistent with the registration rights provided under this Agreement.
(c) REMEDIES. The Holders, in addition to being entitled to exercise all
rights granted by law, including recovery of damages, shall be entitled to
specific performance of their rights under this Agreement. The Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of this Agreement and hereby
agrees to waive in any action for specific performance the defense that a remedy
at law would be adequate.
(d) AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions of such section may not be
given, unless the Company has obtained the prior written consent of Holders
holding at least 51% of each class of the Registrable Securities or, with
respect to Sections 3(a), 3(b), 3(d), 4(a), 12(b) and 12(d) of this Agreement,
Holders holding at least 66 2/3% of each class of the Registrable Securities.
(e) NOTICES. All notices, demands and other communications provided for or
permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier, courier
service or personal delivery:
(i) if to the Company:
Golden Books Publishing Company, Inc.
888 Seventh Avenue
New York, New York 10106-4100
Attention: Philip Galanes, General Counsel
Telephone Number: (212) 547-4466
Facsimile Number: (212) 547-6771
16
<PAGE>
or, as applicable:
Golden Books Family Entertainment, Inc.
888 Seventh Avenue
New York, New York 10106-4100
Attention: Philip Galanes, General Counsel
Telephone Number: (212) 547-4466
Facsimile Number: (212) 547-6771
(ii) if to Holders:
at the address set forth in the Company's records.
Each such notice, request or other communication will be effective (a) if
given by certified mail, 96 hours after such communication is deposited in the
mails with certified postage prepaid addressed as aforesaid, (b) one Business
Day after being furnished to a nationally recognized overnight courier for next
Business Day delivery, and (c) on the date sent if sent by electronic facsimile
transmission, receipt confirmed followed by a hard copy by mail.
(f) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of the parties hereto; provided,
however, that the registration rights of the Holders and the other obligations
of the Company contained in this Agreement shall, with respect to any
Registrable Security, be automatically transferred from a Holder to any
subsequent holder of such Registrable Security so long as such security is a
Registrable Security. Notwithstanding any transfer of such rights, all of the
obligations of the Company hereunder shall survive any such transfer and shall
continue to inure to the benefit of all transferees.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
principles of conflicts of law of such State.
(j) JURISDICTION. Each party to this Agreement hereby irrevocably agrees
that any legal action or proceeding arising out of or relating to this Agreement
or any agreements or transactions contemplated hereby may be brought in the
courts of the State of New York or of the United States of America for the
Southern District of New York and hereby expressly submits to the personal
jurisdiction and venue of such courts for the purposes thereof and expressly
waives any claim of improper venue and any claim that such courts are an
inconvenient forum. Each party hereby irrevocably consents to the service of
process of any of the aforementioned courts in any such suit,
17
<PAGE>
action or proceeding by the mailing of copies thereof by registered or certified
mail, postage prepaid, to the address set forth in Section 12(e), such service
to become effective 10 days after such mailing.
(k) SEVERABILITY. If any one or more of the provisions contained herein, or
the application thereof in any circumstance, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, it being intended that all
of the rights and privileges of the Holders shall be enforceable to the fullest
extent permitted by law.
(l) RULES OF CONSTRUCTION. Unless the context otherwise requires, "or" is
not exclusive, and references to sections or subsections refer to sections or
subsections of this Agreement.
(m) ENTIRE AGREEMENT. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings in respect of the subject matter contained herein,
other than those set forth or referred to herein. This Agreement supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
(n) INTERPRETATION. This Agreement is the result of arms-length
negotiations between the parties hereto and has been prepared jointly by the
parties. In applying and interpreting the provisions of this Agreement, there
shall be no presumption that the Agreement was prepared by any one party or that
the Agreement shall be construed in favor of or against any one party.
(o) FURTHER ASSURANCES. Each of the parties shall execute such, documents
and perform such further acts as may be reasonably required or desirable to
carry out or to perform the provisions of this Agreement.
18
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized on
the date first above written.
GOLDEN BOOKS PUBLISHING
COMPANY, INC.
By: /s/
-------------------------------------
Name: Philip Galares
Title: Secretary
GOLDEN BOOKS FAMILY
ENTERTAINMENT, INC.
By: /s/
-------------------------------------
Name: Philip Galares
Title: Secretary
HOLDERS: BENNETT RESTRUCTURING FUND, L.P.
[ /s/
----------------------------------------
By: Restructuring Capital Associates, L.P.
its General Partner
By: /s/ BENNETT CAPITAL CORPORATION,
-------------------------------------
Its General Partner
Name: James D. Bennett
Title:] President
BENNETT OFFSHORE RESTRUCTURING FUND, INC.
[ JAMES D. BENNETT
----------------------------------------
19
<PAGE>
By:
-------------------------------------
Name: James D. Bennett
Title:] Director
[
----------------------------------------
By:
-------------------------------------
Name:
Title:]
[
----------------------------------------
By:
-------------------------------------
Name:
Title:]
20
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed and delivered by their respective officers hereunto duly authorized on
the date first above written.
GOLDEN BOOKS PUBLISHING
COMPANY, INC.
By:
-------------------------------------
Name:
Title:
GOLDEN BOOKS FAMILY
ENTERTAINMENT, INC.
By:
-------------------------------------
Name:
Title:
HOLDERS
PRINCIPAL LIFE INSURANCE COMPANY
By: Principal Capital Management, LLC, a Delaware
limited liability company, its authorized
signatory
By: DEBRA SVOBODA EPP By: /s/
------------------------ ---------------------------------------
Name: Debra Svoboda Epp Name: CHRISTOPHER J. HENDERSON, Counsel
Title: Counsel Title:]
[ /s/ JAMES D. BENNETT
------------------------------------------
BENNETT RESTRUCTURING FUND, L.P.
By: Restructuring Capital Associates, its General
Partner
By: Bennett Capital Corporation, its General
Partner
By: ---------------------------------------
Name:
Title:]
21
<PAGE>
BENNETT OFFSHORE RESTRUCTURING FUND, INC.
[
----------------------------------------
BY: /s/ JAMES D. BENNETT
-------------------------------------
Name: James D. Bennett
Title:] Director
22
<PAGE>
EXHIBIT 10.12
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 27th day of January, 2000.
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
<PAGE>
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
2
<PAGE>
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
3
<PAGE>
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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<PAGE>
(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
5
<PAGE>
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
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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
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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.
[concluded on next page]
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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
___________________________________________
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
By: ______________________________________
Name:
Title:
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EXHIBIT A
[Restricted Stock Agreement]
18
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EXHIBIT B
[Management Restricted Stock Agreement]
19
EXHIBIT 10.13
AMENDMENT NO. 1 TO
EMPLOYMENT AGREEMENT
AMENDMENT NO. 1, dated as of September 1, 1998, to the Employment Agreement
between Golden Books Publishing Company, Inc. (The "Company") and Richard
Collins ("Collins").
WHEREAS, the Company and Collins entered into an Employment Agreement,
dated as of July 28, 1997 (the "Employment Agreement"); and
WHEREAS, the Company and Collins now desire to enter into this Amendment to
amend the Employment Agreement upon the terms, and subject to the conditions,
set forth herein;
NOW, THEREFORE, based on the above premises and in consideration of the
mutual covenants and agreements contained herein, the parties agree as follows:
1. TITLE. Section (a) of the Agreement shall be amended to provide that
effective June 8, 1998, Collin's new title was changed to Chief Operating
Officer.
2. COMPENSATION. Section (a) of the Employment Agreement shall be amended
to provide that effective February 9, 1998, Annual Base Salary was raised to
$300,000.
3. OBLIGATIONS OF THE COMPANY UPON TERMINATION. The first sentence of
section 5 (a)(i) of the Agreement shall be amended in its entirety to read as
follows: "The Executive shall (a) continue to receive his Annual Base Salary for
the longer of (i) two years or (ii) the balance of the term of this Agreement
(the "Continuation Period") and (b) receive a payment, no later than 30 days
following the Date of Termination, equal to 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."
4. Except as set forth herein, all terms and provisions of the Employment
Agreement are continued in full force and effect and shall remain unaffected and
unchanged except as specifically amended hereby.
IN WITNESS WHEREOF, Collins has hereunder set his hand and the Company has
caused this Amendment to be executed in its name on its behalf, all as of the
date first set forth above.
GOLDEN BOOKS PUBLISHING COMPANY, INC.
By: __________________________________
Michael Bruno
----------------------------------
Richard Collins
EXHIBIT 10.14
SECOND AMENDMENT made as of the 27th day of January, 2000 to the
Employment Agreement dated as of July 28, 1997 and amended September 1, 1998 by
and between Golden Books Publishing Company, Inc. with its principal United
States office at 888 Seventh Avenue, New York, New York 10106 (the "Company"),
and Mr. Richard K. Collins, residing at 41 Georgian Road, Morristown, New Jersey
07960 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company and the Executive have previously entered into
the Employment Agreement; and
WHEREAS, the Company and the Executive desire to amend the Employment
Agreement; and
WHEREAS, the Company desires to assign the Employment Agreement to
Golden Books Family Entertainment, Inc. ("GBFEI") and GBFEI desires to assume
the Employment Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. The Company hereby assigns the Employment Agreement to GBFEI and
GBFEI hereby assumes the Employment Agreement.
2. The Employment Agreement is amended effective as of the date hereof
as follows:
a. All references in the Employment Agreement to the Company
shall be deemed to refer to Golden Books Family Entertainment, Inc.
and not Golden Books Publishing Company.
b. Section 1 of the Employment Agreement is amended in its
entirety to read as follows:
"The Company hereby agrees to employ the Executive, and the
Executive hereby agrees to continue with the employ of the
Company, commencing on the Effective Date and continuing through
and including December 31, 2002, unless terminated earlier in
accordance with Section 4 below."
<PAGE>
c. Section 2(a) of the Employment Agreement is amended in its
entirety to read as follows:
"The Executive shall serve as the Company's Executive Vice
President and Chief Operating Officer with such duties,
responsibilities and authority in such capacities as shall be
consistent therewith. The Executive shall report to the Chairman
and Chief Executive Officer of the Company. The Executive shall
be based in New York, New York."
d. Section 3(a) of the Employment Agreement is amended by the
deletion of the first sentence and the addition of the following
sentence in lieu thereof:
"(a) BASE SALARY. During the Employment Term, the Executive shall
receive an annual base salary ("Annual Base Salary") of $350,000
for each year of the term."
e. Section 3(b) of the Employment Agreement is amended in its
entirety to read as follows:
"(b) ANNUAL BONUS. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during
the Employment Term, an annual bonus (the "Annual Bonus")
pursuant to the Company's Executive Officer Bonus Plan or a
replacement thereof (the "Annual Plan") under one or more of the
criteria prescribed in the Annual Plan and approved by the
Compensation Committee of the Board of Directors, which bonus
shall be pro rated for any fiscal year during which the Executive
is employed for less than 12 months. The Executive shall have a
target annual bonus of 100% of his Annual Base Salary (the
"Target Bonus"), subject 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 Office 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."
<PAGE>
f. Section 3(c) of the Employment Agreement is amended in its
entirety to read as follows:
"(c) STOCK OPTIONS. The Executive will be granted, as soon as
administratively feasible, a stock option (the "Option") to
purchase 1% of the Company's issued and outstanding common stock
("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 (the "Stock Option Plan")
in accordance with the form of option agreement annexed as
Exhibit A hereto ("Option Agreement"). The exercise price with
respect to each share of Common Stock subject to the Option will
be the "Fair Market Value" (as defined in the Stock Option Plan)
of a share of Common Stock on the date of the grant. The Option
will become exercisable as to one-third of the shares of Common
Stock subject thereto on the first anniversary of the date of
grant, as to an additional one-third of such shares on the second
anniversary of the date of grant, and as to the remaining
one-third of such shares on the third anniversary of the date of
grant, provided the Executive has been continuously employed
through each applicable vesting date. Notwithstanding anything in
this Agreement to the contrary, upon the occurrence of a Change
in Control (as such term is defined in Section 4(f) below,
without regard to clause (iv) of Section 4(f)(A) and clause
(ii)(b) of Section 4(f)(C)) during the Employment Term, the
Option shall become fully and immediately exercisable. The Option
will have a term of seven years (the "Option Term"). Upon the
termination of Executive's employment:
(1) by reason of death, the Option shall become fully and
immediately exercisable and the Executive's estate may exercise
the Option until the earlier of one year following the
Executive's death or the end of the Option Term, following which
time the Option shall terminate and be no longer exercisable;
(2) by reason of Disability (as such term is defined in Section
4(a) below), the Option shall become fully and immediately
exercisable and the Executive (or, following his death, his
estate) may exercise the Option until the earlier of one year
following the Date of Termination (as such term is defined in
Section 4(e) below) or the end of the Option Term, following
which time the Option shall terminate and be no longer
exercisable;
(3) by the Company for Cause (as such term is defined in Section
4(a) below), the Option shall terminate and no longer be
exercisable effective on the Executive's Date of Termination;
<PAGE>
(4) by the Executive without Good Reason (as such term is defined
in Section 4(b) below), the Option, to the extent exercisable on
the Date of Termination, shall remain exercisable by the
Executive (or, following his death, his estate) until the earlier
of 90 days following such date or the end of the Option Term,
following which time the Option shall terminate and be no longer
exercisable; or
(5) by the Company without Cause or by the Executive with Good
Reason, the entire Option shall become fully and immediately
exercisable and the Executive may exercise the Option until the
earlier of one year following the Executive's Date of Termination
or the end of the Option Term, following which time the Option
shall terminate and be no longer exercisable.
The Executive shall be entitled to participate in other Company
stock option grants or other equity plans or programs, if any, in
which senior executives of the Company are eligible to
participate on a basis generally commensurate with his position
as may be determined by the Compensation Committee.
The Executive will be entitled to pay the exercise price of the
Option with shares of Common Stock previously acquired by the
Executive and may elect to have any withholding taxes required to
be withheld as a result of the exercise of the Option taken out
of Common Stock issuable to the Executive as a result of such
exercise.
Other than as stated above, the Option will be governed by the
terms and conditions of the Company's Stock Option Plan and the
Option Agreement thereunder."
g. Section 4(a) of the Employment Agreement is amended by the
addition of the parenthetical "("Disability")" following "business
days", at the end of that section.
h. Section 4(b)(iv) of the Agreement is amended by replacing the
period at the end of that section with "; or" and a new Section
4(b)(v) is added to read as follows:
"(v) the Company's termination of the Executive's employment for
any reason other than Cause, within two years following a "Change
of Control" (as defined in Section 4(f) of this Agreement)."
i. A new Section 4(f) to the Employment Agreement is added to
read as follows:
<PAGE>
"(f) 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% of 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 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 (i) , 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 clauses
(i), (ii) and (iii) of paragraph (C) of this Subsection (f), or
(iv) any acquisition by the Executive, or by 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
<PAGE>
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 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."
j. Section 5(a) of the Agreement is replaced in its entirety to
read as follows:
(i) ____ the Company shall pay to the Executive the
aggregate of the following amounts:
A. ______ the sum of (1) the Executive's Annual Base
Salary through the Date of Termination to the extent not
theretofore paid, and (2) any compensation previously deferred by
the Executive (together with any accrued interest or earnings
thereon) and any accrued vacation pay, in each case to the extent
not theretofore paid (the sum of the amounts described
<PAGE>
in clauses (1) and (2) shall be hereinafter referred to as the
"Accrued Obligations"). All Accrued Obligations shall be paid in
a lump sum in cash within 30 days of the Date of Termination; and
B. ______ the Executive's Annual Base Salary as set
forth in Section 3(a) for the year in which the Date of
Termination falls, to be paid either (1) in a lump sum, if
approved by the Board, 30 days after the Date of Termination, or
(2) as salary continuation for a period of one year following the
Date of Termination, except that, in the event of a termination
described in Section 4(b)(v) herein, the Executive shall be paid
two times his Annual Base Salary in a lump sum or as a two-year
salary continuation. The Executive shall have no duty or
obligation to mitigate, and such salary continuation payments
will continue even in the event the Executive becomes reemployed
by another employer.
(ii) ____ all stock options, restricted stock and other
stock-based compensation shall become exercisable or vested pursuant
to Section 3(c)(5) herein;
(iii) for one year after the Executive's Date of Termination
(or for two years in the event of a termination described in Section
4(b)(v) herein), the Company shall continue benefits to the Executive
and/or the Executive's family at least equal to those which would have
been provided to them in accordance with the plans, programs,
practices and policies described in Section 3(e) of this Agreement if
the Executive's employment had not been terminated, provided, however,
that if the Executive becomes reemployed with another employer and is
eligible to receive medical or other welfare benefits under another
employer provided plan, the corresponding medical and other welfare
benefits described herein shall be terminated. Those welfare benefits
not offered by the new employer shall continue until termination of
the above described one or two year period. For purposes of
determining eligibility (but not the time of commencement of benefits)
of the Executive for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be considered to
have remained employed until the later of two years after the Date of
Termination or the end of the Employment Term and to have retired on
the last day of such period;
(iv) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to the Executive any other amounts
or benefits required to be paid or provided to the Executive or which
the Executive is entitled to receive under any plan, program, policy
or practice or contract or agreement of the Company and its affiliated
companies, to the extent payment of any such amounts or benefits are
not already provided for under this Agreement (such other amounts and
benefits shall be hereinafter referred to as the "Other Benefits").
<PAGE>
The Executive shall have the right to approve, such approval not be
unreasonably withheld, any written announcement, if any, of the termination of
the Executive's employment with the Company.
k. Section 10(a) of the Employment Agreement is amended in its
entirety to read as follows:
"(a) On or before June 1, 2002, the Company and the Executive
agree to meet to discuss each others intentions with respect to
Executive's employment with the Company after the termination of
this Agreement; provided, however, that this paragraph shall
create no duty or obligation on behalf of either the Company or
the Executive with respect to such discussion."
l. Section 11(b) of the Employment Agreement is amended in its
entirety to read as follows:
"(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or
by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
IF TO THE EXECUTIVE:
Mr. Richard K. Collins
41 Georgian Road
Morristown, NJ 07960
IF TO THE COMPANY:
Golden Books Family Entertainment, Inc.
888 Seventh Avenue
New York, New York 10106
Attention: Chief Administrative Officer
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."
3. ____________________ As amended by the Second Amendment, the
Employment Agreement shall remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this amendment to be
executed by its duly authorized officers and the Executive has hereunto set his
hand as of the date first above written.
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
By: ________________________________________
GOLDEN BOOKS PUBLISHING COMPANY, INC.
By: ________________________________________
________________________________________
Richard K. Collins
EXHIBIT 10.15
EMPLOYMENT AGREEMENT
AGREEMENT by and between Golden Books Family Entertainment, Inc. (the
"Company"), and Colin Finkelstein (the "Executive"), effective as of September
9, 19996 (the "Effective Date").
1. EMPLOYMENT TERM. The Company hereby agrees to employ the Executive, and
the Executive hereby agrees to enter the employ of the Company, commencing on
the Effective Date and continuing for a three-year term from such Effective
Date, unless terminated earlier in accordance with Section 4 below.
2. TITLE, REPORTING AND DUTIES.
(a) Commencing on the Effective Date and for the remainder of the
Employment Term, the Executive shall serve as the Company's Executive Vice
President and Chief Financial Officer, with such duties, responsibilities
and authority in both capacities as shall be consistent therewith. The
Executive shall be based in New York City.
(b) During the Employment Term, and excluding any periods of vacation,
holiday and sick leave to which the Executive is entitled, the Executive
agrees to devote full time during normal business hours to the business and
affairs of the Company and to use the Executive's best efforts to perform
faithfully and efficiently such responsibilities.
3. COMPENSATION AND BENEFITS.
(a) BASE SALARY. During the Employment Term, the Executive shall
receive an annual base salary ("Annual Base Salary") of $300,000 for each
year of the term. The Annual Base Salary will be reviewed by the Company's
Compensation Committee at the end of each year of the term and may be
adjusted at the discretion of the Compensation Committee. The Annual Base
Salary shall be paid in equal biweekly installments.
(b) ANNUAL BONUS. In addition to Annual Base Salary, the Executive
shall be awarded, for each fiscal year during the Employment Term, an
annual bonus (the "Annual Bonus") pursuant to the Company's annual
incentive plans (the "Annual Plans"), pro rated in the case of a bonus for
any 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"), subject in each case to attainment of the
performance goals set forth in the Annual Plans. 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.
Notwithstanding the above, it is the intent of the parties hereto that the
Annual Plans meet all applicable requirements for the exemption of the
payments thereunder from the limitations of Section 162(m) of the Internal
Revenue Code of 1986, as amended, including the requirement that the Annual
Plans be approved by the shareholders of the Company prior to the payment
of any bonuses thereunder
-1-
<PAGE>
The Board may award the Executive bonuses other than pursuant to the Annual
Plans in its discretion.
(c) STOCK OPTIONS. The Executive will be granted, as of the Effective
date hereof, a stock option (the "Option") to purchase 1% of the Company's
fully-diluted restructured common stock ("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). Executive acknowledges that certain action will need to be taken by
the Board of Directors and the Compensation Committee to effectuate such
Option grant. The Option will become exercisable as to one-third of the
shares of Stock subject thereto on the first anniversary of the date of
grant, as to an additional one-third of such shares on the second
anniversary of the date of grant, and as to an additional one-third of such
shares on the third anniversary of the date of grant. The Option will have
a term of seven years (the "Option Term"). Upon the termination of
Executive's employment:
(1) by reason of death, the Executive's estate may exercise the
Option (to the extent exercisable at the time of death) until the
earliest of one year following the Executive's death or the end of the
Option Term, following which time the Option shall terminate and be no
longer exercisable;
(2) by the Company for "Cause" or by the Executive voluntarily
without "Good Reason" (as each term is defined in Section 4 below),
the Option shall terminate and no longer be exercisable on the date
the Executive is advised by the Board that he is being terminated for
cause, or the effective date of the Executive's voluntary termination
without good reason, as applicable; or
(3) by the Company without Cause or by the Executive with Good
Reason, the entire Option shall become fully and immediately
exercisable and the Executive may exercise the Option until the
earliest of one year following the Executive's termination or the end
of the Option Term, following which time the Option shall terminate
and be no longer exercisable.
The Executive shall be entitled to participate in other Company
stock option grants or other equity plans or programs, if any, in
which senior executives of the Company are eligible to participate
generally as may be determined by the Compensation Committee.
Other than as stated above, the Option will be governed by the
terms and conditions of the Company's Stock Option Plan and the
standard Stock Option Agreement thereunder to be executed by the
Executive and the Company.
(d) INCENTIVE, SAVINGS, 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
-2-
<PAGE>
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.
(e) WELFARE BENEFIT PLANS. During the Employment Term, the Executive
and/or the Executive's family, as the case may be, shall be eligible for
participation in and shall receive all benefits under welfare benefit
plans, practices, policies and programs provided by the Company and its
affiliated companies (including, without limitation, medical, prescription,
dental, disability, salary continuance, employee term life, group life,
accidental death and travel accident insurance plans and programs, if any)
that are applicable generally to other senior executives of the Company and
its affiliated companies. It is acknowledged that the Executive's level of
participation in these plans shall be consistent with an executive of his
stature in the Company's industry.
(f) EXPENSES. During the Employment Term, the Company shall pay or
promptly reimburse the Executive for all reasonable business 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.
(g) FRINGE BENEFITS. During the Employment Term, the Executive shall
be entitled to fringe benefits appropriate to an executive of Executive's
stature in the Company's industry. Additionally, the Company shall pay the
Executive's reasonable legal fees for preparation and review of this
Employment Agreement, and shall reimburse the Executive, up to $7,500.00
per year, for personal tax and legal counsel in connection with the Company
stock option plan.
(h) VACATION AND HOLIDAYS. During the Employment Term, the Executive
shall be entitled to four weeks of paid vacation per year and all other
paid holidays given to employees of the Company.
4. TERMINATION OF EMPLOYMENT.
(a) CAUSE. The Company may terminate the Executive's employment during
the Employment Period for Cause. For purposes of this Agreement, "Cause"
shall mean: (i) the conviction of, or pleading guilty to, a felony or crime
involving moral turpitude, or (ii) the failure of the Executive to perform,
in any material respect, his obligations under this Agreement after a
written demand for such performance is delivered to the Executive
-3-
<PAGE>
by the Board, which specifically identifies the manner in which the Board
or Chief Executive Officer believes that the Executive has not performed
the Executive's duties; or (iii) a disability that prohibits the Executive
from substantially meeting his responsibilities as a senior executive of
the Company on a full-time basis for 90 out of 120 consecutive business
days.
(b) GOOD REASON. The Executive's employment may be terminated by the
Executive for Good Reason. For purposes of this Agreement, "Good Reason"
shall mean in each case, without the Executive's prior written consent:
(i) the assignment to the Executive of any duties materially
inconsistent with the Executive's position (including status, offices,
titles and reporting requirements), authority, duties or
responsibilities as contemplated by Section 2 of this Agreement, or
any other action by the Company which results in a diminution in such
position, authority, duties or responsibilities, excluding for this
purpose any action not taken in bad faith and which is remedied by the
Company within twenty (20) days after receipt of notice thereof given
by the Executive;
(ii) any failure by the Company, in any material respect, to
comply with any of the compensation and benefits provisions of Section
3 of this Agreement, other than failure not occurring in bad faith and
which is remedied by the Company within twenty (20) days after receipt
of notice thereof given by the Executive;
(iii) the Company's requiring the Executive to be based at any
office or location outside New York City;
(iv) any failure by the Company to comply with and satisfy any
covenant or agreement contained in this Agreement, excluding for this
purpose any failure or omission not occurring in bad faith or any
action not taken in bad faith and which is remedied by the Company
within twenty (20) days after receipt of notice thereof given by the
Executive; or
(v) the Company's termination of the Executive's employment
within two years of a "Change of Control." A "Change of Control," for
purposes of this Agreement, shall be deemed to have occurred if (i)
any "person (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
other than the Company, an employee benefit plan of the Company, or
any of the Company's direct or indirect affiliates (hereinafter, a
"THIRD PARTY"), is or becomes the "beneficial owner" (as defined in
Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of the Company representing fifty percent
(50%) or more of the combined voting power of the Company's then
outstanding securities entitled to vote in the election of directors
of the Company or (ii) all or substantially all of the assets of the
Company are acquired by a Third Party.
-4-
<PAGE>
(c) DEATH. The Executive's employment shall terminate automatically
upon the Executive's death during the Employment Period.
(d) NOTICE OF TERMINATION. Any termination by the Company for Cause,
or by the Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section
10(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 thirty days after
the giving of such notice). The failure by the Executive or the Company to
set forth in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason or Cause shall not waive any right
of the Executive or the Company, respectively, hereunder or preclude the
Executive or the Company, respectively, from asserting such fact or
circumstance in enforcing the Executive's or the Company's rights
hereunder.
(e) DATE OF TERMINATION. "Date of Termination" means (i) if the
Executive's employment is terminated by the Company for Cause, or by the
Executive for Good Reason, the date of receipt of the Notice of Termination
or any later date specified therein, as the case may be (although such Date
of Termination shall retroactively cease to apply if the circumstances
providing the basis of termination for Cause or Good Reason are cured in
accordance with Section 4(a) or 4(b) of this Agreement, respectively), (ii)
if the Executive's employment is terminated by the Company other than for
Cause, the Date of Termination shall be the date on which the Company
notifies the Executive of such termination and (iii) if the Executive's
employment is terminated by reason of death, the Date of Termination shall
be the date of death of the Executive.
5. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) GOOD REASON: OTHER THAN FOR CAUSE. If, during the Employment Term,
the Company shall terminate the Executive's employment other than for Cause
or the Executive shall terminate employment for Good Reason:
(i) the Company shall pay to the Executive the aggregate of the
following amounts:
A. the sum of (1) the Executive's Annual Base Salary through
the Date of Termination to the extent not theretofore paid, and
(2) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not theretofore
paid (the sum of the amounts described in clauses (1) and (2)
shall be hereinafter referred to as the "Accrued
-5-
<PAGE>
Obligations"). All Accrued Obligations shall be paid in a lump
sum in cash within 30 days of the Date of Termination; and
B. the Executive's Annual Base Salary as set forth in
Section 3(a) for the year in which the Date of Termination falls,
to be paid either (1) in a lump sum, if approved by the Board, 30
days after the Date of Termination, or (2) as salary continuation
for a period of one year following the Date of Termination,
except that, in the event of a "Change of Control" termination,
as defined in Section 4(b)(v) herein, the Executive shall be paid
two times his Annual Base Salary in a lump sum or as a two-year
salary continuation. The Executive shall have no duty or
obligation to mitigate, and such salary continuation payments
will continue even in the event the Executive becomes reemployed
by another employer.
(ii) all stock options, restricted stock and other stock-based
compensation shall become exercisable or vested pursuant to Section
3(c)(3) herein;
(iii) for one year after the Executive's Date of Termination (or
for two years in the event of a "Change of Control" termination, as
defined in Section 4(b)(v) herein), the Company shall continue
benefits to the Executive and/or the Executive's family at least equal
to those which would have been provided to them in accordance with the
plans, programs, practices and policies described in Section 3(e) of
this Agreement if the Executive's employment had not been terminated,
provided, however, that if the Executive becomes reemployed with
another employer and is eligible to receive medical or other welfare
benefits under another employer provided plan, the corresponding
medical and other welfare benefits described herein shall be
terminated. Those welfare benefits not offered by the new employer
shall continue until termination of the abovedescribed one or two year
period. For purposes of determining eligibility (but not the time of
commencement of benefits) of the Executive for retiree benefits
pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until the
later of two years after the Date of Termination or the end of the
Employment Term and to have retired on the last day of such period;
(iv) to the extent not theretofore paid or provided, the Company
shall timely pay or provide to the Executive any other amounts or
benefits required to be paid or provided to the Executive or which the
Executive is entitled to receive under any plan, program, policy or
practice or contract or agreement of the Company and its affiliated
companies, to the extent payment of any such amounts or benefits are
not already provided for under this Agreement (such other amounts and
benefits shall be hereinafter referred to as the "Other Benefits").
-6-
<PAGE>
The Executive shall have the right to approve, such approval not be
unreasonably withheld by the Company, any written announcement, if any, of the
termination of the Executive's employment with the Company.
(a) DEATH. If the Executive's employment is terminated by reason of
the Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for payment of Accrued
Obligations, the right to exercise the Executive's Stock Option under
Section 3(c)(1) herein, and the timely payment or provision of Other
Benefits. Accrued Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the
Date of Termination.
(b) CAUSE: OTHER THAN FOR GOOD REASON. If, during the Employment Term,
the Executive's employment shall be terminated by the Company for Cause or
by the Executive without Good Reason, this Agreement shall terminate
without further obligations to the Executive other than the payment of
Accrued Obligations, and the payment or provision of Other Benefits. All
Accrued Obligations shall be paid to the Executive in a lump sum in cash
within 30 days of the Date of Termination. Upon a termination of the
Executive's employment for Cause by the Company or by the Executive without
Good Reason, the Executive shall forfeit all stock options that are not
vested on the Date of Termination. If the Executive's employment is
terminated for Cause, nothing in this Agreement shall prevent the Company
from pursuing any other available remedies against the Executive.
6. 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.
7. 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.
8. FULL SETTLEMENT. 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.
-7-
<PAGE>
9. CONFIDENTIAL INFORMATION; NON-SOLICITATION.
(a) The Executive shall hold in a fiduciary capacity for the benefit
of the Company all secret or confidential information, knowledge or data
relating to the Company or any of its affiliated companies, and their
respective businesses, which shall have been obtained by the Executive
during the Executive's employment by the Company or any of its affiliated
companies and which shall not be or become public knowledge (other than by
acts by the Executive or representatives of the Executive in violation of
this Agreement). After termination of the Executive's employment with the
Company, the Executive shall not, without the prior written consent of the
Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone
other than the Company and those designated by it. In no event shall an
asserted violation of the provisions of this Section 8 constitute a basis
for deferring or withholding any amounts otherwise payable to the Executive
under this Agreement.
(b) For a period of one year following the termination of the
Executive's employment for any reason, the Executive shall not, directly or
indirectly, (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 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.
10. SUCCESSORS.
(a) This Agreement is personal to the Executive and without the prior
written consent of the Company shall not be assignable by the Executive
otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the
Executive's executors, successors and legal representatives.
(b) This Agreement shall inure to the benefit of and be binding upon
the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly in writing and agree to perform this Agreement in the same manner
and to the same extent that the Company would be required to perform it if
no such succession had taken place. Failure to do so shall constitute good
reason for the Executive to terminate his employment. As used in this
Agreement, "Company" shall mean the Company as hereinbefore defined and any
-8-
<PAGE>
successor to its business and/or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or otherwise.
11. 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:
Mr. Colin Finkelstein
400 East 70th Street
Apartment 3902
New York, New York 10021
WITH A COPY TO:
Paul G. Marshall, Esq.
Solovay Marshall & Edlin, P.C.
845 Third Avenue
New York, New York 10022
IF TO THE COMPANY:
Golden Books Family Entertainment, Inc.
850 Third Avenue
New York, New York 10022
Attention: Chief Financial Officer
WITH A COPY TO:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Attention: Rita A. Hernandez, Esq.
-9-
<PAGE>
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required
to be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company
may have hereunder, including, without limitation, the right of the
Executive to terminate employment for Good Reason pursuant to Section 4 (b)
of this Agreement, shall not be deemed to be a waiver of such provision or
right or any other provision or right of this Agreement.
(f) This Agreement supersedes and replaces in its entirety the
Employment Agreement, dated as of September 9, 1996, between the Executive
and the Company.
-10-
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's
hand and, pursuant to the authorization from its Board of Directors, the Company
has caused these presents to be executed in its name on its behalf, all as of
the day and year first above written.
COLIN FINKELSTEIN
/S/ COLIN FINKELSTEIN
---------------------------------------
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
By: /S/
----------------------------------
Name:
Title:
-11-
EXHIBIT 10.16
FIRST AMENDMENT made as of the 27th day of January, 2000 to the
Employment Agreement dated as of September 9, 1996 by and between Golden Books
Family Entertainment, Inc. with its principal United States office at 888
Seventh Avenue, New York, New York 10106 (the "Company"), and Mr. Colin
Finkelstein, residing at 400 East 70th Street, Apartment 3902, New York, New
York, 10021 (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company and the Executive have previously entered into
the Employment Agreement; and
WHEREAS, the Company and the Executive desire to amend the Employment
Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. The Employment Agreement is amended effective as of the date hereof
as follows:
a. Section 1 of the Employment Agreement is amended in its
entirety to read as follows:
"1. EMPLOYMENT TERM. The Company hereby agrees to employ the
Executive, and the Executive agrees to enter the employ of the
Company, commencing on the Effective Date and continuing through
and including December 31, 2002, unless terminated earlier in
accordance with Section 4 below (the "Employment Term")."
b. Section 2(a) of the Employment Agreement is amended by the
deletion of the first sentence and the addition of the following
sentence in lieu thereof:
"The Executive shall serve as the Company's Executive Vice
President and Chief Financial Officer with such duties,
responsibilities and authority in such capacities as shall be
consistent therewith."
<PAGE>
c. Section 2(b) of the Employment Agreement is amended in is
entirety to read as follows:
"In the Executive's capacity as Executive Vice President and
Chief Financial Officer, he shall report to the Company's
Chairman and Chief Executive Officer."
d. Section 3(a) of the Employment Agreement is amended by the
deletion of the first sentence and the addition of the following
sentence in lieu thereof:
"(a) BASE SALARY. During the Employment Term, the Executive shall
receive an annual base salary ("Annual Base Salary") of $300,000
for each year of the term."
e. Section 3(b) of the Employment Agreement is amended in its
entirety to read as follows:
"(b) ANNUAL BONUS. In addition to Annual Base Salary, the
Executive shall be awarded, for each fiscal year ending during
the Employment Term, an annual bonus (the "Annual Bonus")
pursuant to the Company's Executive Officer Bonus Plan or a
replacement thereof (the "Annual Plan") under one or more of the
criteria prescribed in the Annual Plan and approved by the
Compensation Committee of the Board of Directors, which bonus
shall be pro rated for any fiscal year during which the Executive
is employed for less than 12 months. The Executive shall have a
target annual bonus of 100% of his Annual Base Salary (the
"Target Bonus"), subject 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 Office 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."
<PAGE>
f. Section 3(c) of the Employment Agreement is amended in its
entirety to read as follows:
"(c) STOCK OPTIONS. The Executive will be granted, as soon as
administratively feasible, a stock option (the "Option") to
purchase 1% of the Company's issued and outstanding common stock
("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 (the "Stock Option Plan")
in accordance with the form of option agreement annexed as
Exhibit A hereto ("Option Agreement"). The exercise price with
respect to each share of Common Stock subject to the Option will
be the "Fair Market Value" (as defined in the Stock Option Plan)
of a share of Common Stock on the date of the grant. The Option
will become exercisable as to one-third of the shares of Common
Stock subject thereto on the first anniversary of the date of
grant, as to an additional one-third of such shares on the second
anniversary of the date of grant, and as to the remaining
one-third of such shares on the third anniversary of the date of
grant, provided the Executive has been continuously employed
through each applicable vesting date. Notwithstanding anything in
this Agreement to the contrary, upon the occurrence of a Change
in Control (as such term is defined in Section 4(f) below,
without regard to clause (iv) of Section 4(f)(A) and clause
(ii)(b) of Section 4(f)(C)) during the Employment Term, the
Option shall become fully and immediately exercisable. The Option
will have a term of seven years (the "Option Term"). Upon the
termination of Executive's employment:
(1) by reason of death, the Option shall become fully and
immediately exercisable and the Executive's estate may exercise
the Option until the earlier of one year following the
Executive's death or the end of the Option Term, following which
time the Option shall terminate and be no longer exercisable;
(2) by reason of Disability (as such term is defined in Section
4(a) below), the Option shall become fully and immediately
exercisable and the Executive (or, following his death, his
estate) may exercise the Option until the earlier of one year
following the Date of Termination (as such term is defined in
Section 4(e) below) or the end of the Option Term, following
which time the Option shall terminate and be no longer
exercisable;
(3) by the Company for Cause (as such term is defined in Section
4(a) below), the Option shall terminate and no longer be
exercisable effective on the Executive's Date of Termination;
<PAGE>
(4) by the Executive without Good Reason (as such term is defined
in Section 4(b) below), the Option, to the extent exercisable on
the Date of Termination, shall remain exercisable by the
Executive (or, following his death, his estate) until the earlier
of 90 days following such date or the end of the Option Term,
following which time the Option shall terminate and be no longer
exercisable; or
(5) by the Company without Cause or by the Executive with Good
Reason, the entire Option shall become fully and immediately
exercisable and the Executive may exercise the Option until the
earlier of one year following the Executive's Date of Termination
or the end of the Option Term, following which time the Option
shall terminate and be no longer exercisable.
The Executive shall be entitled to participate in other Company
stock option grants or other equity plans or programs, if any, in
which senior executives of the Company are eligible to
participate on a basis generally commensurate with his position
as may be determined by the Compensation Committee.
The Executive will be entitled to pay the exercise price of the
Option with shares of Common Stock previously acquired by the
Executive and may elect to have any withholding taxes required to
be withheld as a result of the exercise of the Option taken out
of Common Stock issuable to the Executive as a result of such
exercise.
Other than as stated above, the Option will be governed by the
terms and conditions of the Company's Stock Option Plan and the
Option Agreement thereunder."
g. Section 4(a) of the Employment Agreement is amended by the
addition of the parenthetical "("Disability")" following "business
days".
h. Section 4(b)(v) of the Employment Agreement is amended in its
entirety to read as follows:
"the Company's termination of the Executive's employment for any
reason other than Cause, within two years following a "Change of
Control" (as defined in Section 4(f) of this Agreement)."
i. A new Section 4(f) to the Employment Agreement is added to
read as follows:
"(f) DEFINITION OF CHANGE OF CONTROL. For the purpose of this
Agreement, a "Change of Control" shall mean:
<PAGE>
(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% of 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 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 (i) , 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 clauses
(i), (ii) and (iii) of paragraph (C) of this Subsection (f), or
(iv) any acquisition by the Executive, or by 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
<PAGE>
then outstanding shares of common stock and the combined voting
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."
j. Section 5(a)(ii) of the Agreement is amended by replacing the
reference to Section 3(c)(3) therein to 3(c)(5).
k. Section 10(b) of the Employment Agreement is amended in its
entirety to read as follows:
"(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:
<PAGE>
IF TO THE EXECUTIVE:
Mr. Colin Finkelstein
400 East 70th Street
Apartment 3902
New York, New York 10021
With a copy to:
Paul G. Marshall, Esq.
Solovay Marshall & Edlin, P.C.
845 Third Avenue
New York, New York 10022
IF TO THE COMPANY:
Golden Books Family Entertainment, Inc.
888 Seventh Avenue
New York, New York 10106
Attention: Chief Administrative Officer
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."
2. As amended by the First Amendment, the Employment Agreement shall
remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this amendment to be
executed by its duly authorized officers and the Executive has hereunto set his
hand as of the date first above written.
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
By: ________________________________________
________________________________________
Colin Finkelstein
EXHIBIT 10.17
FIRST AMENDMENT made as of the 27th day of January, 2000 to the Employment
Agreement dated as of May 7, 1998 by and between Golden Books Family
Entertainment, Inc. with its principal United States office at 888 Seventh
Avenue, New York, New York 10106 (the "Company"), and Mr. Philip Galanes,
residing at 26 East 10th Street, #5-F, New York, New York 10003 (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Company and the Executive have previously entered into the
Employment Agreement; and
WHEREAS, the Company and the Executive desire to amend the Employment
Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. The Employment Agreement is amended effective as of the date hereof as
follows:
a. Section 2(a) of the Employment Agreement is amended by the
deletion of the first sentence thereof and the substitution of the
following sentence in lieu thereof:
"The Executive shall serve as the Company's Executive Vice President,
Chief Administrative Officer, General Counsel and Secretary, with such
duties, responsibilities and authority in such capacities as shall be
consistent therewith, including directing the Company's legal
department, business affairs department, human resources department
and corporate communications department."
b. Section 2(b) of the Employment Agreement is amended in its
entirety to read as follows:
"(b) In the Executive's capacity as Executive Vice President, Chief
Administrative Officer, General Counsel and Secretary, he shall report
to the Company's Chairman and Chief Executive Officer."
<PAGE>
c. Section 3(b) of the Employment Agreement is amended in its
entirety to read as follows:
"(b) ANNUAL BONUS. In addition to Annual Base Salary, the Executive
shall be awarded, for each fiscal year ending during the Employment
Term, 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 Annual Plan
and approved by the Compensation Committee of the Board of Directors,
which bonus shall be pro rated for any fiscal year during which the
Executive is 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."
d. Section 3(c) of the Employment Agreement is amended in its
entirety to read as follows:
"(c) STOCK OPTIONS. The Executive will be granted, as soon as
administratively feasible, a stock option (the "Option") to purchase
1% of the Company's issued and outstanding common stock ("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 (the "Stock Option Plan") in accordance with the form
of option agreement annexed as Exhibit A hereto ("Option Agreement").
The exercise price with respect to each share of Common Stock subject
to the Option will be the "Fair Market Value" (as defined in the Stock
Option Plan) of a share of Common Stock on the date of the grant. The
Option will become
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exercisable as to one-third of the shares of Common Stock subject
thereto on the first anniversary of the date of grant, as to an
additional one-third of such shares on the second anniversary of the
date of grant, and as to the remaining one-third of such shares on the
third anniversary of the date of grant, provided the Executive has
been continuously employed through each applicable vesting date.
Notwithstanding anything in this Agreement to the contrary, upon the
occurrence of a Change in Control (as such term is defined in Section
3(i) below, without regard to clause (iv) of Section 3(i)(A) and
clause (ii)(b) of Section 3(i)(C)) during the Employment Term, the
Option shall become fully and immediately exercisable. The Option will
have a term of seven years (the "Option Term"). Upon the termination
of Executive's employment:
(1) by reason of death, the Option shall become fully and immediately
exercisable and the Executive's estate may exercise the Option until
the earlier of one year following the Executive's death or the end of
the Option Term, following which time the Option shall terminate and
be no longer exercisable;
(2) by reason of Disability (as such term is defined in Section 4(a)
below), the Option shall become fully and immediately exercisable and
the Executive (or, following his death, his estate) may exercise the
Option until the earlier of one year following the Date of Termination
(as such term is defined in Section 4(e) below) or the end of the
Option Term, following which time the Option shall terminate and be no
longer exercisable;
(3) by the Company for Cause (as such term is defined in Section 4(a)
below), the Option shall terminate and no longer be exercisable
effective on the Executive's Date of Termination;
(4) by the Executive without Good Reason (as such term is defined in
Section 4(b) below), the Option, to the extent exercisable on the Date
of Termination, shall remain exercisable by the Executive (or,
following his death, his estate) until the earlier of 90 days
following such date or the end of the Option Term, following which
time the Option shall terminate and be no longer exercisable; or
(5) by the Company without Cause or by the Executive with Good Reason,
the entire Option shall become fully and immediately exercisable and
the Executive may exercise the Option until the earlier of one year
following the Executive's Date of Termination or the end of the Option
Term, following which time the Option shall terminate and be no longer
exercisable.
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The Executive shall be entitled to participate in other Company stock
option grants or other equity plans or programs, if any, in which
senior executives of the Company are eligible to participate on a
basis generally commensurate with his position as may be determined by
the Compensation Committee.
The Executive will be entitled to pay the exercise price of the Option
with shares of Common Stock previously acquired by the Executive and
may elect to have any withholding taxes required to be withheld as a
result of the exercise of the Option taken out of Common Stock
issuable to the Executive as a result of such exercise.
Other than as stated above, the Option will be governed by the terms
and conditions of the Company's Stock Option Plan and the Option
Agreement thereunder."
e. Section 3 of the Employment Agreement is amended by adding a new
Subsection (i) thereto, to read in its entirety as follows:
"(i) 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 (i), 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 clauses (i), (ii) and (iii) of paragraph (C) of this
Subsection (i), or (iv) any acquisition by the Executive or by Richard
E. Snyder ("Snyder"), or
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by a group (within the meaning of Section 13(d)(3) or 14(d)(2) of the
Exchange Act) that includes the Executive or Snyder or both;
(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 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,
(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 or Snyder 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
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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."
f. Section 4(b)(v) of the Employment Agreement is amended in its
entirety to read as follows:
"(v) the termination of Snyder's employment (i) by the Company
for any reason or (ii) by Snyder for "good reason" (as defined in the
Employment Agreement by and between Snyder and the Company, dated as
of January 27, 2000); provided, however, that any such termination of
Snyder's employment shall constitute Good Reason under this Agreement
only for the sixty (60) day period following the last day of Snyder's
employment."
g. Clause (iii) of Section of Section 4(d) of the Employment
Agreement is amended to read as follows:
"(iii) if the Date of Termination (as defined below) is other
than the date of receipt of such notice, specifies the termination
date."
h. Clause (i) of Section 4(e) of the Employment Agreement is amended
to read as follows:
"(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 (which
date shall be not more than thirty (30) days (and in the case of any
termination of the Executive's employment in accordance with Section
4(b)(v) of this Agreement, at least forty-five (45) days) after the
giving of such notice), as the case may be (although such Date of
Termination shall retroactively cease to apply if the circumstances
providing the basis of termination for Cause or Good Reason are cured
in accordance with Section 4(a) or 4(b) of this Agreement,
respectively),"
i. Section 5(a)(i)(B) is amended in its entirety to read as follows:
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"(B) an amount equal to two and one-half times (2 1/2) (and if
the Date of Termination is on or after May 1, 2001, two (2) times )
the sum of (i) the Annual Base Salary payable to the executive under
this Agreement, at the annual rate in effect as of the Termination
Date as provided in Section 3(a), and (ii) the Target Bonus paid or
payable, including any portion thereof which was earned but deferred,
for the most recently completed fiscal year during the Employment
Term, to be paid in a lump sum within 30 days after the Date of
Termination. The Executive shall have no duty or obligation to
mitigate the amounts or obligations provided in this Section 5(a)(i),
even in the event the Executive becomes reemployed by another
employer."
j. Section 13(b) of the Employment Agreement is amended in its
entirety to read as follows:
"(b)xxxAll notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
IF TO THE EXECUTIVE:
Mr. Philip Galanes
26 East 10th Street
#5-F
New York, New York 10003
IF TO THE COMPANY:
Golden Books Family Entertainment, Inc.
888 Seventh Avenue
New York, New York 10106
Attention: Chief Financial Officer
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."
2. As amended by the First Amendment, the Employment Agreement shall
remain in full force and effect.
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IN WITNESS WHEREOF, the Company has caused this amendment to be executed by
its duly authorized officers and the Executive has hereunto set his hand as of
the date first above written.
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
By: ________________________________________
________________________________________
Philip Galanes, Esq.
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Exhibit 10.18
PRINTING SERVICES AGREEMENT
---------------------------
THIS PRINTING SERVICES AGREEMENT, made as of November 29, 1999 (this
"Agreement"), between: ARTECH CAPITAL CORPORATION, a Canadian corporation
("Printer"), and GOLDEN BOOKS PUBLISHING COMPANY, INC., a Delaware corporation
("Customer").
WHEREAS, Printer has signed an Asset Purchase Agreement with Customer (the
"Asset Purchase Agreement") regarding that certain manufacturing facility (the
"Sturtevant Facility") currently leased by Customer located at 10101 Science
Drive, Sturtevant, Wisconsin, pursuant to which Customer is seeking to transfer
and sell to Printer its right, title and interest in certain printing equipment
located at the Sturtevant Facility and the lease pertaining to such facility,
and Printer is seeking to assume such lease and purchase such equipment
(collectively, the "Transaction"); and
WHEREAS Customer is a preferred client of Printer and enjoys the privileges of
such status;
WHEREAS, the Customer intends to purchase from Printer, and Printer has the
capacity and intends to manufacture assorted printed books in the formats set
forth on Schedule A ("Product") hereto for Customer, subject to the terms hereof
and subject to the closing of the Transaction;
WHEREAS, the Customer intends to purchase from Printer, and Printer intends on a
right of first refusal basis to seek to manufacture the currently outsourced
products set forth in Schedules D-1 and D-2 hereto which it, its affiliates,
associated companies (in which it holds a material interest) or the Harpel Group
(in which it holds indebtedness) (all of which, in reference to Outsourced
Product or Additional Product (as hereinafter defined) may simply be referred to
as "Printer") have the internal capability of manufacturing (as hereinafter
defined) for Customer, pursuant to the terms and conditions contained herein;
NOW, THEREFORE, in consideration of the covenants and mutual agreement
hereinafter set forth, the parties hereto agree as follows:
1. ARTICLE I: GENERAL TERMS AND PROVISIONS
---------------------------------------
1.1 GENERAL.
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1.1.1 PRODUCT REQUIREMENTS. Upon the terms and subject to the
conditions of this Agreement, Printer shall produce and supply
Customer with, and Customer shall purchase from Printer, (i) no
less than * of Customer's total requirements for Product for the
first year of the term of this Agreement,
* Confidential treatment requested
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(ii) no less than * of Customer's requirements for Product for
the second year of the term of this Agreement, and (iii) no less
than * of Customer's requirements for Product for each of the
third, fourth and fifth years of this Agreement, in all cases
based on aggregate ordered annual unit volume across all formats
of Product for the current year of the Agreement. Notwithstanding
the previous sentence, Printer agrees that it will produce and
supply Customer with all of Customer's requirements for Products,
regardless of whether such requirements exceed percentage
requirements specified in 1.1.1(ii) and 1.1.1(iii) above,
provided however, that Customer, in requesting work to be done,
schedules work on a basis reasonably consistent with past
practice or its forecast(s) as provided pursuant to this
Agreement, bearing in mind the needs of the Customer's business
and its customers, on the one hand, and the capacity of the
Printer to supply product and the availability and capacity of
required subcontractors, on the other hand. Product shall be
manufactured in accordance with the Production Guidelines and
Production Schedule (as defined in Section 1.4(A) hereof), and
Customer shall pay Printer a price calculated in accordance with
Section 1.5 hereof for all Product and Outsourced Product
delivered in accordance with Section 1.3 hereof. Nothing
contained in this Agreement shall obligate Customer to purchase
any quantity of Product or Outsourced Product until Customer
issues specific purchase orders for such Product or Outsourced
Product in accordance with the terms of the Agreement.
Notwithstanding the foregoing sentence, Printer shall purchase
supplies only based on Customer's orders or instructions or based
on Customer's historical production volume levels for Schedules A
and D. Historical production volume levels shall mean, for the
calendar year 2000, Schedules A and D for calendar year 1999, and
for subsequent years, Schedules A and D during the previous
calendar year. In all cases, historical production levels shall
be adjusted for seasonality for the previous two calendar years.
Printer agrees to put in place stocking programs with its
suppliers generally equivalent to the stocking programs operated
by Customer prior to the Transaction for the basic types of paper
and other consumables required to produce the Products per the
specifications in Schedules B and D. It is understood that the
lead times listed in Schedules B and D are predicated upon such
programs and normal stocking levels of paper and consumables
based on Customer's historical production volume levels as
described above. Customer may from time to time instruct Printer
to purchase additional paper and other consumables to meet
unusual demand. Printer may invoice Customer for the cost of any
such additional supplies if such supplies are not used within 90
days of their purchase. Subsequent to any such invoice, Printer
shall, upon Customer's instructions on its purchase orders, use
such supplies for specific future orders, with the cost of the
supplies utilized applied against the cost of such future orders.
Upon payment of Printer's invoice for such supplies, title
thereto shall pass to Customer. Printer shall store such supplies
for Customer on terms consistent with terms for Customer supplied
materials in accordance with
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Paragraph 2.3. Notwithstanding anything to the contrary in this
paragraph, if Printer is not billed by its paper supplier for
paper ordered by Printer on Customer's instructions, Printer
shall not bill Customer for such paper.
However, in the event that either (1) unusual items are required
(e.g., customized paint boxes) or (2) the volume of Customer's
orders are in excess of Customer's historical production volume
levels for that time of year; and Customer has not with
sufficient notice instructed Printer to purchase such unusual
items or additional paper and supplies in advance, then the lead
times in Schedule B or D shall automatically be extended to allow
for the purchase of such unusual items or additional paper and
supplies. In such event, Printer will use commercially reasonable
best efforts to obtain the supplies required for such order and
will inform Customer within 48 hours of its ability to meet the
lead times in Schedule B or D. Should Printer inform Customer
that under such circumstances Printer can not meet the lead
times, then: (a) Customer shall have the right to place that
portion of the order which can not be met with another printer,
(b) Printer's failure to produce such product shall not be
included in the calculation of a possible default by Printer
pursuant to Section 8.1(c), and (c) Customer's failure to
purchase such product from Printer shall not be deemed a failure
to provide the minimum percentage requirements set forth in
Section 1.1.1.
1.1.2 OUTSOURCED PRODUCT. Schedule D lists all of Customer's currently
outsourced product (excluding novelty items) ("Outsourced
Product"). Schedule D-1 reflects those formats of Outsourced
Product which Printer currently has the internal capability to
manufacture. For purposes of this Agreement, the words "internal
capability to manufacture" mean that Printer or any of its
affiliated companies is able to perform in-house a sufficient
percentage of the entire manufacturing process for a particular
format such that it can reasonably guarantee meeting the
standards of quality and scheduling for such format. Schedule D-2
reflects those formats of Outsourced Product which Printer does
not currently have internal capability to manufacture, but as to
which Printer intends to install or otherwise obtain the internal
capability to manufacture within twenty four months of the
Effective Date. Schedule D-3 reflects those formats of Outsourced
Product which Printer or its affiliates do not have or currently
intend to have the internal capability to manufacture during the
first two years of this Agreement. Printer agrees to manufacture
all Outsourced Product formats set forth in Schedule D-1 hereto
at the pricing set forth in Schedule D-1 (subject to quantity
variation and variations in paper and other prices as set forth
in Section 1.5), provided however, that Customer, in requesting
work to be done, schedules work on a basis reasonably consistent
with past practice or its forecast(s) as provided pursuant to
this Agreement, bearing in mind the needs of the Customer's
business and its customers, on the one hand, and the capacity of
the Printer to supply product and the availability and capacity
of required subcontractors, on the other hand. *
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1.1.3 ADDITIONAL PRODUCT. *
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1.2 ANNUAL MINIMUM VOLUME REQUIREMENT. The parties acknowledge that the initial
aggregate annual minimum volume requirement for orders for items on
Schedule A (including prepress for such Schedule A items as described in
Schedule F, which Customer hereby commits to utilize Printer to perform) is
* during the first year, and adjusted for subsequent years as illustrated
in the next paragraph.
Customer's obligations pursuant to Sections 1.1 and 1.2 are subject to the
termination provisions of Section 8.1 as well as Customer's rights pursuant
to Section 1.5(b) to remove from the scope of this Agreement formats with
respect to which Printer is unable to provide competitive pricing.
Shortfalls resulting from Customer exercising its rights pursuant to
Section 1.5(b) will not constitute a breach of Sections 1.1 or 1.2 by
Customer, and such unit volume will not be carried over to the subsequent
year's requirements, as set forth in Section 1.5(b). The minimum volume
requirement for determining any potential shortfall in Customer's orders
for Product on Schedule A to Printer shall be * in year one of this
Agreement, * in year two, * in year three, * in year four, and * in year
five. The minimum volume requirement for determining any premium or excess
amount in Customer's orders for Product on Schedule A shall be * in year
one of the Agreement, * in year two, * in year three, * in year four, and *
in year five.
1.2.1 TERM. This Agreement shall begin on the date set forth above (the
"Effective Date") and expire on December 31, 2004, subject to
earlier termination pursuant to the terms hereof. In the event
Customer desires to renew the term of this Agreement, Printer and
Customer agree to commence good-faith negotiations to renew this
Agreement, and to conclude such an agreement by or before the end
of the third year of the initial term hereof. * It is understood
and agreed that any and all references to the first year of this
Agreement actually include the period of time from the Effective
Date through December 31, 2000, even though such period of time
comprises more than one year.
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1.3 DELIVERY. Finished product shall be delivered FOB the Printer's shipping
dock at the Sturtevant Facility. Shipment must be made to meet the required
lead times in accordance with Schedule B or Schedule D hereto (if
applicable) or as mutually agreed upon by Customer and Printer at time of
purchase order. Notwithstanding the foregoing, Printer shall be
automatically entitled to a 24-hour extension from any required delivery
date, except in the case of rush orders. Upon the expiration of the 24-hour
extension, where applicable, a penalty discount equal to 0.5% per day for
the first two days late, and 1% per day late after two days and up to 5
days late shall be applied to each late order. Subject to the foregoing,
Customer, without waiving any other legal rights, reserves the right to
cancel without charge or to postpone deliveries of any product produced
pursuant to the Agreement that is not received within seven (7) days of the
required delivery date for non rush orders and within five (5) days of the
required delivery date for rush orders, or, for either rush or non rush
orders, to take an additional discount of 1% for each additional week of
late delivery. In the event of such cancellation or postponement, such
product unit volume shall be deemed a credit against Customer's minimum
Product requirements as provided in Sections 1.1 and 1.2 (calculated in
U.S. dollars based on the applicable pricing schedule). Unless otherwise
specified by Customer, a partial delivery of not less than 50% of an order
will be considered delivered on time as long as 90% of the order shall be
delivered within the next 24 hour period from the scheduled and agreed to
delivery date and the remaining 10% is delivered within the subsequent 24
hour period. Except as expressly contemplated herein, time is of the
essence.
1.4 SPECIFICATIONS; PRODUCTION GUIDELINES AND PRODUCTION SCHEDULE. SCHEDULING.
-------------------------------------------------------------------------
(a) The current standard specifications ("Production Guidelines") and
lead times ("Production Schedule") for the manufacture of (i)
Product are set forth in Schedule B and (ii) Outsourced Product
are set forth in Schedule D. Customer reserves the right to alter
product specifications at any time during the term of this
Agreement. "Lead time" is defined as the time from the later of:
(a) the date of the Customer order (in the cases of re-prints),
(b) and/or the date of acceptance of the digital file or final
film proofs (on new or revised titles orders), (c) the date that
any customer-supplied materials have been delivered to Printer,
or (d) the date that final author's alterations have been
delivered to Printer, to the date that the product is at
dockside.
(b) Additional packaging and shipping instructions will be indicated
on individual purchase orders.
(c) Orders of product hereunder shall be by purchase order only.
Printer shall apply its best efforts to provide Customer, at the
same price as for standard lead time deliveries, up to 20% of its
product print runs during each year of the term of this Agreement
on an expedited basis of no more than 50% of the standard lead
time days for that format as defined in Schedules B and D. The
Customer understands that the request for "Rush" orders may
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require the extension of delivery time on non-rush orders.
Extensions may only be requested by the Printer in writing, and
such requests for extensions shall be deemed to be accepted only
upon receipt of Customer's permission in writing.
(d) In the event Customer cancels an order within 36 hours of press
time, Printer may invoice Customer for all out of pocket costs
incurred by Printer associated with this order (which shall be
credited against a re-order if applicable) and the cost of
unutilized Press and Bindery time. Printer shall take all
reasonable efforts to obtain alternative uses for such Press and
Bindery time.
(e) An order which is partially completed and cancelled or put on
hold at the request of the Customer may be invoiced within 30
days for work actually performed by Printer with respect to such
order.
1.5 PRICE; PRICE ADJUSTMENTS.
------------------------
(a) MANUFACTURING PRICES.
Manufacturing prices for Product are listed in Schedule A hereto.
Manufacturing prices for Outsourced Product are listed in
Schedule D hereto. Unit prices for different quantities will be
subject to change using the make ready and run on costs listed in
Schedules A and D hereto. Manufacturing prices for any format
similar to those described in Schedules A or D hereto (including
without limitation formats listed in Schedules A or D to which
minor alterations and adjustments have been made) ("Similar
Products") and changes to the gang quantity for formats listed in
Schedules A and D shall be negotiated by the parties in good
faith, based upon the pricing contained in such Schedules for the
format most similar to the new format. Such Similar Products
shall then be included in Schedule A or D, as the case may be.
Manufacturing pricing includes paper and all materials, plates
(conventional or CTP), make-readies and run cost for printing and
binding, and, with regard to Product, packaging as described in
Schedule A. Customer shall have the right to require Printer to
package any purchase order quantity in any combination of
minipack, brick pile and cartoned at no additional charge
(providing that all materials used by the printer are of standard
brown kraft paper and brown corrugated single wall boxes with
printed logo) Double walled boxes and/or specialty paper wrap
shall be charged at the cost of material plus set-up or die
charges. If Customer requests Printer to provide packaging
services materially different from those provided for in
Schedules A and D, and such services need to be performed
manually, a charge of US$18.50 per man hour will be applied to
each such order. The following pricing will apply, subject to the
provisions of subsection 1.5(b).
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1.5.1 PREPARATION:
-----------
o Prepress will be charged as set forth on Schedule F.
o Final plate-ready film output will be charged at * per
color per page based on customer supplied application files.
o Film mounting will be charged at * per color per page.
o Computer to Plate file processing (preflight, ripping and
trapping) will be charged at * per color per page.
1.5.2 FULFILLMENT PRICES:
------------------
STICKERING:
Product stickering will be provided on a job by job basis as requested on
the individual purchase order. Customer will be charged * per unit
inclusive of materials for in-line stickering and * per unit for any other
stickering.
1.5.3 ASSORTMENT PACKING & SHRINK-WRAPPING:
------------------------------------
Pricing for any assortment packaging or shrink-wrapping requirements will
be agreed upon at time of purchase order issuance.
1.5.4 CUSTOMER PICKUP:
---------------
Product and Outsourced Product will be packed and staged for pickup by
Customer's client per Customer's shipping instructions at no additional
charge.
(b) *
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(c) *
(d) *
(e) IMPROVEMENTS. If, during the term of this Agreement, improvements
are made in the method of producing any of the work herein
included by the invention or acquisition of improved or
supplemental equipment, by the discovery or development of new or
improved process, or of new materials, and Printer and Customer
mutually agree that the use of such improved or supplemental
equipment, processes, or materials would be advantageous, then
the parties shall mutually agree on the nature and extent of the
incorporation of said developments into this Agreement. Printer
shall not unreasonably withhold such technological changes as
long as such changes are economically advantageous to both
parties and Product prices outlined in Schedule A and Outsourced
Product prices outlined in Schedule D hereto are appropriately
adjusted.
(f) LEVEL LOADING DISCOUNTS. Schedule C shall set forth the schedule
of discounts which Printer shall grant Customer for the
manufacture of incremental volume of Product during non-peak
periods. During the term of the Agreement, Printer shall provide
Customer on or before November 1st of each year a schedule of
non-peak periods throughout the coming calendar year during which
the non-peak pricing discounts set forth at that time shall
apply. Customer shall have right of first refusal for up to 25%
of Printer's
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maximum printing and production capacity during this period and
shall receive such discounts with respect to any order for
Product placed with Printer by Customer for delivery during a
non-peak period.
(g) *
(h) *
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1.6 PAYMENT. For the first two (2) years of the term of this Agreement, payment
shall be on a net 30 days basis from the 15th and 30th of the previous
month. For the balance of the term the payment terms shall be 2%/10 days,
net 30 days calculated from the date of the consolidated statement of
account. Printer shall invoice on a regular basis and Customer shall pay
all invoices issued from the 1st to the 15th of each month no later than
the 15th of the subsequent month and shall pay all invoices issued from the
15th to the 31st of each month no later than the last day of the subsequent
month. Printer shall send Customer consolidated statements of account
identifying invoices outstanding on the 15th and 30th of each month.
Printer shall submit all invoices and consolidated statements of account
to:
Golden Books Publishing Company, Inc.
10101 Science Drive
Sturtevant, WI 53177
1.7 QUANTITY VARIATIONS. Billing for all quantities must agree with the total
quantity ordered for such title, provided, however, that billing for
overruns and underruns is permitted but will be limited to +/- 5% for total
quantity orders up to 50,000 and +/- 2% for total quantity orders in excess
of 50,000. If a production difficulty causes an underun of up to a maximum
of 5% in the case of orders for quantities up to 50,000, and 2% in the case
of orders for quantities over 50,000, the Customer will permit the Printer
to add the missing volume to a future re-print, and will not require the
Printer to reprint the missing volume until that time.
1.8 PROPRIETARY DESIGN. Printer agrees that it will not (at the Sturtevant
Facility or elsewhere) produce for anyone besides Customer books similar
to, or incorporating any of the distinguishing characteristics of,
Customer's Little Golden Book(TM), First Little Golden Book(TM), or Little
Little Golden Book(TM). Such distinguishing characteristics shall include,
but not be limited to, the side stitched binding style and the foil spine
employed in the production of such books, as well as all elements of
Customer's trade dress incorporated into such books. Printer may request
that Customer approve Printer's utilization of such formats for work to be
done for Books for Adults and may utilize such formats only upon receiving
Customer's written permission to do so, which permission shall be granted
in Customer's sole discretion.
11
<PAGE>
1.9 ACQUISITION OF CUSTOMER OR ACQUISITION BY CUSTOMER In the event Customer is
acquired during the term of this Agreement, the percentage volume
requirements set forth in Section 1.1.1 hereof shall not apply to any
pre-existing printing requirements of the acquirer. In the event that
during the term of this Agreement, the Customer acquires a company with
similar formats to those outlined in this Agreement then the percentage
volume requirement provisions of this Agreement shall not apply to the
incremental volume brought about by the acquisition but shall be subject to
separate negotiations.
1.10 INVOICES. Invoices submitted to Customer by Printer shall contain the
information contained in Schedule G.
1.11 FORECASTS. Customer shall use commercially reasonable efforts to provide
quarterly forecasts to Printer approximately 30 days before the start of
each quarter, and monthly forecasts to Printer approximately 30 days before
the start of the months of May, June, July, August, September, October and
November. Such proceeds shall not be deemed "orders" under Section 1.1.1
and Customer shall have no liability whatsoever to Printer with respect to
such forecasts.
2. ARTICLE II: MATERIALS
---------------------
2.1 PRINTER SUPPLIED MATERIALS. Printer shall, at Customer's discretion, supply
all materials and supplies necessary to perform this Agreement, at or
exceeding quality standards at inception. Paper to be supplied by Printer
shall meet the minimum specifications outlined in Schedule E hereto.
Printer shall supply all text stock and cover stock in accordance with the
requirements as outlined in Schedules A, B, D and E hereto.
2.2 CUSTOMER SUPPLIED MATERIALS.
---------------------------
(a) PAPER, SEMI-FINISHED MATERIALS AND COMPONENTS. Customer shall have
the right to supply its own text stock, cover stock, semi-finished
materials and/or components. As Printer receives stock on Customer's
behalf, Printer shall forward the receiving slips to Customer. If Printer
discovers damage to paper, the damaged paper will be noted and identified
and stored separately. Printer shall contact the merchant/mill
representative and Customer so that the merchant/mill representative can
initiate any claims for mill related or paper transportation problems.
Printer shall account for the paper received from the merchant/mill, and
shall submit to Customer a monthly report of paper received, paper received
damaged, paper consumed, paper on hand and paper requirements, with such
paper requirements being inclusive of the manufacturing waste allowance for
press work and binding. Any semi-finished materials or components supplied
by Customer will be supplied in such quantities so as to include waste
allowances. Waste allowances for paper, semi-finished materials or
components will be based on the waste allowances which would have been
provided by Printer had Printer been supplying such materials,
12
<PAGE>
provided further, that such waste allowances will be consistent with
industry standards. Printer will report actual and allowed component
consumption for Customer supplied components on each invoice. Printer shall
report all paper or stock received in damaged condition to Customer within
two (2) business days from discovery of the damage. Printer will report
actual and allowed paper consumption for Customer supplied paper on each
invoice. All over consumption of Customer supplied paper will be credited
to Customer directly on invoice at the price determined in Section 1.5. The
value (measured at the cost determined in Section 1.5 if possible,
otherwise at standard cost) of any Customer-supplied materials will be
included for purposes of measuring Customer's compliance with the minimum
volume requirement, as calculated in Section 1.2, even though Printer may
not actually bill Customer for the value of the Customer supplied items.
(b) OTHER MATERIALS. Customer shall supply all film or digital files
pursuant to Printer's prior specifications, and if Customer so decides,
Customer shall have the right to request Printer to produce film at an
additional cost as outlined in Subsection 1.4(a).
2.3 DELIVERY OF MATERIALS. Customer will notify Printer of the scheduled
delivery dates and specifications for any materials it is supplying in
accordance with Printer's published manufacturing schedule. In the event of
any delay of the scheduled delivery date in excess of 5 days, Printer may
invoice Customer for all work done to date, and such work shall be subject
to a storage fee of * per skid per week.
3. ARTICLE III: REPRESENTATIONS AND WARRANTIES OF PRINTER
------------------------------------------------------
Printer represents and warrants to Customer as follows:
3.1 ORGANIZATION; AUTHORITY. Printer is a corporation duly organized and
validly existing under the laws of Canada and has the full power and
authority to own and operate its properties and assets and to carry on its
business as currently conducted. This Agreement has been duly authorized,
executed and delivered by Printer and constitutes a valid and legally
binding obligation of Printer enforceable in accordance with its terms
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability affecting creditors'
rights and general equity principles.
3.2 NON-CONTRAVENTION. The execution, delivery and performance of this
Agreement will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under any statute, rule, regulation,
or order of any governmental agency or body having jurisdiction over
Printer or its properties, or any agreement or instrument to which Printer
is a party or by which it is bound, or the articles of incorporation or
by-laws of Printer.
* Confidential treatment requested
13
<PAGE>
4. ARTICLE IV: REPRESENTATIONS AND WARRANTIES OF CUSTOMER
------------------------------------------------------
Customer represents and warrants to Printer as follows:
4.1 ORGANIZATION; AUTHORITY. Customer is a corporation duly organized and
validly existing under the laws of the State of Delaware and has full power
and authority to own and operate its properties and assets and to carry on
its business as currently conducted. This Agreement has been duly
authorized, executed and delivered by Customer and constitutes a valid and
legally binding obligation of Customer enforceable in accordance with its
terms subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and similar laws of general applicability
affecting creditors' rights and general equity principles.
4.2 NON-CONTRAVENTION. The execution, delivery and performance of this
Agreement will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under any statute, rule, regulation,
or order of any governmental agency or body having jurisdiction over
Customer or its properties, or any agreement or instrument to which
Customer is a party or by which it is bound, or the article of
incorporation or by-laws of Customer.
5. ARTICLE V: RISK OF LOSS/TITLE/INSURANCE
---------------------------------------
5.1 TITLE. All property furnished to Printer by Customer, including all
intellectual property rights in all electronic files, shall remain the sole
property of Customer. Printer shall use reasonable diligence to protect all
Customer property in its possession. Printer shall not cause any Customer
property in its possession to become subject to any liens or encumbrances.
During the term of this Agreement and following the expiration of this
Agreement, and upon Customer's instructions, Printer shall return or
transfer Customer property to Customer in accordance with such
instructions.
Title to film negatives, positives, electronic images and any other
material paid for by Customer and furnished by Printer shall pass to
Customer upon completion of manufacture of such item. Title to product
shall pass from Printer to Customer at the time risk of loss for such
product passes from Printer to Customer.
5.2 RISK OF LOSS. Risk of loss of Customer property in Printer's possession
shall be borne by Printer and valued at actual current cost to reproduce
such Customer property. Work in the library or other space subleased by
Customer from Printer shall not be deemed to be in Printer's possession.
Risk of loss of product shall pass from Printer to Customer upon delivery
of such product to Customer in accordance with Section 1.3 hereof.
14
<PAGE>
5.3 INSURANCE. Printer shall obtain and maintain at its costs, throughout the
term of this Agreement and for a period of not less than twelve (12) months
after the termination of this Agreement, a commercial general and
professional liability insurance policy, including product liability and
contractual liability, providing protection for Customer and the other
entities indemnified by Printer under the terms of Article VII hereof
against damages, liabilities, costs and expenses, including reasonable fees
of attorneys, arising out of any claims, demands or actions made by or on
behalf of any person or persons, firm or corporation and arising out of,
related to, or connected with product and (i) the performance of Printer
under the terms of this Agreement, (ii) the failure of Printer to perform
properly under the terms of this Agreement, or (iii) personal injury to or
death of any person or persons or damage to property. Such insurance shall
be written on an "occurrence" and not on a "claims made" basis, and such
policy shall have a combined single limit amount of not less than
US$5,000,000. As proof of such insurance, Printer shall submit to Customer,
as soon as possible after this Agreement is executed by the last party to
sign, a certificate of insurance naming Customer and the other entities
indemnified under the terms of Article VII hereof as additional insureds
thereunder and providing for not less than thirty (30) days' written notice
to Customer in the event of termination, cancellation, or material
modification of such insurance.
6. ARTICLE VI: GUARANTEE OF QUALITY/COMPLIANCE WITH STANDARDS
----------------------------------------------------------
6.1 GUARANTEE OF QUALITY. Printer warrants the printing, binding and
manufacturing of product hereunder to be done in the best and most
workmanlike manner and to conform to the highest standards applicable in
the industry. The Customer warrants that all computer files generated and
provided to Printer shall be free of known viruses and that computer files
provided to the Printer shall be prepared in a professional manner so as
not to impede production flow and quality. The Printer warrants that all
files shall be checked in advance for known viruses and checked to
determine that all components are available to the Printer on the supplied
disk. If components are required by the Printer from the Customer, the
Printer shall always offer the Customer the choice of repairing or adding
missing components, before any added charges are required. In addition,
Printer warrants that all product shall be (a) merchantable and fit for the
intended purpose of Customer, and (b) free from defects in workmanship and
material. The warranties of these sections shall be in addition to any
other warranties provided by law or given by Printer to Customer. If
Printer's performance does not conform to industry standards, then Customer
shall at its option pursue only one of the following rights:
(a) As promptly as practicable, but no later than ten (10) business
days from the date Customer reports such defect to Printer,
Printer shall repair or replace defective product at Printer's
cost, unless the defective product has arisen from a problem at
the Printer's subcontractor and the subcontractor cannot
alleviate the problem within the 10 business day time period (in
which case Customer shall choose option (b) or (c)), or
15
<PAGE>
(b) Printer shall have another party manufacture or repair such
product for Customer, and either:
(i) Printer shall credit Customer for the cost of such
third-party manufacture or repair of product if Customer has
already paid Printer for the defective product, or,
(ii) Pay to Customer the difference for the cost Printer would
have charged to Customer to manufacture the product and the
cost to Customer to have the third-party manufacturer
produce the product, if Customer has not already paid
Printer for the defective product; or
(c) Printer shall credit Customer for some or all of the cost of the
product, in relation to the damage suffered to the product, with
such credit to be applied against the costs of the manufacture of
this or future product.
The foregoing rights shall be in addition to such other rights and
remedies Customer may have at law or in equity.
6.2 COMPLIANCE WITH LAWS, CUSTOMER STANDARDS. Printer covenants that it will
comply with all applicable laws and regulations in performing this
Agreement, including but not limited to, those pertaining to the
manufacture, pricing, sale and distribution of product. Printer also
covenants that it will comply with all of Customer's licensor and Customer
quality standards as indicated to Printer beforehand, including those
relating to the use of child or prison labor and upon the request of
Customer, Printer will supply the necessary documentation to substantiate
such compliance.
7. ARTICLE VII: INDEMNIFICATION
----------------------------
Printer agrees to defend or settle, indemnify and hold Customer, its directors,
officers, employees and agents harmless from and against any and all third party
demands, liabilities, obligations, costs and expenses (including reasonable fees
of attorneys) incurred by Customer, directly or indirectly, as a result of (i)
any breach by Printer of any of its agreements, representations, or warranties
made under the terms of this Agreement or under the terms of any purchase order
of Customer, (ii) any personal injury or property damage caused by or the
responsibility of Printer, or (iii) any material unauthorized deletion or change
made by Printer to materials supplied by Customer. Customer hereby agrees to
notify Printer promptly of any such demand or claim.
16
<PAGE>
8. ARTICLE VIII: TERMINATION
-------------------------
8.1 TERMINATION. This Agreement may be terminated:
(a) At any time by the mutual written agreement of both Printer and
Customer;
(b) *
(c) *
* Confidential treatment requested
17
<PAGE>
(d) By Customer, upon a continuing default by Printer for failure to
furnish proof of insurance within thirty (30) days of demand.
In the event that this Agreement is terminated by Customer pursuant to
Section 8.1 (a), (c) or (d) (any such termination being herein referred to
as a termination for "Cause"), then all amounts of Preferred Stock (as
defined in the Agreement) and/or subordinated debt into which such
Preferred Stock is or was convertible will remain due and unaffected by
such termination.
In the event that this Agreement is terminated by Printer pursuant to
Section 8.1(b), or if this Agreement is terminated by Customer other than
for Cause, in either case, within the first three years of the term hereof,
the ownership of the funds held in escrow under the terms of the Asset
Purchase Agreement in favor of the Customer, shall transfer to the Printer,
and the subordinated note or the preferred shares held by Customer, as the
case may be, shall be deemed to be redeemed (or in the case of the
subordinated note, canceled) to the extent of the amount of gross profit
the Printer anticipated earning under this Agreement for the balance of the
Term, which for purposes hereof shall be deemed to be 20% of Printer's
gross revenues, based upon minimum volumes under Section 1.2 (the "Agreed
Upon Damages"). In the event that this Agreement is terminated by Printer
pursuant to Section 8.1(b), or if this Agreement is terminated by Customer
other than for Cause, in either case, after the first three years of the
term hereof, the subordinated notes or the preferred shares held by
Customer, as the case may be, shall be deemed to be redeemed to the extent
of the Agreed Upon Damages. In such case, the Preferred Stock shall no
longer be puttable, all redemption of Preferred Stock shall be suspended,
all payments of subordinated debt into which such Preferred Stock is or was
convertible shall be suspended and the Printer shall be relieved of
completing its obligations under the Techno Program and under the
Digitalization Program. In the event the amount of Agreed Upon Damages is
greater than the aggregate Liquidation Value of the Preferred Stock (as
defined in the Asset Purchase Agreement) and/or the subordinated debt into
which such Preferred Stock is or was convertible, such excess amount shall
be due and payable in cash at such time. Printer acknowledges and agrees
that the remedies provided for in this Section 8.1 are the exclusive
remedies to which Printer would be entitled in the event of a termination
of this Agreement by Printer pursuant to Section 8.1(b) or by Customer
other than for Cause. Without limiting the generality of the preceding
sentence, Printer shall not be entitled hereunder or otherwise to any
consequential, incidental, punitive or other similar damages; provided,
however, that nothing in this Printing Services Agreement shall affect in
any manner whatsoever, Buyer's right to obtain
18
<PAGE>
any such damages in respect of any cause of action Buyer may have against
Customer in respect of Customer's actions or duties outside the scope of
this Printing Services Agreement, the Agreement or any other agreement or
transaction referred to therein.
Any termination of this Agreement pursuant to this Section 8.1 shall be in
writing and a copy thereof shall be furnished to GECC or any other senior
lender of Printer designated by it; provided, however, that the failure to
furnish such copy shall not affect in any respect the validity or
effectiveness of such termination.
8.2 RIGHT TO PRINT ELSEWHERE. If, two (2) times in any six-month period,
Printer is unable to deliver orders of the same product to Customer on a
timely basis in accordance with this Agreement and the production
guidelines set forth in Schedule B or D hereto, and in each instance
Customer has met its obligation for delivery of materials required for
manufacturing in accordance with such production guidelines, Customer shall
have the right to have all product of such format printed elsewhere if
Customer so chooses. In such event, the value of any such Product shall be
deducted from the minimum volume amount as calculated in Section 1.2.
9. ARTICLE IX: MISCELLANEOUS
-------------------------
9.1 CONSEQUENCES OF TERMINATION. In the event of termination, all Customer
property, materials and supplies on hand or in process of manufacture shall
be immediately returned or delivered to Customer (or to another party that
Customer designates to receive such). All account balances between the
parties shall be settled. Subject to Section 9.8 hereof, either party shall
have the right to pursue its remedies under law and equity.
9.2 PARTIES IN INTEREST; ASSIGNMENT. Subject to the terms of this Agreement,
this Agreement shall be binding upon and inure to the benefit of the
respective parties and their successors and assigns; provided, that this
Agreement may not be assigned by either party without the written consent
of the other, which consent shall not be unreasonably withheld or delayed.
Either party shall have the right to assign the Agreement, without the
consent of the other, to a parent company, subsidiary, division or
affiliate or to an entity which purchases substantially all of the assets
of such party, or its assignee, or in connection with an acquisition by or
merger with another company, provided, however, that regardless of any such
assignment, Printer agrees that the work performed under this contract with
regard to Product will continue to be substantially performed at the
Sturtevant Facility unless moved to another plant with the prior written
approval of the Customer, which approval shall not be unreasonably withheld
or delayed. Notwithstanding that work will be substantially performed at
the Surtevant Facility, Printer shall immediately notify Customer in
writing when any work with regard to product is performed under this
Agreement at a facility other than the Sturtevant Facility.
19
<PAGE>
9.3 ENTIRE AGREEMENT; AMENDMENT. This Agreement represents the entire
understanding between Printer and Customer with respect to the subject
matter hereof and supersedes all prior agreements and understandings oral
or written with respect thereto. This Agreement may be modified or amended
only by a written agreement signed by both parties.
9.4 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
9.5 HEADINGS. The paragraph headings in this Agreement are for convenience only
and shall not affect the construction of this Agreement.
9.6 NO JOINT VENTURE. Nothing in this Agreement shall be construed as creating
an agency, partnership, joint venture or any other form of legal
association between Printer and Customer.
9.7 NOTICE. All notices hereunder shall be deemed to have been given if in
writing and if personally delivered or if sent by registered or certified
mail (postage prepaid), or if sent by telecopier (provided that receipt of
telecopy is promptly confirmed by telephone) to the person at the address
set forth below, or to such other person or address as may be designated in
writing from time to time:
If to Printer:
Artech Capital Corporation
Montreal, Quebec
Canada ______________
Attn: David Watson
Telecopier:
with a copy to:
Sproule Castonguay Pollack, senc
1002 Sherbrooke Street West
Suite 2300
Montreal, Quebec
Canada H3A 3R4
Attn: Me. Jean T. Castonguay
Telecopier: (514) 285-8050
20
<PAGE>
With a copy to:
General Electric Capital Corporation
10 South LaSalle Street
Suite 2800
Chicago, Illinois 60603
Attn: Artech Printing Inc. Account Manager
If to Customer:
Golden Books Publishing Company, Inc.
888 Seventh Avenue
New York, N.Y. 10106
Attn: Philip Galanes
Telecopier: 212.547.6771
With copies to:
Golden Books Family Entertainment, Inc.
888 Seventh Avenue
New York, N.Y. 10106
Attn: Ruth Camooso
Attn: Philip Galanes
Telecopier: 212.547.6771
Proskauer Rose LLP
1585 Broadway
New York, NY 10036
Attn: Robert A. Cantone, Esq.
Telecopier: 212.969.2900
Notice shall be deemed to have been given as of the date personally
delivered or sent by telecopy (with telephonic confirmation) or as of the
fifth (5th) business day after being sent by registered or certified mail.
9.8 ARBITRATION. All disputes arising out of or in connection with this
Agreement or any transaction hereunder shall be finally settled under the
Commercial Arbitration Rules of the American Arbitration Association then
in effect by an arbitrator chosen from such association's blind pool of
arbitrators with significant knowledge and experience in the field of book
publishing who shall be appointed in accordance with such Rules. The
arbitrator's award shall be final and binding. Judgment upon the
21
<PAGE>
award rendered may be entered in any court having jurisdiction over the
party against which the award is rendered. The parties expressly consent to
the jurisdiction of the federal and state courts situated in the State of
New York for the purpose of enforcing any arbitration award rendered
pursuant to this paragraph. The arbitration shall take place in New York
City or such other place as the parties may agree. The arbitration shall
include (i) a provision that the prevailing party in such arbitration shall
recover its costs of the arbitration and reasonable attorneys fees from the
other party or parties, and (ii) the amount of such fees and costs.
9.9 SEVERABILITY. The enforceability, invalidity or illegality of any provision
of this Agreement shall not affect or impair the enforceability, validity
or legality of any other provision; provided, that should any provision of
this Agreement be held to be invalid, illegal or unenforceable in any
respect, the parties will use all reasonable efforts to substitute a valid,
legal and enforceable provision which, insofar as practicable, implements
the purpose and intent of the invalid, illegal and unenforceable provision.
To the extent permitted by applicable law, each party waives any provision
of law, which renders any provision of this Agreement invalid, illegal or
unenforceable in any respect.
9.10 WAIVER. Any provision of or default under this Agreement may be waived if
it is in written form signed by the party against whom the waiver is
effective. No waiver by a party of any provision of or default under this
Agreement shall be deemed to be a waiver of any other provision of or
default under this Agreement, nor shall any delay or omission of a party to
exercise any right hereunder.
9.11 CONFIDENTIALITY. Each of the parties hereto covenants and agrees that the
terms, provisions and conditions of this Agreement are confidential,
including, but not limited to Customer product, materials, ideas,
information and concepts, and Printer's pricing formulations and
manufacturing process and techniques, which shall be kept in strictest
confidence by the parties hereto and their respective employees,
subcontractors, agents, sub-agents and distributors, and shall not be
disclosed to any person except in conformity with an order of a court of
competent jurisdiction or as may otherwise be required by law.
9.12 INTERVENTION. Golden Books Family Entertainment, Inc. intervenes hereto to
take knowledge of the terms and conditions set forth herein and to declare
itself bound to the Printer by all of the obligations and duties of the
Customer hereunder, such that all rights and recourses of the Printer
hereunder against the Customer may be exercised against Golden Books Family
Entertainment, Inc.
[END OF TEXT]
22
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement as of the date first
stated above.
ARTECH CAPITAL CORPORATION GOLDEN BOOKS PUBLISHING COMPANY, INC.
By: By:
/s/ /s/
------------------------------- -------------------------------
DAVID WATSON, Name:
President and Chief Executive Officer Title:
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
By: /s/
-------------------------------
Name:
Title:
[SIGNATURE PAGE TO PRINTING SERVICES AGREEMENT]
23
<PAGE>
Golden Books: Schedule A
[Confidential Treatment Requested]
24
<PAGE>
Golden Books: Schedule B
[Confidential Treatment Requested]
25
<PAGE>
Golden Books: Schedule C
[Confidential Treatment Requested]
26
<PAGE>
Golden Books: Schedule D
[Confidential Treatment Requested]
27
<PAGE>
Golden Books: Schedule E
[Confidential Treatment Requested]
28
<PAGE>
Golden Books: Schedule F
[Confidential Treatment Requested]
29
<PAGE>
GOLDEN BOOKS - SCHEDULE G - INVOICING
All invoices shall be generated and forwarded to Golden Books within 48 hours
from completion of shipment.
All invoicing shall include the following:
o Golden Books Purchase Order Number/PO date
o Item number
o Title Name
o Quantity ordered
o Quantity shipped
o Prep charges
o Plate charges
o Cover Makeready charges
o Cover run charges (unit cost and total cost)
o Text press and binding makeready
o Text press and binding run costs (unit cost and total cost)
o Paper makeready charges
o Paper run charges
o Cartoning charges (unit and total cost) -if applicable
o Stickering charges (unit and total cost) -if applicable
o all other miscellaneous charges itemized
o Paper stock used -grade name and basis weight
o Paper consumption makeready (#'s)
o Paper consumption run (#'s)
o Paper CWT cost
o Dies
Exhibit 21.1 List of Subsidiaries
The subsidiaries of Golden Books Entertainment, Inc. are:
Golden Books Publishing, Inc. (Delaware)
Golden Books Home Video, Inc. (Delaware)
LRM Acquisition Corp. (Delaware)
The subsidiaries of Golden Books Publishing, Inc. are:
Shari Lewis Enterprises, Inc. (California) with SLE Productions,
Inc.(California) being a subsidiary of Shari Lewis Enterprises, Inc.
Golden Books Publishing (Canada), Inc. (Canadian company)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-25-1999
<PERIOD-END> DEC-25-1999
<CASH> 6,544
<SECURITIES> 0
<RECEIVABLES> 54,089
<ALLOWANCES> 0
<INVENTORY> 26,169
<CURRENT-ASSETS> 95,469
<PP&E> 17,522
<DEPRECIATION> 0
<TOTAL-ASSETS> 289,998
<CURRENT-LIABILITIES> 100,110
<BONDS> 87,000
102
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 289,998
<SALES> 165,771
<TOTAL-REVENUES> 165,771
<CGS> 111,421
<TOTAL-COSTS> 183,162
<OTHER-EXPENSES> (55,678)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,994
<INCOME-PRETAX> 33,293
<INCOME-TAX> (590)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 151,956
<CHANGES> 0
<NET-INCOME> 185,839
<EPS-BASIC> 6.53
<EPS-DILUTED> 0 <F1>
<FN>
<F1> For the attached financials, the value EPS-DILUTED is not applicable
</FN>
</TABLE>
