THIS AGREEMENT IS NOT AN OFFER WITH RESPECT TO ANY SECURITIES OR SOLICITATION OF
ACCEPTANCES OF A CHAPTER 11 PLAN. SUCH OFFER OR SOLICITATION WILL BE MADE IN
COMPLIANCE WITH ALL APPLICABLE SECURITIES LAWS AND/OR PROVISIONS OF THE
BANKRUPTCY CODE.
RESTRUCTURING AGREEMENT
Restructuring Agreement (the "Agreement"), dated as of March 11, 1999, by
and among Golden Books Family Entertainment, Inc. ("Parent"), Golden Books
Publishing Company, Inc. ("Publishing"), Golden Books Home Video, Inc. ("Video"
and together with Parent and Publishing, collectively, the "Golden Books
Entities"), Xxxxxxx X. Xxxxxx ('Xxxxxx"), Golden Press Holding, L.L.C. ("GPH"),
the undersigned members of the informal senior note committee (the "Informal
Senior Note Committee") and the members of the Informal TOPrS Committee (as
hereafter defined).
RECITALS
A. Pursuant to an Indenture dated as of September 15, 1992 (as amended, the
"Old Senior Note Indenture"), between Publishing and Marine Midland Bank (as
successor trustee to the Bank of New York), Publishing issued $150 million of
7.65% senior notes due 2002 (the "Old Senior Notes").
B. Publishing failed to pay an interest payment due on the Old Senior Notes
on September 15, 1998, following which the members of the Informal Senior Note
Committee, together with certain other holders of Old Senior Notes, formed an ad
hoc committee of holders of Old Senior Notes. The Informal Senior Note Committee
has retained Stroock & Stroock & Xxxxx LLP as its counsel, and Houlihan, Lokey,
Xxxxxx & Xxxxx, Inc. as its financial advisors.
C. Pursuant to a certain Amended and Restated Declaration of Trust dated
August 20, 1996, the Golden Books Financing Trust, a Delaware statutory business
trust (the "TOPrS Trust"), issued $118 million of 8.75% Convertible Trust
Originated Preferred Securities due 2016 (the "TOPrS"), which TOPrS represent
undivided beneficial ownership interests in the assets of the TOPrS Trust which
consist of $118 million of 8.75% Convertible Debentures due 2016 (the
"Convertible Debentures" and together with the TOPrS, collectively, the "TOPrS
Certificates") issued by Parent and Publishing on a joint and several basis.
D. In or about November 1998, the obligors under the TOPrS Certificates
deferred a scheduled interest payment on the TOPrS Certificates, following which
the holders of TOPrS Certificates listed on the signature page hereof formed an
ad hoc committee of holders of TOPrS Certificates (the "Informal TOPrS
Committee"), which committee has retained Cleary, Gottlieb, Xxxxx & Xxxxxxxx as
its counsel and Jefferies & Co., Inc. as its financial advisors. In or
1
about February 1999, the obligors under the TOPrS Certificates again deferred a
scheduled interest payment on the TOPrS Certificates.
E. As of March 11, 1999, the members of the Informal TOPrS Committee in the
aggregate hold approximately $34,085,000 of TOPrS Certificates.
F. Pursuant to that certain Note Purchase Agreement dated as of September
8, 1998, among Parent, Video, Publishing and GPH, Video obtained a $10 million
loan from GPH for which Video issued a promissory note (the "GPH Note") to GPH
in the original principal amount of the loan, which loan is asserted to be
secured by certain collateral as described more fully in the Note Purchase
Agreement. GPH also holds the right, title and interest in and to 13,000 shares
of Parent's Series B convertible Preferred Stock, no par value (the "Preferred
Stock"). (Unless otherwise stated herein, all references to GPH shall be to GPH
in its capacity both as the holder of the Video Note and the holder of the
Preferred Stock).
G. The Golden Books Entities, Xxxxxx, the Informal Senior Note Committee,
the Informal TOPrS Committee and GPH have been engaged in negotiations
concerning, and have reached an agreement on the principal terms of, a proposed
reorganization of the outstanding indebtedness and liabilities of, and equity
interests in, the Golden Books Entities, on the terms and conditions set forth
in this Agreement.
H. It is contemplated that the reorganization plan described in this
Agreement (the "Plan") will be implemented through confirmation of a
"pre-arranged" or "pre-negotiated" reorganization for the Golden Books Entities
under chapter 11 of title 11 of the United States Code, 11 U.S.C. xx.xx. 101 et
seq. (the "Bankruptcy Code"), which Plan has the support of the Informal Senior
Note Committee, the Informal TOPrS Committee, and each of the respective members
thereof, the Golden Books Entities, Xxxxxx and GPH.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Covenants of the Parties. The Golden Books Entities, Xxxxxx, GPH, the
Informal Senior Note Committee, the Informal TOPrS Committee and each of the
respective members thereof, hereby covenants to one another to use their
reasonable best efforts to, as expeditiously as possible, and subject to the
terms of this Agreement, carry out the following:
(a) prepare the Plan, which shall contain the principal terms and
conditions set forth on Exhibit "A" attached hereto and made a part hereof, and
all documentation related thereto (including, without limitation, the indenture,
security agreements and guarantees regarding the New Senior Notes (as defined on
Exhibit "A" attached hereto), a disclosure statement pursuant to Section 1125 of
the Bankruptcy Code containing information which is not materially inconsistent
with the information heretofore provided to the financial advisors to the
Informal Senior Note Committee and the Informal TOPrS Committee, respectively
(the
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"Disclosure Statement"), and the new Xxxxxx employment Agreement (as described
on Exhibit "A" attached hereto));
(b) as promptly as reasonably practicable, but in any event not later than
the periods set forth in paragraph 2 hereof, the Golden Books Entities shall (i)
file voluntary petitions for reorganization under Chapter 11 of the Bankruptcy
Code, and as promptly as reasonably practicable thereafter or contemporaneously
therewith, file the Plan, a proposed interim order to approve of
debtor-in-possession financing (the "DIP Order") (both substantially in the
forms attached as Exhibit "B" hereto), the Disclosure Statement, financial
projections to be attached as an exhibit to the Disclosure Statement (the
"Projections"), and such other documents as may be necessary and appropriate in
order to effectuate the Plan, (ii) proceed in good faith to obtain confirmation
and consummation of the Plan consistent with at least the timetable set forth in
paragraph 2 hereof, and (iii) support the Plan in good faith; provided, however,
that the obligations of the Golden Books Entities hereunder shall not be
interpreted so as to require them to act in a manner which is not consistent
with their fiduciary duties under the Bankruptcy Code and applicable law ;
provided, further, however, that if the Golden Books Entities, pursuant to the
preceeding proviso or otherwise, act in a manner materially inconsistent with
this Agreement or the provisions contained in Exhibit A or B hereto, this
Agreement may be terminated pursuant to paragraph 2 hereof; and
(c) the Informal Senior Note Committee, the Informal TOPrS Committee, and
each of the respective members thereof, Xxxxxx and GPH shall (i) support
confirmation of the Plan (including, without limitation, providing a
recommendation in the Disclosure Statement that creditors vote to accept the
Plan), (ii) not vote against, object to or support an objection to the Plan,
(iii) not vote for, consent to, support or participate in any modification of
the Plan or the severance of any provision thereof that is determined to be
invalid, void or unenforceable (unless such modification or the severance of
such provision has been agreed to in writing by each of the parties hereto),
(iv) not vote for, consent to, support or participate in the formulation of, and
shall vote against, any other plan of reorganization for any or all of the
Golden Books Entities, (v) oppose any motion (A) seeking to file any other plan
of reorganization for any or all of the Golden Books Entities or (B) to shorten
or terminate the initial 120-day exclusive period to file a plan of
reorganization provided to the Golden Books Entities under Section 1121 of the
Bankruptcy Code, without the express written consent of the Golden Books
Entities (which consent may or may not be given by the Golden Books Entities in
their sole and absolute discretion, and (vi) not file, consent to, join or
otherwise support any motion to (A) convert the Chapter 11 case of any or all of
the Golden Books Entities to Chapter 7 liquidations, (B) dismiss any or all of
the Golden Books Entities' Chapter 11 cases, (C) appoint a Chapter 11 trustee or
examiner in any or all of the Golden Books Entities' Chapter 11 cases, or (D)
vacate the automatic stay imposed pursuant to Section 362 of the Bankruptcy Code
to foreclose on any collateral or to otherwise take action inconsistent with the
terms and provisions of this Agreement; provided, however, that the obligations
of the Informal Senior Note Committee and the Informal TOPrS Committee, and each
of the respective members thereof, Xxxxxx and GPH shall not be interpreted so as
to require such parties to act in a manner which is not consistent with their
fiduciary duties under applicable law. The Informal Senior Note Committee, the
Informal TOPrS Committee, and each of the respective members thereof, Xxxxxx and
GPH each
3
hereby agrees that the distributions under the Plan in respect of such person's
claims against, or interests in, the Golden Books Entities is fair and equitable
under Section 1129(b) of the Bankruptcy Code.
2. Termination. This Agreement shall terminate and all of the obligations
of the Golden Books Entities, the Informal Senior Note Committee and the
Informal TOPrS Committee, and each of the respective members thereof, Xxxxxx and
GPH shall be of no further force or effect immediately upon the occurrence of
any of the following (each, a "Termination Event") unless such Termination Event
is waived in writing by all of the Informal Senior Note Committee, the Informal
TOPrS Committee, Xxxxxx and GPH:
(a) the Plan and the DIP Order are not filed within twenty-one (21) days
after the Effective Date (as hereafter defined);
(b) the Projections are not filed within twenty-five (25) days after the
filing of the Plan;
(c) the Plan is not confirmed within one hundred and fifty (150) days after
the Effective Date (or an order is entered which has the practical effect
of preventing confirmation of the Plan within one hundred and fifty (150)
days after the Effective Date);
(d) the Plan shall not become effective within two hundred (200) days after
the Effective Date;
(e) any party hereto fails to perform, in any material respect, any of
their obligations hereunder or to support the terms set forth in Exhibits A
and B annexed hereto;
(f) holders of more than 20% in the aggregate principal amount, on a per
issue basis, of Old Senior Notes that are not members of the Informal
Senior Note Committee or of TOPrS Certificates that are not members of the
Informal TOPrS Committee shall take actions which are materially adverse
to, and in contravention of, the obligations hereunder of the respective
members of the Informal Senior Note Committee or Informal TOPrS Committee;
or
(g) there shall be any material modification to, or severance of any
provision of, the Plan which is materially inconsistent with the terms and
conditions set forth in Exhibit A and B hereof (including, without
limitation, a material modification to, or severance of, the release and
indemnification provisions set forth in Exhibits A and B hereof).
3. Representations and Warranties.
(a) Each party represents and warrants to the other parties that (i) it is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its formation, (ii) its execution, delivery and performance of
this Agreement are within the power and authority of such party and have been
duly authorized by such party and that no other approval or authorization is
required, (iii) this Agreement has been duly executed and delivered
4
by it and constitutes its legal, valid and binding obligation, enforceable in
accordance with the terms hereof, and (iv) none of the execution and delivery of
this Agreement or compliance with the terms and provisions hereof will violate,
conflict with or result in a breach of, its certificate of incorporation or
bylaws or other constitutive document, any applicable law or regulation, any
order, writ, injunction or decree of any court or governmental authority or
agency, or any agreement or instrument to which it is a party or by which it is
bound or to which it is subject.
(b) Each member of the Informal Senior Note Committee and the Informal
TOPrS Committee further represents and warrants, as applicable, that (i) it
holds the principal amount of Old Senior Notes and TOPrS Certificates, as the
case may be, as set forth next to its name on the signature page hereof, (ii)
except as contemplated herein or in the Plan, it has not transferred, assigned
or otherwise disposed of, or entered into any agreement (whether written or
oral) to transfer, assign or otherwise dispose of, its right, title and interest
in and to the Old Senior Notes and TOPrS Certificates which it holds, and (iii)
except with respect to the Plan described in this Agreement, it has not
consented to and is not currently supporting or participating in the formulation
of, and has not entered into any agreement(whether written or oral) with respect
to, (x) any other plan of reorganization for the Golden Books Entities or (y)
the sale of all or substantially all of the assets of the Golden Books Entities
or all or substantially all of the stock or notes to be issued pursuant to the
Plan.
(c) GPH further represents and warrants that (i) that it holds all of the
right, title and interest in and to the GPH Note and the Preferred Stock, (ii)
except as contemplated herein or in the Plan, it has not transferred, assigned
or otherwise disposed of, or entered into any agreement (whether written or
oral) to transfer, assign or otherwise dispose of its right, title and interest
in and to the GPH Note and the Preferred Stock, and (iii) except with respect to
the Plan described in this Agreement, it has not consented to, and is not
currently supporting or participating in the formulation of, and has not entered
into any agreement (whether written or oral) with respect to, (x) any other plan
of reorganization for the Golden Books Entities, or (y) the sale of all or
substantially all of the assets of the Golden Books Entities or the stock or
warrants to be issued to GPH pursuant to the Plan.
4. Effective Date. This Agreement shall become effective immediately upon
the date of execution and delivery by all signatories hereto (the "Effective
Date").
5. Documentation Satisfactory. All documents and papers relating to this
Agreement, the Plan, the new notes to be issued to holders of Old Senior Notes
under the Plan, and the DIP Order shall be satisfactory to each party hereto in
its sole, good faith independent judgment. The Informal Senior Note Committee,
the Informal TOPrS Committee and GPH shall receive advance copies of the Plan
and all other documents and papers relating to the Plan and this Agreement as
they may reasonably request.
6. Specific Performance. The Informal Senior Note Committee, Informal TOPrS
Committee, and each of the respective members thereof, Xxxxxx and GPH hereby
agree that, in addition to being entitled to exercise all rights granted by law,
including recovery of damages, the Golden Books Entities shall be entitled to
specific performance of its rights under
5
this Agreement. The Informal Senior Note Committee, Informal TOPrS Committee,
and each of the respective members thereof, Xxxxxx and GPH further agree that
monetary damages would not be adequate compensation for any loss incurred by the
Golden Books Entities by reason of a breach by the other parties hereto of any
provision of this Agreement, and hereby agree to waive the defense in any action
for specific performance that a different remedy would be adequate.
7. Amendments. This Agreement may not be amended except by an instrument in
writing signed by all parties hereto.
8. Successors and Assigns. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto, and their
respective successors and assigns. Without in any manner limiting the scope,
extent or effect of the foregoing, the respective members of the Informal Senior
Note Committee and the Informal TOPrS Committee, and GPH, shall not transfer,
assign or otherwise dispose of their right, title and interest in and to, as
applicable, the Old Senior Notes (and any and all rights, claims and obligations
associated therewith), and the TOPrS Certificates (and any and all rights,
claims and obligations associated therewith), or, with respect to GPH, the GPH
Note and the Preferred Stock (and any and all rights, claims and obligations
associated therewith), and any such transfer shall be void and of no force and
effect unless and until such transferee or assignee agrees in writing at the
time of such transfer or assignment to be bound by this Agreement in its
entirety without revision. In the event of any such transfer or assignment, the
transferor or assignor, as the case may be, shall, within one business day
following such transfer or assignment, provide written notice of such transfer
or assignment to the Golden Books Entities together with a copy of the written
agreement of the transferee or assignee to be bound by this Agreement in its
entirety without revision.
9. Notices. In addition to any notice requirement set forth in any
indenture or other agreement, any notice required or desired to be served, given
or delivered under this Agreement shall be in writing, and shall be deemed to
have been validly served, given or delivered if provided by personal delivery,
or upon receipt of fax delivery, as follows:
(a) if to the Golden Books Entities or to Xxxxxx, to Xxxxxx Xxxxxxx, Esq.,
Chief Administrative Officer, Golden Books Family Entertainment, Inc., 000
Xxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000-0000, fax: 000-000-0000, with a copy to
Xxxx X. Xxxxx, Esq., Proskauer Rose LLP, 0000 Xxxxxxxx, Xxx Xxxx, Xxx Xxxx
00000, fax: 000-000-0000;
(b) if to the Informal Senior Note Committee, to Xxxx X. Xxxxxx, Esq.,
Stroock & Stroock & Xxxxx LLP, 000 Xxxxxx Xxxx, Xxx Xxxx, Xxx Xxxx 00000-0000,
fax: 000-000-0000;
(c) if to the Informal TOPrS Committee, to Xxxxx X. Xxxxxxxxx, Esq.,
Cleary, Gottlieb, Xxxxx & Xxxxxxxx, Xxx Xxxxxxx Xxxxx, Xxx Xxxx, Xxx Xxxx
00000-0000, fax: 000- 000-0000; and
6
(d) if to GPH, to Xxxx Xxxxxx, Esq., Xxxxxxx Xxxx & Xxxxxxxxx, 000 Xxxxxxx
Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000-0000, fax: 000-000-0000.
10. Headings. The headings of this Agreement are for reference only and
shall not limit or otherwise affect the meaning hereof.
11. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to internal
conflicts of law principles.
12. Counterparts. This Agreement may be executed in counterparts in one or
more counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed and delivered this Agreement
individually by their officers duly authorized as of the date first written
above.
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
By: /s/
---------------------------------
Name:
Title:
GOLDEN BOOKS PUBLISHING COMPANY, INC.
By: /s/
---------------------------------
Name:
Title:
GOLDEN BOOKS HOME VIDEO, INC.
By: /s/
---------------------------------
Name:
Title:
7
/s/
---------------------------------
Xxxxxxx X. Xxxxxx
GOLDEN PRESS HOLDING, L.L.C.
By: Warburg, Xxxxxx Ventures, L.P.,
Managing Member
By: Warburg, Xxxxxx & Co.,
General Partner
By: /s/
---------------------------------
Name:
Title:
[additional signature pages omitted]
8
EXHIBIT "A"
PLAN TERM SHEET
Golden Books Family Entertainment, Inc.
Restructuring Term Sheet
The following presents an overview of the material terms of a financial
restructuring of Golden Books Family Entertainment, Inc. (the "Company" or
"Golden Books") which would be acceptable to the Steering Committee of Holders
of 7.65% Senior Notes (the "Notes Committee" or the "Noteholders"), the Steering
Committee of Holders of 8.75% Convertible TOPrS (the "TOPrS Committee" or the
"TOPrs"), Golden Press Holdings, L.L.C., the holder of the Company's Series B
12% Convertible Preferred Stock and the GPH Bridge Loan (in both such
capacities, "GPH"), Xxxxxxx Xxxxxx ("Xxxxxx") and the Company (the
"Restructuring"). The terms discussed herein are part of an entire compromise
and are not valid in part. Nothing contained herein shall constitute an offer,
acceptance or a legally binding obligation of the Company, the Noteholders, the
TOPrS, GPH or any other party in interest and is subject to definitive
documentation and other customary conditions.
I. Treatment of Claims
The proposed Restructuring will classify and provide treatment for claims
against and interests in the Company as described below.
7.65% Senior Notes
($150.0 million of claims Each holder of the Company's 7.65% Senior Notes
plus accrued interest) will receive its pro rata share of:
(i) New Senior Secured Notes (the "New Notes")
with the following terms:
Issuer: TO BE DETERMINED
Guarantors: TO BE DETERMINED
Principal Amount: $87.0 million
Maturity: 5 years from the Effective Date
(as defined in the Plan)
Interest: The New Notes shall have an annual
interest rate payable at the
Company's sole option, either (i)
in cash at a rate of 10.0% or (ii)
in-kind at a rate of 13.5%, payable
semi- annually; provided, however,
that three years after the
Effective Date, the New Notes shall
be payable only in cash at the rate
of 10.0%.
1
Amortization: Mandatory semi-annual amortization
payments of $8.33 commencing three
years after the Effective Date,
i.e., commencing with the first
semi-annual payment that is during
the fourth year after the Effective
Date, to retire $25.0 million of
the principal balance of the New
Notesprior to maturity.
Collateral: All existing collateral on the
7.65% Senior Notes including,
without limitation, the Christmas
Classics, Lone Ranger and Underdog,
PP&E at the Racine, Wisconsin
manufacturing facility, real estate
and PP&E at Crawfordsville,
Indiana, leasehold improvements at
the New York headquarters and first
and second liens on Accounts
Receivable and Inventory, provided,
however, that the Noteholders shall
release their lien on the corporate
leasehold improvements sold in
connection with the reduction of
office space. This Agreement
assumes that all rights to the Sony
Distribution Agreement and the
related license agreement are
granted as first lien collateral to
the New Senior Secured Notes upon
issuance of the New Senior Secured
Notes on the Effective Date, and
that,in the interim, upon
commencement of the bankruptcy
case, a second lien on such rights
shall be granted to the Noteholders
as adequate protection junior and
subordinated in lien and right to
payment to GPH's claimed first
priority lien and security
interest. Notwithstanding the grant
of such second lien on the Sony
Distribution Agreement and the
related license agreement, each
party reserves all rights with
respect to the extent and priority
of all asserted liens and asserted
claims relating to such Agreements
as of the date immediately prior to
the commencement of the bankruptcy
case. Any net proceeds from the
sale of the Collateral, excluding
the Sony Distribution Agreement
proceeds unless and until the
Effective Date has occurred,
outside the ordinary course of
business will be
2
outside the ordinary course of
business will be used to pay down
the New Senior Secured Notes
(subject to the redemption schedule
set forthbelow). The collateral
package will be augmented in
connection with the Company's
procurement of the New Working
Capital Facility, whether a DIP
facility in bankruptcy or an exit
financing facility. Such
replacement collateral as and for
adequate protection shall consist
of a first lien on Lassie, Xxxxx
Xxxxx the Cat, the Film library,
the additional assets listed on
Exhibit 2 hereto and the related
Accounts Receivable and Inventory
and a blanket second lien on all
assets pledged to the New Working
Capital Lender. Consistent with the
foregoing, when issued, the New
Senior Secured Notes will be
secured by either a first lien or a
second lien on all of the assets of
the Company and its direct and
indirectsubsidiaries.
Call
Protection The New Notes may be redeemed, in
whole or in part, at any time, at
the option of the Company, at the
redemption prices (expressed as
percentages of principal amount)
set forth below, plus accrued and
unpaid interest to the date of
redemption.
Years from Redemption
Effective Date Price
-------------- ----------
1 Year 105.00%
2 Years 103.33%
3 Years 101.25%
Thereafter 100.00%
Terms: Normal and customary for secured
indebtedness of this nature, to be
determined to the satisfaction of
the Notes Committee and the TOPrS
Committee.
(ii) 42.5% of the primary shares of the Company's
restructured Common Stock prior to dilution
from the management stock incentive
program and the warrants.
TOPrS Each holder of the Company's TOPrS will receive
its pro rata
3
($110.0 million of Claims share of 50.0% of the primary shares
plusaccrued interest) of the Company's restructured Common Stock
prior to dilution from the management stock
incentive program and the warrants.
GPH Bridge Loan The holder of the GPH Bridge Loan will receive
($10.0 million of claims 5.0% of the primary shares of the Company's
plus accrued interest) restructured Common Stock prior to dilution from
the management stock incentive program and the
warrants.
Other Unsecured Subject to the review and consent of the
Creditors Noteholders, the TOPrS, GPH and the Company, such
creditors shall be reinstated.
Employment Contracts All such contracts shall be revised to the extent
necessary to comport with the terms herein and
such additional terms as are to be agreed and, as
such, shall be reaffirmed; except that Xxxxxx
shall enter into a new revised contract which is
attached hereto as Exhibit 1 in exchange for 2.5%
of the primary shares of the Company's
restructured Common Stock prior to dilution from
the management stock incentive program and the
warrants as of the Effective Date in the form of
restricted stock with vesting and eligibility
terms consistent with the restricted stock
provided to Xxxxxx under the management stock
incentive program detailed below. All such revised
Employment Agreements shall be immediately
submitted to the Notes Committee and the TOPrS
Committee.
Preferred and Common Stock Current preferred and common shareholders (giving
effect to all accrued and unpaid dividends on the
Preferred Stock) will receive warrants to purchase
5.0% of the primary shares of the Company's
restructured Common Stock prior to dilution from
management stock incentive program for a period of
three years at an exercise price such that the
Noteholders, the TOPrS and the Company's unsecured
creditors all shall have received par plus accrued
interest on their claims via the consideration
provided to such parties herein. The warrants
shall be issued 2/3 to the preferred shareholders
and 1/3 to the common shareholders.
Securities Fraud Claims Security fraud claims shall be paid solely from
the proceeds of any applicable D&O insurance
coverage in amounts to be determined.
Management Management will participate in a stock incentive
program, which shall providefor up to 10.0% of the
Company's fully-
4
diluted restructured Common Stock as of the
Effective Date. Such stock shall be allocated as
follows:
(i) Xxxxxx: 2.0% of the Company's fully-diluted
restructured Common Stock in the form of
restricted stock to vest 2/3 on the second
anniversary of the Effective Date and 1/3 on
the third anniversary date of the Effective
Date (with vesting of such stock fully
accelerated upon a termination without
Cause, a termination for Good Reason, a
termination due to death or Disability or a
change of control of the Company).
(ii) COO, CAO, and CFO: an aggregate of 3.0% of
the Company's fully-diluted Common Stock in
the form of "at the money" stock options
with an exercise price based upon the total
equity value of the Company (as set forth in
the Disclosure Statement for the Plan) to
vest ratably over a three year period (with
vesting of such stock fully accelerated upon
a termination without Cause, a termination
for Good Reason, a termination due to death
or Disability or a change of control of the
Company).
(iii) 5.0% of the Company's fully-diluted
restructured Common Stock reserved for
option grants to key employees, up to
one-half of which is to be determined by the
Company's management or current board to be
issued as part of the Company's 1999 bonus
plan to management not covered above, with
the remainder to be determined by the
Company's new Board of Directors.
Lock-up, Forbearance, and Upon Agreement between the Company, the Notes
Agreements Consent Committee, the TOPrS Committee, Xxxxxx and
GPH regarding the terms of the Restructuring, the
Notes Committee and the TOPrS Committee shall each
use their respective best efforts to cause holders
of at least 66 2/3% of each such issue to enter
into, and Xxxxxx and GPH shall enter into, formal
Lock-up, Forbearance, and Consent Agreements (the
"Consenting Claims") which shall, among other
things, (i) be subject to termination dates
relating to (x) the timely consummation of the
Restructuring and (y) if applicable, the timely
filing of a mutually acceptable plan of
reorganization, (ii) provide for the support of
said Noteholders, TOPrS, Xxxxxx and GPH for the
Restructuring, and (iii) ensure that if a
Consenting Claim is sold, assigned or conveyed in
any way (a "Sale Transaction"), or any interests
granted therein, said
5
Sale Transaction shall be conditioned upon the
assumption of the Lock-up. Forbearance and Consent
Agreements by the Transferee of such Consenting
Claim.
Liquidity Provisions The Company shall take all reasonable efforts
necessary to ensure an active and fully-valued
public market for the New Common Stock and the New
Notes of the restructured Company including, but
not limited to, (i) issuing appropriate releases
of information and otherwise complying with the
requirements of paragraph (c) of Rule 144 under
the Securities Act of 1933, as amended, (ii)
conducting informal meetings with potential
investors and research analysts, (iii) registering
the common stock of the restructured Company under
the Securities Exchange Act of 1934, as amended,
so that the restructured Company will be a public
reporting company and (iv) obtaining the listing
of the New Common Stock and the New Notes on a
national securities exchange of NASDAQ NMS. Any
creditor who would be deemed following the
Effective Date of the Restructuring to be an
"affiliate" of the restructured Company by reason
of its equity holdings in the Company or otherwise
would be granted demand registration rights on
commercially customary terms. If the Restructuring
is consummated via a Chapter 11, the New Common
Stock and the New Notes shall be issued pursuant
to Section 1145 of the Bankruptcy Code.
Additionally, the Company shall file the
appropriate shelf registration documents within 30
days of the Effective Date to ensure the
securities issued in the Restructuring are freely
tradable.
Board Representation The Company's New Board of Directors shall
initially be composed of seven members as follows:
three nominees each for the Notes Committee and
the TOPrS Committee plus the CEO. Each of these
initial nominees shall be discussed, prior to
formal nomination, among the Notes Committee, the
TOPrS Committee and the Company and each of the
initial nominees shall be acceptable to the Notes
Committee and the TOPrS Committee and shall have
appropriate industry background and expertise.
Indemnity, Injunction The Plan shall provide that all parties hereto
and Release shall receive the benefit of releases, injunctions
and indemnities (some of which are conditional as
more fully set forth in the Plan) except with
respect to obligations arising hereunder and to
the
6
extent consistent with the Securities Fraud Claims
provisions above.
Miscellaneous Registration rights and other features of the
securities discussed herein shall be subject to
further negotiations.
II. Financing Requirements
The Company has announced its intention to raise a New Working Capital Facility
to a) pay down any outstanding indebtedness under the Company's existing
NationsBank credit facility and b) fund the Company's 1999 Business Plan. The
New Working Capital Facility will be secured by the following:
o all collateral currently pledged to the NationsBank credit facility; and
o additional collateral as may be necessary subject to the terms and
conditions herein.
The aggregate size of the New Working Capital Facility shall initially be $45
million, but the Company shall retain the right to increase the size of the New
Working Capital Facility to $60 million upon the achievement of performance
targets to be mutually agreed upon by the Company, the Notes Committee and the
TOPrS Committee.
7
EXHIBIT 1
[FORM OF XXXXXX EMPLOYMENT CONTRACT]
8
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT by and between Golden Books Family Entertainment, Inc., a
Delaware corporation (the "Company"), and Xxxxxxx X. Xxxxxx (the "Executive"),
dated as of the __ day of _________, 1999.
1. Definition of Change of Control. For the purpose of this
Agreement, a "Change of Control" shall mean:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within
the meaning of Rule 13d-3 promulgated under the Exchange Act) of 35% or more (on
a fully diluted basis) of either (i) the then outstanding shares of common stock
of the Company, taking into account as outstanding for this purpose such common
stock issuable upon the exercise of options or warrants, the conversion of
convertible stock or debt, and the exercise of any similar right to acquire such
common stock (the "Outstanding Company Common Stock") or (ii) the combined
voting power of the then outstanding voting securities of the Company entitled
to vote generally in the election of directors (the "Outstanding Company Voting
Securities"); provided, however, that for purposes of this subsection (a), the
following acquisitions shall not constitute a Change of Control: (i) any
acquisition by the Company or any "affiliate" of the Company, within the meaning
of 17 C.F.R. ss. 230.405 (an "Affiliate"), (ii) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by the Company or any
Affiliate of the Company, (iii) any acquisition by any corporation pursuant to a
transaction which complies with classes (i), (ii) and (iii) of subsection (c) of
this Section 1, or (iv) any acquisition by the Executive or a group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) that includes the
Executive.
(b) Individuals who, as of the date hereof, constitute the Board of
Directors (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent thereto whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) Consummation of a reorganization, merger or consolidation or
sale or other disposition of all or substantially all of the assets of the
Company (a "Business Combination"), in each case, unless, following such
Business Combination, (i) all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Outstanding Company Voting Securities immediately prior
to such Business Combination beneficially own, directly or indirectly, more than
60% of, respectively, the then outstanding shares of common stock and the
combined voting
1
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
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
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.
4
(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
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,
6
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.
7
(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
8
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;
9
(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.
10
(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
11
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
12
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 xxx 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
13
Company directs the Executive to pay such claim and xxx for a refund, the
Company shall advance the amount of such payment to the Executive, on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of the contest shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority at
his sole cost and expense.
(d) If, after the receipt by the Executive of an amount advanced
by the Company pursuant to Section 9(a) or 9(c), the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 9(c)) promptly pay
to the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 9(c), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial of refund prior to the expiration
of 30 days after such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such advance shall offset,
to the extent thereof, the amount of Gross-Up Payment required to be paid.
10. Confidential Information; Nonsolicitation. (a) The Executive
shall hold in a fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to the Company or any of
its affiliated companies, and their respective businesses, which shall have been
obtained by the Executive during the Executive's employment by the Company or
any of its affiliated companies and which shall not be or become public
knowledge (other than by acts by the Executive or representatives of the
Executive in violation of this Agreement). After termination of the Executive's
employment with the Company, the Executive shall not, without the prior written
consent of the Company or as may otherwise be required by law or legal process,
communicate or divulge any such information, knowledge or data to anyone other
than the Company and those designated by it. In no event shall an asserted
violation of the provisions of this Section 10 constitute a basis for deferring
or withholding any amounts otherwise payable to the Executive under this
Agreement.
(b) Until the later of (i) May 8, 2001 or (ii) one year following
the termination of the Executive's employment for any reason, the Executive
shall not, directly or indirectly, (i) employ or seek to employ any person who
is at the Date of Termination, or was at any time within the six-month period
preceding the Date of Termination, an employee of the Company or any of its
subsidiaries or affiliates or otherwise cause or induce any employee of the
Company or any of its subsidiaries or affiliates to terminate such employee's
employment with the Company or such subsidiary or affiliate for the employment
of another company (included for this purpose
14
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:
-------------------
Xxxxxxx X. Xxxxxx
Linden Farm
00 Xxxxxxxxxxx Xxxx
Xxxxx Xxxxx, Xxx Xxxx 00000
15
If to the Company:
-----------------
Golden Books Family Entertainment, Inc.
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state, local or foreign taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist upon strict
compliance with any provision hereof or any other provision of this Agreement or
the failure to assert any right the Executive or the Company may have hereunder,
including, without limitation, the right of the Executive to terminate
employment for Good Reason pursuant to Section 4(c)(i)-(iv) of this Agreement,
shall not be deemed to be a waiver of such provision or right or any other
provision or right of this Agreement.
(f) The Executive and the Company acknowledge that this Agreement
supersedes the amended and restated employment agreement dated as of the 20th
day of August, 1996 by and between the Executive and the Company (as so amended
on the 9th day of September, 1997) and any other agreement between them
concerning the subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set the Executive's hand
and the Company has caused these presents to be executed in its name on its
behalf, all as of the day and year first above written.
XXXXXXX X. XXXXXX
--------------------------------
16
GOLDEN BOOKS FAMILY ENTERTAINMENT, INC.
By:
-------------------------------------
Name:
Title:
17
Exhibit A
---------
[Restricted Stock Agreement]
18
Exhibit B
---------
[Management Restricted Stock Agreement]
19
EXHIBIT "B"
FORMS OF PLAN OF REORGANIZATION AND DIP ORDER
[Forms of Exhibit "B" are available upon request]
