UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-9008
ANDREWS GROUP INCORPORATED
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(Exact name of registrant as specified in its charter)
DELAWARE 95-2683875
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
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3200 WINDY HILL ROAD, SUITE 1100-WEST, ATLANTA, GEORGIA 30339
(Address of principal executive offices) (Zip Code)
770-955-0045
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(Registrant's telephone number, including area code)
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 (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No__
Indicate the number of shares outstanding of each of the
issuer's classes of common stock as of
the latest practicable date.
Class Outstanding at November 11, 1996
- ------------------------------- --------------------------------
Common Stock, $1.00 par 1,000
As of November 11, 1996, all of the Registrant's outstanding common stock was
indirectly held by Mafco Holdings Inc.
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN MILLIONS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
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<S> <C> <C>
ASSETS
Cash ..................................................................... $ 38.1 $ 55.7
Trade receivables, net ................................................... 257.2 236.7
Inventories .............................................................. 99.1 82.4
Deferred taxes ........................................................... 32.9 50.8
Prepaid expenses and other ............................................... 76.5 68.3
-------------- ---------------
Total current assets .................................................. 503.8 493.9
Property, plant and equipment, net ....................................... 96.7 77.6
Intangible assets, net ................................................... 917.2 931.5
Loans to affiliates, net ................................................. 436.4 441.0
Other assets ............................................................. 105.9 94.2
-------------- ---------------
$ 2,060.0 $ 2,038.2
============== ===============
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Current portion of long-term debt and short-term borrowings ........... $ 654.6 $ 72.8
Accounts payable and accrued expenses ................................. 267.5 311.9
Deferred income ....................................................... 6.1 11.3
Net liabilities held for sale ......................................... 89.8 70.8
-------------- ---------------
Total current liabilities ............................................ 1,018.0 466.8
Long-term debt ........................................................... 958.9 1,667.3
Indebtedness to affiliates ............................................... 581.4 307.1
Other liabilities ........................................................ 59.0 52.0
Minority interest ........................................................ 140.6 113.8
Redeemable preferred stock of subsidiaries ............................... 5.1 5.1
Commitments and contingencies
Stockholder's deficit:
Common stock, $1.00 par value; 1,000 shares
authorized, issued and outstanding
Additional paid-in-capital ............................................ 40.7 40.2
Accumulated deficit ................................................... (744.1) (614.5)
Cumulative translation adjustment ..................................... 0.4 0.4
-------------- ---------------
Total stockholder's deficit ........................................ (703.0) (573.9)
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$ 2,060.0 $ 2,038.2
============== ===============
</TABLE>
See notes to consolidated financial statements.
2
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------- ---------------------------
1996 1995 1996 1995
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net revenues.................................................. $ 581.2 $ 596.1 $ 209.4 $ 269.0
Operating expenses:
Direct costs .............................................. 372.4 352.6 143.1 138.8
Selling, general and administrative expenses .............. 191.7 175.4 69.1 72.1
Amortization of goodwill and intangibles ..................... 20.9 17.9 7.8 6.1
------------- ------------- ------------- -------------
Operating (loss) income ...................................... (3.8) 50.2 (10.6) 52.0
------------- ------------- ------------- -------------
Other (expense) income:
Interest expense .......................................... (148.2) (130.4) (48.5) (47.9)
Interest and net investment income ........................ 44.2 26.1 11.8 10.9
Gain on sale of business interests, net ................... 22.0 14.3 22.0 -
Amortization of debt issuance costs and other ............. (13.2) (11.8) (3.4) (4.6)
------------- ------------- ------------- -------------
(95.2) (101.8) (18.1) (41.6)
------------- ------------- ------------- -------------
(Loss) income from continuing operations before income
taxes, minority interest and equity in income of investees (99.0) (51.6) (28.7) 10.4
Benefit (provision) for income taxes ........................ 0.7 (25.7) (3.1) (21.0)
Minority interest in earnings of subsidiaries ............... (7.7) (12.1) (6.0) (10.0)
Equity in net income (loss) of investees .................... (0.5) 1.6 (1.0) 0.8
------------- ------------- ------------- -------------
Loss from continuing operations ............................. (106.5) (87.8) (38.8) (19.8)
(Loss) income from discontinued operations, net of taxes
and minority interest .................................... (23.1) (40.8) 3.3 (17.7)
------------- ------------- ------------- -------------
Loss before extraordinary item .............................. (129.6) (128.6) (35.5) (37.5)
Extraordinary item, net of tax .............................. - (3.3) - -
------------- ------------- ------------- -------------
Net loss .................................................... $ (129.6) $ (131.9) $ (35.5) $ (37.5)
============= ============= ============= =============
See notes to consolidated financial statements.
3
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN MILLIONS)
(UNAUDITED)
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ............................................................................ $ (129.6) $ (131.9)
------------ ------------
Adjustments to reconcile net loss to net cash flows from operating
activities:
Depreciation and amortization .................................................... 48.8 40.6
Noncash interest expense ......................................................... 53.3 47.5
Equity in net income of investees, net of distributions .......................... 0.5 1.4
Minority interest in earnings of subsidiaries .................................... 7.7 12.1
Loss from discontinued operations ................................................ 23.1 40.8
Extraordinary item, net of tax ................................................... -- 3.3
Gain on sale of business interests ............................................... (22.0) (14.3)
Changes in assets and liabilities, net of effects of acquisitions and dispositions
Increase in assets ............................................................ (24.5) (91.3)
(Decrease) increase in liabilities ............................................ (59.1) 27.3
------------ ------------
27.8 67.4
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Net cash flows from operating activities ............................................ (101.8) (64.5)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sale of Marvel investment in Toy Biz .............................. 35.7 --
Loans to affiliates, net ............................................................ 4.6 (124.2)
Capital expenditures ................................................................ (30.4) (30.9)
Acquisition of SkyBox, net of cash and cash equivalents acquired .................... -- (159.5)
Other ............................................................................... (14.9) (18.3)
------------ ------------
Net cash flows from investing activities ............................................ (5.0) (332.9)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long term debt ........................................................ 137.8 261.6
Repayment and repurchases of debt ................................................... (324.8) (14.9)
Issuance of common stock, stock options and warrants by subsidiaries ................ 10.2 52.5
Loans from affiliates, net .......................................................... 274.3 116.4
Debt issuance costs and other, net .................................................. (9.6) (13.6)
------------ ------------
Net cash flows from financing activities ............................................ 87.9 402.0
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Effect of exchange rate changes on cash ................................................ 1.3 1.9
Net decrease in cash ................................................................... (17.6) 6.5
Cash at beginning of the period ........................................................ 55.7 20.0
------------ ------------
Cash at end of the period .............................................................. $ 38.1 ` $ 26.5
============ ============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the
accounts of Andrews Group Incorporated ("Andrews" or the "Company") and its
majority-owned subsidiaries after elimination of all material intercompany
accounts and transactions. The Company is a wholly owned subsidiary of
MacAndrews & Forbes Holdings Inc. ("MacAndrews Holdings") which is a wholly
owned subsidiary of Mafco Holdings Inc. ("Mafco Holdings"). The unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements and related notes contained in the Company's
1995 Form 10-K. All terms used but not defined elsewhere herein have the
meanings ascribed to them in the Company's 1995 Form 10-K. In the opinion of
management, all adjustments (which include only normal recurring accruals)
necessary for a fair presentation have been made.
During the quarter ended September 30, 1996, Marvel continued to
experience significant losses in its trading card and publishing businesses.
As a result, Marvel has failed to satisfy financial covenants contained in its
credit agreements (see Note 3). Marvel has reclassified long-term debt to
current liabilities as a result of Marvel's failure to satisfy financial
covenants and the absence of waivers as of this date relating thereto. Given
the unfavorable market conditions in trading cards and publishing, the Company
is evaluating whether there has been an impairment to goodwill and other
intangible assets and is considering restructuring and other actions, all of
which could result in substantial 1996 year end charges. See further
discussion in Management's Discussion and Analysis of Financial Condition and
Results of Operations.
As further discussed in Note 6 - Proposed Sale of NWCG Holdings, as a
result of the execution of definitive agreements on September 24, 1996 in
furtherance of the transactions contemplated by the Agreement, the
accompanying financial statements have been restated to reflect for all
periods presented, the net liabilities and results of operations of the
Company's Television Programming Production and Distribution segment as net
liabilities held for disposition and discontinued operations, respectively. As
a gain on disposal, net of transaction costs and estimated results from
operations during the phase-out period is expected, the net gain will be
recognized on the disposal date. Revenues included in discontinued operations
for the nine months ended September 30, 1996 and 1995 were $478.4 and $420.9.
Certain reclassifications have been made to conform to the current
period's presentation.
2. INVENTORIES, NET
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
Raw materials $ 23.7 $ 23.7
Work-in-progress 19.3 22.3
Finished goods 79.6 58.8
Less: Reserve for obsolescence (23.5) (22.4)
-------------- ------------
$ 99.1 $ 82.4
============== =============
5
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
3. LONG-TERM DEBT
Marvel has experienced greater than expected operating losses, and as
a result has failed to satisfy the financial covenants contained in its Credit
Agreements (as defined below) and has commenced discussions with its agent
bank seeking waivers of these covenants and a restructuring of the Credit
Agreements to provide for its cash requirements. Marvel believes that the
restructuring of the Credit Agreements will require an infusion of new equity
capital and has received a proposal from Andrews regarding such equity
infusion, which is subject to a number of significant conditions (see Note 9).
As a result of Marvel's failure to satisfy financial covenants and in the
absence of waivers as of this date relating thereto, the balance of its
long-term debt has been reclassified to current liabilities. In addition, as a
result of Marvel's failure to satisfy the financial covenants contained in the
credit agreements, rollovers of existing Eurocurrency Rate Loans will be made
as Alternate Base Rate Loans or Negotiated Rate Loans thereby increasing
Marvel's borrowing costs. There can be no assurance that the debt can be
restructured on favorable terms to Marvel or that an additional capital
infusion will be received by Marvel.
Marvel's indebtedness is principally represented by the outstanding
balance of $350.0 under the U.S. Term Loan Agreement, $104.5 under the Amended
and Restated Credit Agreement effective August 30, 1994 and the outstanding
balance of $139.9 under the Term Loan Agreement (collectively, the "Credit
Agreements").
During March 1996 and August 1996, Marvel amended its Credit
Agreements to, among other things: (i) provide for an additional $25.0
revolving credit facility which will expire on December 31, 1996; (ii) secure
the borrowings with substantially all of Marvel's domestic assets, other than
Marvel's investment in common stock of Toy Biz, and all of the capital stock
of Marvel's domestic subsidiaries and 65% of the capital stock of Marvel's
first tier foreign subsidiaries; and (iii) amend certain financial covenants.
On April 9, 1996, Marvel IV Holdings amended the Marvel IV Credit
Agreement. In connection with such amendment (i) the term loan was paid down
to $5.2 and the revolver was repaid in full with the proceeds from the
collection of loans to an affiliate and (ii) the aggregate commitment under
the term loan and revolving credit facilities was reduced to $150.0. On June
6, 1996 and October 9, 1996, the Marvel IV Credit Agreement was further
amended to provide for a revolving credit and letter of credit commitment in
an aggregate of $250.0. On October 9, 1996, Marvel IV Holdings obtained a waiver
relating to breach of certain financial covenants by Marvel for the quarter
ended September 1996.
In July 1996, Andrews' 12 3/4% Subordinated Debentures were redeemed
at maturity.
4. RESTRUCTURING OF OPERATIONS
In the fourth quarter of 1995, Marvel recorded restructuring charges
of $25.0 related primarily to publishing and confections operations. As part
of the restructuring, Marvel has terminated approximately 275 employees,
covering editorial, production, distribution and administrative employee
groups and, accordingly, provided for $10.7 of termination benefits, of which
$6.5 has been paid as of September 30, 1996. Additionally, approximately $6.7
relates to facility closure and consolidation costs, of which $5.4 has been
paid as of September 30, 1996, and $7.6 of the restructuring charges relates
to other costs, of which $4.6 has been paid as of September 30, 1996. A
substantial portion of the remaining amount of
6
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
$8.5 as of September 30, 1996, which is included in accrued expenses and other,
is scheduled to be paid in the fourth quarter of 1996 with the remainder paid
out in accordance with the terms of various agreements.
5. RELATED PARTY TRANSACTIONS
At September 30, 1996 and December 31, 1995, the Company and its
subsidiaries had advances from Mafco Holdings and its subsidiaries of $581.4
and $307.1, respectively. At September 30, 1996 and December 31, 1995, the
Company had advances of $436.4 and $441.0 to Mafco Holdings and its
subsidiaries.
At November 11, 1996, an aggregate of 79.4 million shares of common
stock of Marvel were pledged to secure the indebtedness and letters of credit
of Marvel Holdings, Parent Holdings, Holdings III and Four Star Holdings and
2.9 million shares of common stock of Marvel are subject to a negative pledge
under the terms of the Marvel Holdings Notes. At November 11, 1996, an
aggregate of 34.5 million shares of NWCG were pledged to secure the NWCG
Holdings Notes.
See Note 9 - Subsequent Events.
6. PROPOSED SALE OF NWCG HOLDINGS
NWCG, NWCG (Parent) Holdings Corporation, a subsidiary of Andrews
("NWCG Parent"), NWCG Holdings and The News Corporation Limited, a South
Australia corporation ("News Corp."), entered into a binding Memorandum of
Understanding, dated as of July 17, 1996 (the "Agreement"). The Agreement
provided that the parties thereto may execute definitive agreements to
consummate the transactions contemplated by the Agreement. On September 24,
1996, the parties entered into definitive agreements in furtherance of the
transactions contemplated by the Agreement.
Fox Television Stations, Inc. ("Fox"), a corporation in which News
Corp. has an indirect interest, will acquire all of the shares of Common Stock
of NWCG (other than any shares owned, directly or indirectly, by News Corp. or
any News Corp. Subsidiary or as to which dissenters' rights are properly
exercised) and NWCG will become a subsidiary of Fox. The term "News Corp.
Subsidiary" means any subsidiary of News Corp., Twentieth Holdings
Corporation, a Delaware corporation in which News Corp. has an indirect
interest ("THC"), or any other subsidiary of THC, including Fox. Immediately
prior to the time (the "Effective Time") the certificate of merger relating to
the Merger, filed with the Secretary of State of Delaware, becomes effective
pursuant to the General Corporation Law of the State of Delaware (the "DGCL"),
Fox will purchase (the "Stock Purchase") from NWCG Parent, pursuant to the
Stock Purchase Agreement, 2,682,236 shares of Class B Common Stock owned by
NWCG Parent and all of the outstanding shares of capital stock of NWCG
Holdings. The principal asset of NWCG Holdings consists of 34,510,000 shares
of Class B Common Stock. As of September 30, 1996, NWCG Parent and NWCG
Holdings owned, in the aggregate, 37,192,236 shares of NWCG Class B Common
Stock, representing approximately 52% of the outstanding NWCG Common Stock and
approximately 90% of the outstanding voting power of the outstanding NWCG
Common Stock. The consideration for such purchase will be 1.45 American
Depository Shares of News Corp. ("ADSs"), each of which represents four
fully-paid and non-assessable Preferred Limited Voting Ordinary Shares of
A$.50 (with a market price of $18.375 per ADS at November 11, 1996) each of
News Corp., for each share of NWCG Common Stock directly or indirectly
7
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ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
acquired by Fox, with the aggregate number of ADSs issued to NWCG Parent
reduced to approximate the accreted amount of the NWCG Holdings Notes
outstanding as of the Effective Time. Pursuant to the Merger Agreement, (a)
each outstanding share of NWCG Common Stock (other than any shares owned,
directly or indirectly, by News Corp. or any News Corp. Subsidiary, including
the shares purchased pursuant to the Stock Purchase Agreement, and any shares of
NWCG Class B Common Stock as to which dissenters' rights are properly
exercised) will be converted into the right to receive 1.45 ADSs; (b) pursuant
to the DGCL, conversion of the shares of NWCG Series A Preferred Stock into
ADSs pursuant to the Merger Agreement requires the approval of the Merger
Proposal by a majority of the issued and outstanding shares of NWCG Series A
Preferred Stock (the "Series A Approval"); if the Series A Approval is
obtained, each issued and outstanding share of NWCG Series A Preferred Stock
(other than any shares owned, directly or indirectly, by News Corp. or any
News Corp. Subsidiary and any shares as to which dissenters' rights are
properly exercised) will be converted into the right to receive the number of
ADSs equal to the product of (i) 1.45 times (ii) the number of shares of NWCG
Class B Common Stock that a holder of such share of NWCG Series A Preferred
Stock would have received if such share of NWCG Series A Preferred Stock had
been converted into shares of NWCG Class B Common Stock immediately prior to
the Effective Time; and (c) pursuant to the DGCL, conversion of the shares of
Series E Preferred Stock into ADSs pursuant to the Merger Agreement requires
the approval of the Merger Proposal by a majority of the issued and
outstanding shares of NWCG Series E Preferred Stock (the "Series E Approval");
if the Series E Approval is obtained, each issued and outstanding share of
NWCG Series E Preferred Stock (other than any shares owned, directly or
indirectly, by News Corp. or any News Corp. Subsidiary and any shares as to
which dissenters' rights are properly exercised) will be converted into the
right to receive the number of ADSs equal to the product of (i) 1.45 times
(ii) the number of shares of NWCG Class A Common Stock that a holder of such
share of NWCG Series E Preferred Stock would have received if such share of
NWCG Series E Preferred Stock had been converted into shares of NWCG Class A
Common Stock immediately prior to the Effective Time. The transactions
contemplated by the Merger Agreement and the Stock Purchase Agreement are
referred to herein as the "Transaction".
Pursuant to a Voting Agreement, dated as of September 24, 1996, among
Fox, NWCG Parent and NWCG Holdings (the "NWCG Parent Voting Agreement"), NWCG
Parent and NWCG Holdings agreed to vote for the Merger Proposal. Accordingly,
approval of the Merger Proposal is assured regardless of the vote of any other
stockholder of NWCG. In addition, pursuant to a Voting Agreement, dated as of
September 24, 1996, among Apollo Advisors, L.P. ("Apollo"), News Corp. and Fox
(the "Apollo Voting Agreement"), Apollo agreed, with respect to itself and its
affiliates, as the sole holder of the issued and outstanding shares of NWCG
Series A Preferred Stock, to vote, or cause to be voted, any shares of NWCG
capital stock owned as of the Record Date for the Merger Proposal. As of
September 30, 1996, Apollo and its affiliates owned all of the issued and
outstanding shares of Series A Preferred Stock. Accordingly, receipt of the
Series A Approval is assured.
Certain subsidiaries and affiliates of the Company have also entered
into certain other agreements in connection with the Transaction. Pursuant to
a Purchase and Sale Agreement, dated as of September 24, 1996, between 1440
Sepulveda Limited Partnership, a California limited partnership (the "1440
Partnership"), and Fox (the "Real Estate Agreement"), Fox agreed to purchase
(the "Real Estate Purchase") the land, building and related improvements where
NWCG's principal Los Angeles office is located (the "Real Property"). The
aggregate purchase price to be paid by Fox under the Real Estate Agreement is
$50.0. Pursuant to the Assignment and Assumption Agreement, dated as of
September 24,
8
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
1996, between Four Star Holdings and Fox (the "Four Star Agreement"), Fox
agreed to assume an aggregate of $46.2 principal amount of debt of Four Star
Holdings. The liabilities represented by the Four Star Notes (as defined
herein) were retained by Four Star Holdings at the time of the 1994
reorganization of NWCG that included the transfer of New World Entertainment
Ltd. ("NW Entertainment"), to NWCG. Pursuant to a Guaranty, dated as of
September 24, 1996, Mafco Holdings has agreed to guarantee the payment and
performance of certain obligations of its affiliates pursuant to the Stock
Purchase Agreement, the NWCG Parent Voting Agreement, the Real Estate
Agreement and the Four Star Agreement. Similarly, News Corp. has entered into
a Guaranty, dated as of September 24, 1996, pursuant to which News Corp. has
agreed to guarantee the payment and performance by Fox of its obligations
pursuant to the Merger Agreement, the Stock Purchase Agreement (including the
registration rights agreement attached, thereto), the NWCG Parent Voting
Agreement, the Real Estate Agreement and the Four Star Agreement.
The consummation of the transactions contemplated by the Real Estate
Agreement is conditioned upon the satisfaction or waiver of all conditions of
the Merger other than consummation of the Real Estate Purchase. The
consummation of the transactions contemplated by the Four Star Agreement is
similarly conditioned upon satisfaction or waiver of all conditions to the
Merger other than those relating to the Four Star Agreement. The consummation
of the transactions contemplated by the Stock Purchase Agreement is
conditioned upon, among other things, satisfaction or waiver of all conditions
to the Merger (including the Real Estate Purchase and the consummation of the
transactions contemplated by the Four Star Agreement), other than the Stock
Purchase.
The Merger and the other transactions are conditioned on one another
and the Merger is subject to certain other conditions, including regulatory
approvals and the approval of the shareholders of NWCG. On November 7,
1996, the FCC issued an order, subject to finality, granting approval of the
Merger and the Stock Purchase Agreement. There can be no assurance that all of
the conditions to the consummation of the Merger will be satisfied.
7. SALE OF STATIONS TO NBC
In May 1996 NWCG entered into an agreement to sell substantially all
of the assets of KNSD-TV (the "San Diego Station") and WVTM-TV (the
"Birmingham Station") to National Broadcasting Company, Inc. ("NBC") for $425,
subject to certain adjustments. The Birmingham Station sale was completed in
August 1996 for $200, adjusted for working capital. The pretax gain related to
such sale of $103.2 is reflected in net loss from discontinued operations. The
San Diego Station sale is expected to be completed in the fourth quarter of
1996 and is subject to various closing conditions including regulatory
approval which was granted on November 7, 1996.
9
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
8. TOY BIZ COMMON STOCK OFFERING
In August, 1996, Toy Biz sold in an offering 700,000 shares of its
Class A common stock at a price to the public of $15 per share. As part of Toy
Biz's offering, Marvel sold 2.5 million shares of Toy Biz Class A common
stock. In the third quarter of 1996, Marvel recorded a gain on the sale of
this common stock of approximately $22.0. The net proceeds to Toy Biz and
Marvel were approximately $9.1 and $35.7, respectively, after deducting
amounts accrued for estimated fees and expenses. As a result of Marvel's sale
of Class A Common Stock of Toy Biz in August 1996, Marvel's ownership
percentage of Toy Biz decreased to 26.7% and its voting control decreased to
78.4% (see Note 9).
9. SUBSEQUENT EVENTS
Marvel has experienced greater than expected operating losses in the
third quarter of 1996, and as a result has failed to satisfy financial
covenants contained in the Credit Agreements. Marvel has commenced discussions
with The Chase Manhattan Bank, the agent bank under the Credit Agreements,
seeking waivers of these covenants and a restructuring of the Credit
Agreements to provide for Marvel's cash requirements. Marvel believes that
such a restructuring will require an infusion of new equity capital and has
received a proposal from Andrews regarding such equity infusion, which is
subject to a number of significant conditions. As a result of Marvel's failure
to satisfy financial covenants and in the absence of waivers as of this date
relating thereto, the balance of long-term debt has been reclassified to
current liabilities.
On October 17, 1996, Andrews announced that it had reached agreement
with each of Isaac Perlmutter and Avi Arad to purchase approximately 67% of
the class A common stock of Toy Biz for cash and debt of Andrews. On November
12, 1996, Marvel received a proposal from Andrews to acquire from Marvel a
number of shares of Marvel common stock (or its equivalent) that would
represent 80.1% of the shares of Marvel common stock after giving effect to
such acquisition. Based on the approximately 101.8 million shares of Marvel
common stock outstanding, this would require the issuance of approximately 410
million shares of Marvel common stock (or its equivalent). The purchase price
for the acquisition would be $350 in cash or, at the option of Andrews, an
equal value of the shares of class A common stock of Toy Biz or a combination
of the foregoing (the "Andrews Investment"). The Andrews proposal states that
the shares of Toy Biz class A common stock so transferred would be valued on
the basis of the cost to Andrews of acquiring such stock. The Andrews proposal
states that any contribution by Andrews to Marvel of shares of Toy Biz class A
common stock would be made in the context of Toy Biz becoming a wholly owned
subsidiary of Marvel.
The Andrews proposal states that the consummation of the Andrews
Investment would be subject to a number of significant conditions, including
the satisfaction of the conditions set forth in the agreements between Andrews
and Messrs. Perlmutter and Arad, an agreement for the acquisition of Toy Biz
having been executed and all conditions to that agreement having been
satisfied, receipt of certain consents and amendments under the Credit
Agreements, including to provide for the additional borrowing capacity that
Marvel requires, the satisfactory resolution by Andrews of a number of issues
under the indentures of Marvel Holdings, Parent Holdings and Holdings III,
including that any Marvel common stock (or its equivalent) purchased by
Andrews not be subject to the liens thereunder, and the
10
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
execution of a definitive agreement for the Andrews Investment which contains
appropriate representations, warranties, covenants and conditions customary
for transactions of the nature of the Andrews Investment. There can be no
assurance that agreement will be reached on the terms of any of the foregoing
transactions or that any of the foregoing transactions will be consummated.
See Management Discussion and Analysis of Financial Condition and Results of
Operations - - Liquidity and Capital Resources.
A copy of the Andrews proposal has been forwarded to a special
committee of Marvel's board of directors comprised of outside directors, who
are not affiliated with Andrews, for consideration. In addition, in
anticipation of receiving a proposal, the board of directors of Toy Biz formed
a special committee of outside directors who are not affiliated with Andrews
or Marvel to consider, on behalf of the minority stockholders of Toy Biz, any
proposal that may be made.
11
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
RESULTS OF OPERATIONS
General
As further discussed in Note 6 - Proposed Sale of NWCG Holdings, as a
result of the execution of definitive agreements on September 24, 1996 in
furtherance of the transactions contemplated by the Agreement, the
accompanying financial statements have been restated to reflect for all
periods presented, the net liabilities and results of operations of the
Company's Television Programming Production and Distribution segment as net
liabilities held for disposition and discontinued operations, respectively. As
a gain on disposal, net of transaction costs and estimated results from
operations during the phase-out period is expected, the net gain will be
recognized on the disposal date.
The Company operates in the youth entertainment segment through its
approximately 79% ownership in Marvel. Marvel is a leading creator, publisher
and distributor of youth entertainment products for domestic and international
markets based on action adventure characters owned by Marvel, licenses from
professional athletes, sports teams and leagues and popular entertainment
characters and other properties owned by third parties. Marvel also licenses
its characters and properties for consumer products, television and film and
advertising promotions. Marvel's products include comic books and other
publications, sports and entertainment trading cards, children's activity
stickers, Toy Biz toys, adhesives and confectionery products.
Over the past five years, Marvel has diversified into a broadly based
youth entertainment company. As a result, an increasing portion of Marvel's
net revenues have been derived from businesses other than comic book
publishing. Marvel's business has been augmented by the marketing and
distribution of sports and entertainment trading cards and activity stickers
and the licensing of Marvel's characters for consumer products, television and
film, advertising promotions and toys. Although Marvel's consolidated net
revenues have increased as a result of diversification, certain changes in
market conditions, primarily associated with its publishing and trading card
businesses, have adversely affected Marvel's net revenues and operating
results in recent periods.
In recent years there has been an overall decline in the comic book
specialty store industry, and more specifically, a significant reduction in
speculative purchases of comic books, which has adversely affected Marvel's
publishing revenues. In response, Marvel has undertaken several strategic
actions including: eliminating unprofitable and marginally profitable titles
to create a strong line-up comprising Marvel's most popular and most
profitable titles; focusing its comic books more on editorial content and less
on physical product features and enhancements; and streamlining operations
through introduction of new technology and consolidation of facilities.
However, to date these actions have not been sufficient to overcome the
overall decline in the comic book specialty store industry.
Similarly, there has been a significant contraction in the sports
trading card market related in part to lower speculative purchases. This
contraction was compounded by the baseball, hockey and basketball labor
situations in 1994 and 1995, which adversely affected sports trading card
sales and increased returns for those periods. Although Major League Baseball
resumed in April 1995, there still is no collective bargaining agreement in
effect between the owners and players as the owners rejected
12
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
in early November 1996 a proposed collective bargaining agreement. The level
of fan interest, although showing some signs of improvement during 1996, has
not returned to the levels experienced prior to the 1994 strike and the
failure to enter into a new collective bargaining agreement could result in a
disruption of play in 1997. Along with decreased fan interest, Marvel believes
that the labor situations in professional sports have contributed to decreased
trading card consumer interest and, therefore, generally decreased levels of
consumer purchases of all trading cards. Marvel believes that all of these
factors have negatively affected the overall trading card industry, causing
Marvel to experience lower sales, higher returns and higher inventory
obsolescence.
The level of demand for entertainment trading cards is dependent on
the commercial success and media exposure of Marvel's characters and third
party licensed products, as well as the market conditions in the comic book
specialty stores. In 1994, the sale of entertainment cards based on Marvel's
characters and third party licensed characters offset and in 1995 such sales
substantially offset the decline in sports trading cards. However, in 1996,
Marvel's sales of entertainment trading cards has been adversely affected by
lower sales of cards based on properties licensed from third parties as well
as significantly lower sales of cards based on comic book characters.
Throughout 1995, the lower sales and higher returns of Marvel's
trading cards primarily related to distribution channels other than trading
card specialty stores. Marvel has revamped its trading card business to
concentrate its distribution of trading card products in trading card
specialty stores and in select mass market accounts. The combination of the
contraction in the overall trading card industry, the lack of commercial
success of certain of the third party and Marvel licensed products, in part
driven by the softness in market conditions in the comic book specialty store
market, and Marvel's change in distribution mentioned above have resulted in
substantially lower trading card sales by Marvel in 1996.
In response to the significant contraction in the sports trading card
market, the adverse conditions related to the sale of entertainment trading
cards and the overall decline in the comic book specialty store industry and
their negative effect on Marvel's operating results, Marvel is considering
further actions to mitigate these declines and their effect on future
operating results. Given the unfavorable market conditions in trading cards
and publishing, the Company is evaluating whether there has been an impairment
to goodwill and other intangible assets and is considering restructuring and
other actions, all of which could result in substantial 1996 year end charges.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED
SEPTEMBER 30, 1995
The Company's net revenues were $209.4 and $269.0 in the 1996 and
1995 periods, respectively, an decrease of $59.6 or 22.2%. This reflects a
decrease of $59.0 in net trading card and sticker revenues, $16.6 in licensing
revenues, and $13.5 in net publishing revenues. This decrease was partially
offset by a $26.2 increase in toy revenues and a $3.3 increase in other
revenues. The decrease in trading card net revenues was primarily due to the
continued general decline in the demand for trading cards as well as the
change in Marvel's distribution of its trading cards to concentrate in trading
card specialty stores and select mass market accounts which generally resulted
in lower gross sales in 1996. In addition, entertainment card sales decreased
due to lower sales of cards based on comic book characters due in part to
market conditions in the comic book specialty store market, as
13
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
well as lower sales of cards based on properties licensed from third parties
resulting from lower commercial success of such properties in 1996 as compared
to 1995. However, as compared to 1995, provisions for trading card sales
returns were significantly lower, reflecting the change in distribution. These
decreases in trading card net revenues were partially offset by a slight
increase in net revenues of stickers. This increase was due to the 1996
European Cup soccer tournament and expansion into new markets such as Brazil
and Russia, and was partially offset by higher provisions for returns for
stickers in 1996. In addition, the Company experienced lower net revenues in
certain European markets principally due to lower net revenues from
entertainment stickers based on properties licensed from third parties as a
result of lower commercial success of such properties in 1996 as compared to
1995. Licensing revenues, which vary from period to period, decreased
primarily as a result of an insufficient amount of new media exposure of
Marvel's characters. Marvel and Fox Kid's Worldwide ("FKW") entered into an
arrangement under which Marvel expects to have a new animation series on the
Fox Children's Network in the 1997-1998 broadcast seasons. Licensing revenues
will vary depending on the volume and extent of licensing agreements entered
into during any particular financial period, as well as the level and
commercial success of the media exposure of Marvel's characters. The decrease
in net publishing revenues was due to the impact on Marvel of the decline in
the comic book specialty store industry and the reduction of titles resulting
from implementation of Marvel's business strategy. The increase in toy
revenues was principally due to Toy Biz's expanded product offerings and an
increased international distribution of products. The improvement in other
revenues was due to increased sales of adhesive paper by Panini.
Gross profit was $66.3 and $130.2 in the 1996 and 1995 periods,
respectively, an decrease of $63.9. As a percentage of net revenues, gross
profit was 31.7% in the 1996 period as compared to 48.4% in the 1995 period.
The decrease in gross profit as a percentage of net revenues was due primarily
to the effect of higher return provisions for stickers, the effect of lower
licensing revenues, an unfavorable product mix for trading cards and toys as
compared to 1995 and the effect of lower net revenues without a corresponding
decrease in royalty expense and advertising and promotion expense given
minimum payment obligations for trading cards in 1996.
Selling, general and administrative ("SG&A") expenses in 1996
decreased by $3.0 to $69.1. The decrease was mainly attributable to a general
reduction in overhead expenses associated with the restructuring of the
trading card publishing and confectionery operations partially offset by the
increase in Toy Biz's and Panini's advertising, promotion and selling costs.
Amortization of goodwill and intangibles increased to $7.8 in 1996
from $6.1 in 1995 primarily due to higher depreciation primarily resulting
from an increased investment in product tooling to support Toy Biz's expanded
product line.
The gain on sale of Toy Biz Common Stock was $22.0 in 1996 (see Note
8).
The provision for income taxes of $3.1 and $21.0 in 1996 and 1995,
respectively, relates to Marvel. The Company has not recorded a benefit for
its losses, other than those of Marvel which files a separate income tax
return, as the Company is not assured that it will be able to realize the
benefit for such losses in the future. The provision for income taxes in 1996
primarily represents a provision for income taxes related to the sale of Toy
Biz and the operations of Toy Biz partially offset by a benefit for Marvel's
14
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
operating losses. The provision for income taxes in 1995 primarily represents
foreign, federal, state and local income taxes.
Income (loss) from discontinued operations improved to $3.3 from
($17.7) primarily due to the gain on the sale of the Birmingham Station by
NWCG (see Note 7).
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED
SEPTEMBER 30, 1995
The Company's net revenues were $581.2 and $596.1 in the 1996 and
1995 periods, respectively, an decrease of $14.9 or 2.5%. This reflects a
decrease of $37.4 in net publishing revenues, $31.0 in net trading card and
sticker revenues, and $20.4 in licensing revenues, partially offset by a $66.6
increase in toy revenues and a $7.3 increase in other revenues. The decrease
in net publishing revenues was due to the impact on Marvel of the decline in
the comic book specialty store industry, the reduction of titles resulting
from implementation of Marvel's business strategy, and the discontinuance
commencing in July 1995 of the distribution by Heroes World of comic book
publications other than Marvel's titles. The decrease in trading card net
revenues was primarily due to the continued general decline in the demand for
trading cards as well as the change in Marvel's distribution of its trading
cards to concentrate in trading card specialty stores and select mass market
accounts which generally resulted in lower gross sales in 1996. In addition,
entertainment card sales decreased due to lower sales of cards based on comic
book characters due in part to market conditions in the comic book specialty
store market, as well as lower sales of cards based on properties licensed
from third parties resulting from lower commercial success of such properties
in 1996 as compared to 1995. However, as compared to 1995, provisions for
trading card sales returns were significantly lower, reflecting the change in
distribution and the inclusion in the second quarter of 1995 of a significant
increase in sales returns reserves. Such lower sales return provisions,
combined with the inclusion of net revenues from SkyBox for nine months in
1996 versus only five months in 1995 (the SkyBox Acquisition was consummated
on April 27, 1995), partially offset the lower sales discussed above. These
decreases in trading card net revenues were partially offset by an increase in
net revenues of stickers. This increase was due to the 1996 European Cup
soccer tournament and expansion into new markets such as Brazil and Russia,
and was partially offset by higher provisions for returns for stickers in
1996. In addition, the Company experienced lower net revenues in certain
European markets principally due to lower net revenues from entertainment
stickers based on properties licensed from third parties as a result of lower
commercial success of such properties in 1996 as compared to 1995. Licensing
revenues, which vary from period to period, decreased primarily as a result of
an insufficient amount of new media exposure of Marvel's characters. Marvel
and FKW entered into an arrangement under which Marvel expects to have a new
animation series on the Fox Children's Network in the 1997-1998 broadcast
seasons. Licensing revenues will vary depending on the volume and extent of
licensing agreements entered into during any particular financial period, as
well as the level and commercial success of the media exposure of Marvel's
characters. The increase in toy revenues was principally due to Toy Biz's
expanded product offerings, increased international distribution of products
and the consolidation of Toy Biz for nine months in 1996 as compared to seven
months in 1995. The improvement in other revenues was due to increased sales
of adhesive paper by Panini.
15
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Gross profit was $208.8 and $243.5 in the 1996 and 1995 periods,
respectively, a decrease of $34.7. As a percentage of net revenues, gross
profit was 35.9% in the 1996 period as compared to 40.8% in the 1995 period.
The decrease in gross profit as a percentage of net revenues was due primarily
to the effect of higher return provisions for stickers, the effect of lower
licensing revenues, an unfavorable product mix for trading cards and toys as
compared to 1995 and the effect of lower net revenues without a corresponding
decrease in royalty expense and advertising and promotion expense given
minimum payment obligations for trading cards in 1996.
Selling, general and administrative ("SG&A") expenses in 1996
increased by $16.3 to $191.7. The increase was mainly attributable to the
increase in advertising, promotion and selling expenses of Panini and Toy Biz,
the consolidation of Toy Biz's results for nine months in 1996 as compared to
seven months in 1995, and the inclusion of Sky Box for nine months in 1996 as
compared to five months in 1995. This increase was partially offset by a
general reduction in overhead expenses associated with the restructuring of
the trading card, publishing and confectionery operations.
Amortization of goodwill and intangibles increased to $20.9 in 1996
from $17.9 in 1995 primarily due to the consolidation of Toy Biz for nine
months in 1996 as compared to only seven months in 1995 and higher
depreciation primarily resulting from an increased investment in product
tooling to support Toy Biz's expanded product line.
Interest expense increased to $148.2 in 1996 from $130.4 in 1995
primarily due to increased average borrowings.
Interest and net investment income increased from $26.1 in 1995 to
$44.2 in 1996 primarily due to an increase in average net loans to affiliates.
The gain on sale of Toy Biz common stock by Marvel was $22.0 million in
1996 compared with $14.3 million from the Toy Biz IPO in 1995.
The benefit (provision) for income taxes of $0.7 and ($25.7) in 1996
and 1995, respectively, relate to Marvel. The Company has not recorded a
benefit for its losses, other than those of Marvel which files a separate
income tax return, as the Company is not assured that it will be able to
realize benefit for such losses in the future. The provision for income taxes
in 1996 primarily represents a provision for income taxes related to the sale
of Toy Biz and the operations of Toy Biz partially offset by a benefit for
Marvel's operating losses. The provision for income taxes in 1995 primarily
represents foreign, federal, state and local income taxes.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
(a) Marvel, Marvel Holdings, Parent Holdings and Holdings III
Marvel has experienced greater than expected operating losses in the
third quarter of 1996, and as a result has failed to satisfy financial
covenants contained in the Credit Agreements. Marvel has commenced discussions
with The Chase Manhattan Bank, the agent bank for the Credit Agreements,
16
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
seeking waivers of these covenants and a restructuring of the Credit
Agreements to provide for Marvel's cash requirements. Marvel believes that
such a restructuring will require an infusion of new equity capital and Marvel
has received a proposal from Andrews regarding such equity infusion. As a
result of Marvel's failure to satisfy financial covenants and in the absence
of waivers as of this date relating thereto, the balance of long-term debt has
been reclassified to current liabilities.
At November 8, 1996, Marvel's outstanding bank indebtedness was
approximately $665. Until Marvel receives waivers of the failure to satisfy
financial covenants contained in the Credit Agreements, it will not be able to
borrow additional amounts under its domestic credit facilities. Panini S.p.A.
had approximately $11 available under its foreign credit facilities at
November 8, 1996. In addition, there was $30.0 available under the Toy Biz
line of credit at November 8, 1996.
If the Marvel Transactions (as defined below) are not consummated or
if consummated, are not consummated on satisfactory terms, then Marvel
anticipates that it will be required to adopt one or more extraordinary
transactions in order to meet its consolidated cash requirements, including
debt service and repayment, for the foreseeable future. However, there can be
no assurance that such extraordinary transactions could be consummated or if
consummated, would be sufficient to allow Marvel to meet its consolidated cash
requirements.
On October 17, 1996, Andrews announced that it had reached agreement
with each of Isaac Perlmutter and Avi Arad to purchase approximately 67% of
the class A common stock of Toy Biz for cash and debt of Andrews. On November
12, 1996, Marvel received a proposal from Andrews to acquire from Marvel a
number of shares of Marvel Common Stock (or its equivalent) that would
represent 80.1% of the shares of Marvel Common Stock after giving effect to
such acquisition. Based on the approximately 101.8 million shares of Marvel
Common Stock outstanding, this would require the issuance of approximately 410
million shares of Marvel Common Stock (or its equivalent). The purchase price
for the acquisition would be $350 in cash or, at the option of Andrews, an
equal value of the shares of class A common stock of Toy Biz or a combination
of the foregoing (the "Andrews Investment"). The Andrews proposal states that
the shares of Toy Biz class A common stock so transferred would be valued on
the basis of the cost to Andrews of acquiring such stock. The Andrews proposal
states that any contribution by Andrews to Marvel of shares of Toy Biz class A
common stock would be made in the context of Toy Biz becoming a wholly owned
subsidiary of Marvel.
The Andrews proposal states that the consummation of the Andrews
Investment would be subject to a number of significant conditions, including
the satisfaction of the conditions set forth in the agreements between Andrews
and Messrs. Perlmutter and Arad, an agreement for the acquisition of Toy Biz
having been executed and all conditions to that agreement having been
satisfied, receipt of certain consents and amendments under the Credit
Agreements, including to provide for the additional borrowing capacity that
Marvel requires, the satisfactory resolution by Andrews of a number of issues
under the indentures of Marvel Holdings, Parent Holdings and Holdings III,
including that any Marvel common stock (or its equivalent) purchased by
Andrews not be subject to the liens thereunder, and the execution of a
definitive agreement for the Andrews Investment which contains appropriate
representations, warranties, covenants and conditions customary for
transactions of the nature of the Andrews Investment. There can be no
assurance that agreement will be reached on the terms of any of the foregoing
transactions or that any of the foregoing transactions will be consummated.
17
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
A copy of the Andrews proposal has been forwarded to a special
committee of Marvel's board of directors comprised of outside directors, who
are not affiliated with Andrews, for consideration. In addition, in
anticipation of receiving a proposal, the board of directors of Toy Biz formed
a special committee of outside directors who are not affiliated with Andrews
or Marvel to consider, on behalf of the minority stockholders of Toy Biz, any
proposal that may be made. (The restructuring of the credit agreements, the
proposed purchase of Marvel's equity capital by Andrews (or an affiliate) and
the proposed Toy Biz acquisitions are collectively referred to as the "Marvel
Transactions".)
Although there can be no assurance, Marvel anticipates that if the
Marvel Transactions are consummated on satisfactory terms, internally
generated funds, borrowings under the various credit facilities of Marvel and
Toy Biz, other borrowings and refinancings of existing indebtedness should be
sufficient to enable Marvel to meet its consolidated cash requirements,
including debt service and repayment, for the foreseeable future.
In August 1996, Toy Biz sold in an offering 700,000 shares of its
Class A common stock at a price to the public of $15 per share. As part of Toy
Biz's offering, Marvel sold 2.5 million shares of Toy Biz Class A common
stock. The net proceeds to Toy Biz and Marvel were approximately $9.1 and
$35.7, respectively, after deducting amounts accrued for estimated fees and
expenses. As a result of the offering by Toy Biz and the sale of Class A
common stock of Toy Biz by Marvel, Marvel's ownership percentage of Toy Biz
decreased to 26.7% and its voting control decreased to 78.4%.
Marvel expects to incur approximately $4 in net production costs for
The Hulk animated series (which costs would be partially offset by any sales
of video cassettes and international distribution rights to the series). In
addition, with respect to Marvel's agreement with FKW, Marvel will be required
to reimburse FKW a portion of its production costs. The Hulk animated series,
which began broadcasting on United Paramount Network in September 1996 and
Marvel's projects with FKW, which will involve the development and production
of a variety of Marvel's characters to be broadcast over the Fox Children's
Network over a period of seven years (which could be extended to ten years in
certain circumstances), are expected to be projects of Marvel Studios.
Marvel, along with the joint venture partner, is continuing the
development of Marvel theme restaurants. Five restaurants are currently under
development, with the first restaurant expected to open in the first half of
1997. Marvel expects to invest approximately $36 over the next three years to
fund the development of such restaurants.
As of November 8, 1996, 79,407,725 shares, or 78.0%, of Marvel's
Common Stock were pledged by subsidiaries of Mafco Holdings, other than Marvel
and its subsidiaries, to secure indebtedness or letters of credit of such
subsidiaries. In addition, 2,932,167 shares, or 2.9%, of Marvel's Common Stock
are subject to a negative pledge under the terms of the Marvel Holdings Notes
indenture.
The indenture governing the Marvel Holdings Notes, which have a book
value of approximately $437.2 at September 30, 1996, requires Marvel Holdings
to hold a majority of the outstanding common stock of Marvel at all times. At
November 13, 1996, the value of the approximately 50.9 million shares of
18
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Marvel held by Marvel Holdings was approximately $130.5. The indenture
governing the Parent Notes, which have a book value of approximately $210.7 at
September 30, 1996, requires Parent Holdings together with Marvel Holdings to
hold a majority of the outstanding common stock of Marvel at all times. In
addition, Parent Holdings guarantees the Holdings III Notes, which have a
principal amount of $125.0, on a non-recourse basis, secured by a first
priority lien of approximately 9.3 million common shares of Marvel. At
November 13, 1996, the value of the approximately 29.3 million common shares
of Marvel held by Parent Holdings was approximately $75.1.
Each of Holdings III, Parent Holdings and Marvel Holdings have no
business operations, source of income of their own or any committed sources of
funding from external sources. In light of the current financial condition of
Marvel described above, it is uncertain how Holdings III, Parent Holdings and
Marvel Holdings will meet their obligations on their debt instruments when
they mature in 1998 and, in the case of Holdings III, to meet its obligations
for semi-annual interest payments.
(b) Corporate and other subsidiaries
Andrews' corporate cash requirements consist primarily of debt
service and administrative expenses. The Company's principal source of
liquidity at the corporate level is expected to consist of advances from Mafco
Holdings and affiliates. At September 30, 1996 and December 31, 1995, the
Company and its subsidiaries had advances from Mafco Holdings and its
subsidiaries of $581.4 and $307.1, respectively.
On April 9, 1996, Marvel IV Holdings amended the Marvel IV Credit
Agreement. In connection with such amendment (i) the term loan was paid down
to $5.2 and the revolver was repaid in full with the proceeds from the
collection of loans to an affiliate and (ii) the aggregate commitment under
the term loan and revolving credit facilities was reduced to $150.0. On June
6, 1996 and October 9, 1996, the Marvel IV Credit Agreement was further
amended to provide for a revolving credit and letter of credit commitment in
an aggregate of $250.0. The amount of borrowings outstanding under the Marvel
IV Credit Agreement at September 30, 1996 was $149.0.
As discussed in Note 6 - Proposed Sale of NWCG Holdings, in
connection with the Transaction, Fox will purchase from NWCG pursuant to the
Stock Purchaser Agreement, shares of Class B Common Stock owned by NWCG Parent
and all of the outstanding shares of capital stock of NWCG Holdings. The
consideration for the purchase will be 1.45 ADSs (with a market price of
$18.375 per ADS at November 11, 1996) of News Corp. for each share of NWCG
Common Stock directly or indirectly acquired by Fox, with the aggregate number
of ADSs issued to NWCG Parent reduced to approximate the accreted amount of
the NWCG Holdings Notes.
Andrews expects to finance the Andrews Investment with the proceeds
from the Transaction.
In July 1996, Andrews' 12 3/4% Subordinated Debentures were redeemed
at maturity.
At November 11, 1996, an aggregate of 34.5 million shares of NWCG
were pledged to secure the NWCG Holdings Notes.
19
<PAGE>
ANDREWS GROUP INCORPORATED AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
FORWARD-LOOKING STATEMENTS
Statements in this quarterly report on Form 10-Q for the quarter
ended September 30, 1996 such as "intend", "estimated", "believe", "expect",
"anticipate" and similar expressions which are not historical are
forward-looking statements that involve risks and uncertainties. Such
statements include, without limitation, the Company's expectation as to
financial performance for the remainder of 1996 and for 1997. In addition to
factors that may be described in the Company's Securities and Exchange
Commission filings, including this filing, the following factors, among
others, could cause the Company's financial performance to differ materially
from that expressed in any forward-looking statements made by, or on behalf
of, the Company: (i) continued weakness in the comic book market which cannot
be overcome by Marvel's new editorial and production initiatives in comic
publishing; (ii) continued general weakness in the trading card market; (iii)
the failure of fan interest in baseball to return to traditional levels that
existed prior to the 1994 baseball strike and the potential for decreased fan
interest due to a possible disruption of play in 1997 as a result of the
failure of the owners and players to agree on a collective bargaining
agreement, thereby negatively impacting Marvel's baseball card business; (iv)
the effectiveness of Marvel's changes to its trading card and publishing
distribution; (v) a decrease in the level of media exposure or popularity of
Marvel's characters resulting in declining revenues based on such characters;
(vi) the lack of continued commercial success of properties owned by major
licensors which have granted Marvel licenses for its sports and entertainment
trading card and sticker businesses; (vii) unanticipated costs or delays in
completing projects associated with Marvel's new ventures including media,
interactive software and on-line services and theme restaurants; (viii)
consumer acceptance of new product introductions, including those for toys;
(ix) imposition of tariffs or import quotas on toys manufactured in China as a
result of a deterioration in trade relations between the U.S. and China; and
(x) the outcome of the Marvel's discussions for the restructuring of Marvel's
Credit Agreements and related anticipated transactions.
20
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
Marvel is a defendant in a purported class action filed on July 26,
1996 in the United States District Court for the Eastern District of New York
entitled Fishman, et al v. Marvel Entertainment Group, Inc., CV-96-3757 (SJ),
by four persons who allegedly purchased sports and entertainment cards
manufactured by Fleer and SkyBox. The action is directed against standard
business practices in the trading card industry, including the practice of
randomly placing insert cards in packages of sports and entertainment trading
cards, and alleges that these practices constitute illegal gambling activity
in violation of state and federal law. Each of Fleer and SkyBox's principal
competitors in the trading card industry has been separately sued for
employing the same or similar practices. In addition, certain of the various
sports organizations and entertainment companies that issue licenses to Fleer
and SkyBox (as well as the other major trading card companies) in connection
with the manufacture of sports and entertainment trading cards have also been
separately sued and are alleged to be engaged in aspects of the purportedly
illegal gambling operations. Plaintiffs seek certification of a class of
persons who within four years prior to the filing of the complaint purchased
packages of trading cards that might contain randomly inserted cards, and
recovery of treble damages. On September 30, 1996, Marvel filed a motion to
dismiss the complaint. No discovery has commenced. Plaintiffs have not
specified the amount of damages sought, but generally allege that members of
the purported class have been damaged as a result of their purchases of
trading cards during the four years preceding the commencement of the action.
It is not possible at this early stage of the case to predict the outcome with
certainty. In the opinion of Marvel, the action lacks merit and Marvel intends
to defend it vigorously.
In July and August 1996, Joseph Gorga, Brian Barry and Anthony
Inguaggiato commenced separate actions on behalf of themselves and,
purportedly, all other similarly situated shareholders of NWCG other than the
defendants against NWCG, its directors, News Corp. and Fox Television
Stations, Inc., asserting, among other things, breaches of fiduciary duty,
unjust enrichment and abuse of control in connection with the transactions
contemplated by the Merger and the Agreement with News Corp. These actions,
pending in the Delaware Court of Chancery, have been or will be consolidated
under the caption In re New World Communications Group Incorporated
Shareholders Litigation, C.A. No. 15110. The consolidated actions seek
equitable relief and damages, including an injunction against the Merger. NWCG
believes that the consolidated actions are without merit and intends to
contest them vigorously.
In connection wth the Eckstein and Majeski Actions (as disclosed in the
1995 10-Q of Andrews), following discovery, the New World defendants withdrew
their motion to dismiss for lack of personal jurisdiction, and filed an answer
denying liability and asserting affirmative defenses.
In addition, the Company is a party to various legal proceedings as
described in previous filings. During the quarter ended September 30, 1996
there were no material developments in any of such proceedings. Other than the
item described above there were no new reportable legal proceedings. Although
it is impossible to predict the outcome of any outstanding legal proceeding,
the Company believes that all legal proceedings and claims, individually and
in the aggregate, are not likely to have a material effect on its financial
condition or results of operations.
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The information required by Part II, Item 3, of Form 10-Q is
incorporated by reference from Notes 3 and 9 of the Condensed Consolidated
Financial Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources, set
forth herein.
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1* First Amendment, dated as of September 9, 1996, to the Third
Amended and Restated Credit Agreement, dated as of June 3,
1996, by and among Marvel IV Holdings Inc., the financial
institutions and issuing bank named therein, and Citibank,
N.A., as agent.
10.2 Consent, dated as of September 24, 1996 to the (a)
Participation Agreement, dated as of August 30,1994, among
Instituto Bancario San Paolo Di Torino, S.p.A., New York
Limited Branch ("San Paolo"), the financial institutions
party thereto and The Chase Manhattan Bank (formerly named
Chemical Bank), as administrative agent and (b) the Term
Loan and Guarantee Agreement among Panini S. p. A. (formerly
named Marvel Comics Italia S. r. L.), Marvel and San
Paolo. Incorporated by reference to Exhibit 10.1 to the
September 30, 1996 Marvel Quarterly Report on Form 10-Q.
10.3 Employment Agreement dated as of August 13, 1996, between
Marvel and David J. Schreff. Incorporated by
reference to Exhibit 10.2 to the September 30, 1996 Marvel
Quarterly Report on Form 10-Q.
10.4 Amendment dated February 7, 1996, to License Agreement dated
December 22, 1994, between Major League Baseball Players
Association and Fleer Corp. Confidential treatment has been
granted for portions of this document. Incorporated by
reference to Exhibit 10.3 to the September 30, 1996 Marvel
Quarterly Report on Form 10-Q.
10.5 Retail Product License Agreement dated July 21, 1995,
between NBA Properties, Inc. and Marvel.
Confidential treatment has been granted for portions of this
document. Incorporated by reference to Exhibit 10.4 to the
September 30, 1996 Marvel Quarterly Report on Form 10-Q.
10.6 License Agreement dated June 30, 1995, between SkyBox
International Inc. and National Football League Players
Incorporated, as amended June 30, 1995. Confidential
treatment has been granted for portions of this document.
Incorporated by reference to Exhibit 10.5 to the September
30, 1996 Marvel Quarterly Report on Form 10-Q.
<PAGE>
10.7* Employment Agreement dated as of October 21, 1996, between
AGI Management Corp. and Scott M. Sassa.
27* Financial Data Schedule
* filed herein
(b) Reports on Form 8-K
August 14, 1996 (Item 2)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANDREWS GROUP INCORPORATED
(Registrant)
By: /s/ Joseph P. Page
---------------------------
November 14, 1996 Joseph P. Page
Executive Vice President and
Chief Financial Officer
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ANDREWS GROUP INCORPORATED
(Registrant)
By: /s/ Laurence Winoker
-------------------------------
November 14, 1996 Laurence Winoker
Vice President and Controller
(Principal Accounting Officer)
FIRST AMENDMENT
Dated as of September 9, 1996
This FIRST AMENDMENT among Marvel IV Holdings Inc., a
Delaware corporation (the "Borrower"), Mafco Holdings Inc., a Delaware
corporation ("Mafco"), First Gibraltar Holdings Inc., a Delaware corporation
("First Gibraltar"), the lenders party to the Credit Agreement referred to
below (the "Lenders") and Citibank, N.A., as agent (the "Agent") for the
Lenders Parties thereunder.
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders and the Agent have entered into
a Credit Agreement dated as of June 3, 1996 (as heretofore amended, modified or
otherwise supplemented, the "Credit Agreement"; the terms defined therein being
used herein as therein defined unless otherwise defined herein).
(2) FN Holdings intends to acquire (the "Transaction") Cal
Fed Bancorp Inc. ("Cal Fed"), a savings and loan holding company, and its
wholly-owned Subsidiary, California Federal Bank, A Federal Savings Bank
("California Federal"), pursuant to the terms of an Agreement and Plan of
Merger, dated as of July 27, 1996 (the "Merger Agreement"), among FN Holdings,
Cal Fed and California Federal.
(3) In connection with the Transaction, Mafco will have
established two indirect Subsidiaries, (i) First Gibraltar Guarantor Corp., a
Delaware corporation ("FG Guarantor"), which will own directly 100% of the
common stock of First Gibraltar, and (ii) First Nationwide Escrow Corp., a
Delaware corporation ("FN Escrow"), which will issue $575,000,000 of Senior
Subordinated Notes due 2003 (the "New Debt"). First Gibraltar owns directly
100% of the common stock of FN Parent, which owns 100% of the Class A Common
Stock of FN Holdings, which in turn owns 100% of the common stock of the Bank.
(4) To finance the Transaction, (i) FN Escrow will merge with
and into FN Holdings, with FN Holdings being the surviving corporation, as a
result of which FN Holdings will assume the New Debt and acquire the Net Cash
Proceeds from the issuance thereof, and (ii) FN Holdings will issue
$150,000,000 liquidation value of Cumulative Perpetual Preferred Stock (the "FN
Holdings Preferred Stock"). FN Holdings will use the Net Cash Proceeds from the
sale and issuance of the New Debt and the FN Holdings
<PAGE>
2
Preferred Stock to, among other things, pay the purchase price for the
Transaction, and upon consummation of the Transaction, FN Holdings will
contribute the capital stock of Cal Fed to the Bank, Cal Fed will be liquidated
and the Bank will be merged with and into California Federal, with California
Federal being the surviving bank.
(5) First Gibraltar intends to borrow up to $150,000,000
under a new bank credit agreement (the "First Gibraltar Credit Agreement") and
to use the proceeds from such borrowing to make an advance to a newly-formed
special purpose vehicle ("Newco") the common stock of which will be held by
Gerald J. Ford or another non-Affiliate of Mafco. In turn, Newco will use the
proceeds of such advance to purchase the FN Holdings Preferred Stock.
(6) The Borrower has requested that the Lenders agree to
amend the Credit Agreement, the Mafco Guaranty and the First Gibraltar Loan
Agreement to permit the Transaction and the other transactions related thereto.
(7) The Lenders are, on the terms and conditions stated
below, willing to grant the request of the Borrower, and the Borrower, Mafco,
First Gibraltar and the Lenders have agreed to amend the Credit Agreement, the
Mafco Guaranty and the First Gibraltar Loan Agreement as hereinafter set forth.
SECTION 1. Amendments to Credit Agreement. The Credit
Agreement is, effective as of the date on which all of the conditions precedent
set forth in Section 4 hereof have been satisfied or waived, hereby amended as
follows:
(a) Section 1.01 is amended by adding the following definitions in
the correct alphabetical order:
"'California Federal' means California Federal Bank, A
Federal Savings Bank."
"'First Amendment' means the First Amendment dated as of
September 9, 1996 to this Agreement among the Borrower, Mafco,
First Gibraltar, the Agent and the Required Lenders."
"'First Gibraltar Credit Agreement' means the $150,000,000
Credit Agreement to be entered into by First Gibraltar, FG
Guarantor, the banks and other financial institutions party
thereto, NationsBank, N.A., as administrative agent,
NationsBanc Capital Markets, Inc., as syndication agent and
Citibank,
<PAGE>
3
as documentation agent, as the same may be amended,
modified or otherwise supplemented from time to time."
"'FG Guarantor' means First Gibraltar Guarantor
Corp., a Delaware corporation."
"'FN Escrow' means First Nationwide Escrow Corp., a
Delaware corporation."
"'FN Holdings Preferred Stock' means the $150,000,000
liquidation value of Cumulative Perpetual Preferred Stock
to be issued by FN Holdings and any shares of Cumulative
Perpetual Preferred Stock to be issued in lieu of cash
dividends payable on the FN Holdings Preferred Stock."
"'Newco' means the special purpose vehicle the common
stock of which will be held by Gerald J. Ford or another
non-Affiliate of Mafco and which will be organized under
the laws of the State of Delaware solely to purchase the
FN Holdings Preferred Stock."
"'Newco Loan' mean the loan by First Gibraltar to
Newco in an aggregate principal amount not to exceed
$150,000,000 for the sole purpose of purchasing the FN
Holdings Preferred Stock."
"'Second New FN Holdings Debt' means the Senior
Subordinated Notes due 2003 issued by FN Escrow in an
aggregate principal amount equal to $575,000,000, which will
be assumed by FN Holdings upon the merger of FN Escrow with
and into FN Holdings."
"'Second New FN Holdings Debt Document' means the
Indenture to be entered into by FN Escrow and The Bank of New
York, as trustee, in connection with the Second New FN
Holdings Debt and any other agreement or instrument which
governs the terms of the Second New FN Holdings Debt."
(b) The definition of "Bank" in Section 1.01 is amended by
adding at the end thereof the words "and any successor thereto,
including the surviving bank of the merger of the Bank with and into
California Federal."
<PAGE>
4
(c) The definition of "FN Documents" in Section 1.01 is
amended by adding immediately after the words "the FN Holdings New
Debt Document" the words ", the Second New FN Holdings Debt Document."
(d) Section 2.05(b)(ii)(A) is amended by adding at the end
thereof the phrase "(other than the FN Holdings Preferred Stock and
other than the preferred stock to be issued by FN Holdings in exchange
for the preferred stock of FN Escrow upon consummation of the merger
of FN Escrow with and into FN Holdings which preferred stock will be
redeemed in full concurrently with or immediately after the
consummation of such merger)."
(e) Section 2.05(ii)(B) is amended by adding at the end
thereof just before the close parenthetical the phrase "and other than
a dividend by First Gibraltar of the capital stock of Unified Mortgage
Corporation."
(f) Section 2.05(b)(ii)(D) is amended by adding at the end
thereof the phrase "(other than the Second New FN Holdings Debt and
other than the Debt to be issued by Mafco pursuant to clauses (E) and
(F) of Section 8(i)(i) of the Mafco Guaranty)."
(g) Section 6.01(l) is amended by (i) deleting the word "or"
immediately preceding the words "Section 3.01 hereof" and replacing
such word with "," and (ii) adding immediately after the words
"Section 3.01 hereof" the words "or the First Amendment."
(h) Section 6.01(n) is amended by adding immediately after
the words "the FN Holdings New Debt Document" the words ", the Second
New FN Holdings Debt Document, the FN Holdings Preferred Stock."
SECTION 2. Amendment to the Mafco Guaranty. The Mafco
Guaranty is, effective as of the date on which all of the conditions precedent
set forth in Section 4 hereof have been satisfied or waived, hereby amended as
follows:
(a) Section 6(b) is amended by adding to the end of the
second sentence thereof the phrase "and those permitted to be
created pursuant to Section 8(a)(vii) and (viii)."
(b) Section 6(d) is amended by adding immediately before
the semicolon preceding the proviso in the first sentence the
phrase "and except for the
<PAGE>
5
authorizations, approvals, actions, notices and filings
required in connection with the Transaction (as defined in the
First Amendment) or the merger of FN Escrow with and into FN
Holdings."
(c) Section 6(q) is amended by adding to the end thereof
the phrase "other than in connection with any Debt permitted to
be incurred pursuant to Section 8(i)."
(d) Section 8(a) is amended by (i) deleting the word "and"
immediately preceding clause (vi) thereof and (ii) adding at
the end thereof the following:
"; (vii) Liens on the rights of First Gibraltar
under the Newco Loan and all related loan
documentation and all payments thereunder, and on a
cash collateral account, in each case as required to
be pledged by First Gibraltar pursuant to the terms
of the First Gibraltar Credit Agreement; and (viii)
a Lien on the rights of the Guarantor under the FN
Tax Agreement and payments thereunder required to be
pledged by the Guarantor pursuant to the terms of
the First Gibraltar Credit Agreement, provided that
such Lien shall be subordinate to the Lien created
by the Mafco Security Agreement in favor of the
Agent and the Lender Parties."
(e) Section 8(c) is amended by adding at the end thereof
the following:
", except that FN Escrow may merge with and into
FN Holdings."
(f) Section 8(f)(ii) is hereby amended in its entirety to
read as follows:
"(ii) Permit any Designated Relevant Party to make
or hold any Investment in any Person other than (s)
Investments in Cash Equivalents, (t) Investments by
First Gibraltar in Borrower Parent pursuant to the
terms of the First Gibraltar Loan Agreement and the
First Gibraltar Certificate of Incorporation, (u)
the Investments set forth on Schedule VI hereto, (v)
Investments by FN Holdings and FN Parent in Borrower
Parent so long as such Investments comply with the
provisions of Section 7(n), (w) the Investment by
First Gibraltar in Newco consisting of the Newco
Loan in an aggregate principal amount not to exceed
$150,000,000, provided that such Investment is
evidenced by a promissory note and that Newco is a
bankruptcy remote corporation on terms satisfactory
to the Agent, (x) Investments by FN
<PAGE>
6
Holdings, prior to the date on which the Transaction
(as defined in the First Amendment) is consummated,
in liquid investments permitted by the First
Gibraltar Credit Agreement in an aggregate principal
amount not to exceed the net proceeds of the
issuance of the FN Holdings Preferred Stock plus
earnings thereon, (y) Investments by FN Holdings in
Cal Fed Bancorp Inc. and a new wholly-owned
subsidiary created solely to consummate the
Transaction (as defined in the First Amendment) and
(z) the Investment by FN Holdings in Mafco
consisting of an advance in an aggregate principal
amount not to exceed $20,000,000, provided that such
advance is evidenced by a promissory note and such
advance is subordinated to all Obligations of the
Guarantor under the Loan Documents and has terms and
conditions substantially similar to those set forth
on Exhibit F hereto."
(g) Section 8(g) is amended by adding to the end thereof
the phrase "and (iii) as contemplated by the First Amendment."
(h) Section 8(i) is hereby amended by (i) replacing clause
(i) therein in its entirety with the following:
"(i) in the case of the Guarantor, (A) loans
pursuant to the terms of the Related Documents, (B)
Debt under this Guaranty, (C) the Debt set forth on
Schedule V hereto, (D) Debt under the guaranty of
all loans made by FN Holdings to Borrower Parent,
provided that such guaranty shall be subordinated to
Debt under this Guaranty on terms and conditions
substantially identical to the terms and conditions
set forth on Exhibit A hereto subject to the
provisions set forth under the heading "Ranking" on
Exhibit B hereto, (E) Debt owing to FN Holdings in
an aggregate principal amount not to exceed
$20,000,000, provided that such Debt is evidenced by
a promissory note and such Debt is subordinated to
all Obligations of the Guarantor under the Loan
Documents and has terms and conditions substantially
similar to those set forth on Exhibit F hereto, and
(F) Debt owing to the underwriters of the Second New
FN Holdings Debt in an aggregate principal amount
not to exceed the amount of the underwriting
discounts and fees payable in connection with the
issuance of the Second New FN Holdings Debt,
provided that such Debt is evidenced by a promissory
note and has terms and
<PAGE>
7
conditions substantially similar to those set forth
on Exhibit G hereto,"
(ii) deleting the word "and" immediately preceding clause (vi) thereof
and replacing such word with "," and (iii) adding at the end thereof
the following:
", (vii) in the case of FN Holdings, the assumption
of the Second New FN Holdings Debt, upon the
consummation of the merger of FN Escrow with and
into FN Holdings, pursuant to the terms of the
Second New FN Holdings Debt Document and any Debt
issued or assumed by FN Holdings in exchange for the
Second New FN Holdings Debt, provided that the terms
of the Second New FN Holdings Debt Document shall be
in substantially the form of Exhibit C hereto, and
(viii) in the case of First Gibraltar, the
incurrence of Debt under the First Gibraltar Credit
Agreement in an aggregate principal amount not to
exceed $150,000,000, provided that (A) the terms of
the First Gibraltar Credit Agreement shall be
substantially similar to those set forth on Exhibit
D hereto, (B) the Lenders shall have received a
certified copy of an amendment to the Voting Trust
Agreement among Trans Network Insurance Services
Inc., FG Guarantor, First Gibraltar, the Agent and
the voting trustee thereunder to document the
transfer of the ownership of common stock of First
Gibraltar from Trans Network Insurance Services Inc.
to FG Guarantor and (C) the Lenders shall have
received a certified copy of a voting trust
agreement duly executed by FG Guarantor, Trans
Network Insurance Services Inc., the Agent and a
voting trustee, in substantially the form of the
Voting Trust Agreement referred to in clause (B)
above."
(i) Section 8 (j) is hereby amended by adding at the end
thereof the phrase ", except that the First Gibraltar Charter
Document and the certificate of incorporation of FN Holdings
may be amended for the purposes described in Exhibit E hereto
in such form as shall be approved by the Administrative Agent."
(j) Section 8(k) is hereby amended by (i) adding to the
end of clause (i) thereof the phrase "or any other Debt
permitted pursuant to the terms of Section 8(i)", (ii) deleting
the word "and" immediately preceding clause (ii) thereof and
replacing such word with "," and (iii) adding at the end
thereof the following: ", (iii) to amend, modify or change any
term or condition of the First Gibraltar Credit Agreement
(other than the definition of "Excess Cash Flow" contained
therein and any provisions
<PAGE>
8
relating to the prepayment of the Debt outstanding under the First
Gibraltar Credit Agreement from "Excess Cash Flow" (as defined
therein)) and (iv) to make voluntary prepayments of amounts
outstanding under the First Gibraltar Credit Agreement from funds in
any amount which, if such funds had been deposited in the Borrower
Collateral Account, would have been available for release to the
Borrower pursuant to the terms of Section 7 of the Borrower Security
Agreement."
(k) Section 8(m) is hereby amended in its entirety to read
as follows:
"(m) Negative Pledge. Enter into or suffer
to exist, or permit any other Relevant Party to
enter into or suffer to exist, any agreement
prohibiting or conditioning the creation or
assumption of any Lien upon any of its property or
assets other than (i) in favor of the Agent and the
Lender Parties, (ii) any prohibition or condition
existing on the date hereof or (iii) any prohibition
or condition contained in the Second New FN Holdings
Debt Document or the First Gibraltar Credit
Agreement."
(l) Section 8(q) is hereby amended by adding at the end
thereof the following:
"or (z) in the case of the Designated Relevant
Parties, consensual encumbrances or restrictions
that are contained in the First Gibraltar Credit
Agreement, the Second New FN Holdings Debt Document
or the FN Holdings Preferred Stock."
(m) Exhibit C is added thereto to read as set forth in
Annex A hereto.
(n) Exhibit D is added thereto to read as set forth in
Annex B hereto.
(o) Exhibit E is added thereto to read as set forth in
Annex C hereto.
(p) Exhibit F is added thereto to read as set forth in
Annex D hereto.
(q) Exhibit G is added thereto to read as set forth in
Annex E hereto.
SECTION 3. Amendment to the First Gibraltar Loan Agreement. Section 1 of
the First Gibraltar Loan Agreement is, effective as of the date on which all
of the conditions precedent set forth in Section 4 hereof have been satisfied
or waived, amended by
<PAGE>
9
(i) adding immediately after the words "from FN Parent" in the first sentence
thereof, the words "which are not applied to any payment in respect of the Debt
outstanding under the First Gibraltar Credit Agreement" and (ii) adding at the
end of the first sentence thereof the words "and which are not applied to any
payment in respect of the Debt outstanding under the First Gibraltar Credit
Agreement."
SECTION 4. Conditions of Effectiveness. This First Amendment shall become
effective on the first date (the "First Amendment Effective Date") upon which
the Agent shall have received evidence satisfactory to it that the following
conditions precedent have been satisfied:
(a) The Borrower shall have paid all accrued expenses of the
Agent (including the reasonable fees and expenses of counsel to the
Agent).
(b) The Merger Agreement shall be in full force and effect,
without any waiver or amendment to which the Agent or the Required
Lenders shall have objected within a reasonable period after being
notified of such waiver or amendment.
(c) FN Escrow shall have issued the New Debt.
(d) The Agent shall have received on or before the First
Amendment Effective Date the following, each dated on or before the
First Amendment Effective Date, in form and substance satisfactory to
the Agent (unless otherwise specified) and in sufficient copies for
each Lender:
(i) counterparts to this First Amendment duly executed by
the Borrower, Mafco, First Gibraltar, the Required Lenders and
the Agent;
(ii) counterparts to the Consent attached hereto duly
executed by each Loan Party other than the Borrower, Mafco and
First Gibraltar;
(iii) a certificate signed by a duly authorized officer of
Mafco stating that:
(A) After giving effect to this First
Amendment, the representations and warranties
contained in each of the Loan Documents are correct
on and as of the First Amendment Effective
<PAGE>
10
Date, except to the extent such representations and
warranties specifically relate to an earlier date;
and
(B) After giving effect to this First
Amendment, no event has occurred and is continuing
which constitutes an Event of Default or would
constitute an Event of Default but for the
requirement that notice be given or time elapse or
both.
SECTION 5. Reference to and Effect on the Loan Documents. (a) Upon the
effectiveness of Sections 1, 2 and 3 hereof: (i) each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof" or words of like import
referring to the Credit Agreement, and each reference in the other Loan
Documents to "the Credit Agreement", "thereunder", "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Credit Agreement as amended hereby; (ii) each reference in the Mafco Guaranty
to "this Agreement", "hereunder", "hereof" or words of like import referring
to the Mafco Guaranty, and each reference in the other Loan Documents to "the
Mafco Guaranty", "thereunder", "thereof" or words of like import referring to
the Mafco Guaranty, shall mean and be a reference to the Mafco Guaranty as
amended hereby; and (iii) each reference in the First Gibraltar Loan Agreement
to "this Agreement", "hereunder", "hereof" or words of like import referring
to the First Gibraltar Loan Agreement and each reference in the other Loan
Documents to "the First Gibraltar Loan Agreement", "thereunder", "thereof" or
words of like import referring to the First Gibraltar Loan Agreement, shall
mean and be a reference to the First Gibraltar Loan Agreement as amended
hereby.
(b) Except as specifically amended above, the Credit Agreement and the
Notes, and all other Loan Documents, are and shall continue to be in full
force and effect and are hereby in all respects ratified and confirmed.
(c) The execution, delivery and effectiveness of this First Amendment
shall not, except as expressly provided herein, operate as a waiver of any
right, power or remedy of any Lender Party or the Agent under any of the Loan
Documents, nor constitute a waiver of any provision of any of the Loan
Documents.
SECTION 6. Costs, Expenses and Taxes. The Borrower agrees to pay on
demand all costs and expenses of the Agent in connection with the preparation,
execution, delivery, administration, modification and amendment of this First
Amendment and the other instruments and documents to be delivered hereunder,
including, without limitation, the reasonable fees and out-of-pocket expenses
of counsel for the Agent with respect thereto and
<PAGE>
11
with respect to advising the Agent as to its rights and responsibilities
hereunder and thereunder. The Borrower further agrees to pay on demand all
costs and expenses, if any (including, without limitation, reasonable counsel
fees and expenses), in connection with the enforcement (whether through
negotiations, legal proceedings or otherwise) of this First Amendment and the
other instruments and documents to be delivered hereunder, including, without
limitation, reasonable counsel fees and expenses in connection with the
enforcement of rights under this Section 6. In addition, the Borrower shall pay
any and all stamp and other taxes payable or determined to be payable in
connection with the execution and delivery of this First Amendment and the
other instruments and documents to be delivered hereunder, and agrees to save
the Agent and each Lender Party harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission
to pay such taxes.
SECTION 7. Execution in Counterparts. This First Amendment may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same agreement.
SECTION 8. Governing Law. This First Amendment shall be governed by, and
construed in accordance with, the laws of the State of New York.
<PAGE>
12
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be executed by their respective officers thereunto duly authorized, as of
the date first above written.
MARVEL IV HOLDINGS INC.
By /s/ Glenn Dickes
----------------------------
Name:
Title:
MAFCO HOLDINGS INC.
By /s/ Glenn Dickes
---------------------------
Name:
Title:
FIRST GIBRALTAR HOLDINGS INC.
By /s/ Glenn Dickes
---------------------------
Name:
Title:
CITIBANK, N.A., as Agent
By
--------------------------
Name:
Title:
<PAGE>
12
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment
to be executed by their respective officers thereunto duly authorized, as of
the date first above written.
MARVEL IV HOLDINGS INC.
By
----------------------------
Name:
Title:
MAFCO HOLDINGS INC.
By
---------------------------
Name:
Title:
FIRST GIBRALTAR HOLDINGS INC.
By
---------------------------
Name:
Title:
CITIBANK, N.A., as Agent
By /s/ James Buchanan
--------------------------
Name: James Buchanan
Title: Attorney-in-Fact
<PAGE>
13
Lenders
BANK OF AMERICA ILLINOIS
By /s/ Phillip F. Van Winkle
---------------------------
Name: Phillip F. Van Winkle
Title: Vice President
THE BANK OF NEW YORK
By
--------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
N.A.
By
--------------------------
Name:
Title:
CITIBANK, N.A.
By
--------------------------
Name:
Title:
<PAGE>
13
Lenders
BANK OF AMERICA ILLINOIS
By
---------------------------
Name:
Title:
THE BANK OF NEW YORK
By /s/ Edward F. Ryan, Jr.
--------------------------
Name: Edward F. Ryan, Jr.
Title: Senior Vice President
THE CHASE MANHATTAN BANK,
N.A.
By
--------------------------
Name:
Title:
CITIBANK, N.A.
By
--------------------------
Name:
Title:
<PAGE>
13
Lenders
BANK OF AMERICA ILLINOIS
By
---------------------------
Name:
Title:
THE BANK OF NEW YORK
By
--------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
N.A.
By /s/ Bruce S. Borden
--------------------------
Name: Bruce S. Borden
Title: Vice President
CITIBANK, N.A.
By
--------------------------
Name:
Title:
<PAGE>
13
Lenders
BANK OF AMERICA ILLINOIS
By
---------------------------
Name:
Title:
THE BANK OF NEW YORK
By
--------------------------
Name:
Title:
THE CHASE MANHATTAN BANK,
N.A.
By
--------------------------
Name:
Title:
CITIBANK, N.A.
By /s/ James Buchanan
--------------------------
Name: James Buchanan
Title: Attorney-in-Fact
<PAGE>
14
CREDIT SUISSE
By /s/ Glodowski
--------------------------
Name: Glodowski
Title: MSM
By /s/ Andy Tchopp
--------------------------
Name: Andy Tchopp
Title: Associate
THE FIRST NATIONAL BANK OF
BOSTON
By
--------------------------
Name:
Title:
THE FUJI BANK, LIMITED
By
--------------------------
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By
--------------------------
Name:
Title:
<PAGE>
14
CREDIT SUISSE
By
--------------------------
Name:
Title:
By
--------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF
BOSTON
By /s/ Richard D. Hill, Jr.
--------------------------
Name: Richard D. Hill, Jr.
Title: Director
THE FUJI BANK, LIMITED
By
--------------------------
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By
--------------------------
Name:
Title:
<PAGE>
14
CREDIT SUISSE
By
--------------------------
Name:
Title:
By
--------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF
BOSTON
By
--------------------------
Name:
Title:
THE FUJI BANK, LIMITED
By /s/ Teiji Teramoto
--------------------------
Name: Teiji Teramoto
Title: Vice President & Manager
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By
--------------------------
Name:
Title:
<PAGE>
14
CREDIT SUISSE
By
--------------------------
Name:
Title:
By
--------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF
BOSTON
By
--------------------------
Name:
Title:
THE FUJI BANK, LIMITED
By
--------------------------
Name:
Title:
VAN KAMPEN AMERICAN CAPITAL
PRIME RATE INCOME TRUST
By /s/ Jeffrey W. Maillet
--------------------------
Name: Jeffrey W. Maillet
Title: Sr. Vice Pres.-
Portfolio Mgr.
<PAGE>
15
INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL
CORPORATION
By /s/ Kunduck Moon
-------------------------
Name: Kunduck Moon
Title: Managing Director
PILGRIM PRIME RATE TRUST
By
-------------------------
Name:
Title:
<PAGE>
15
INTERNATIONALE NEDERLANDEN
(U.S.) CAPITAL
CORPORATION
By
-------------------------
Name:
Title:
PILGRIM PRIME RATE TRUST
By /s/ Michael J. Bacevich
-------------------------
Name: Michael J. Bacevich
Title: Vice President
<PAGE>
CONSENT
Reference is made to (a) the Credit Agreement dated as of
June 3, 1996 (the "Credit Agreement"; the terms defined therein being used
herein as therein defined unless otherwise defined herein) among Marvel IV
Holdings Inc., a Delaware corporation (the "Borrower"), the lenders parties to
the Credit Agreement (the "Lenders"), and Citibank, N.A., as agent (the
"Agent") for the Lenders, and (b) the First Amendment dated as of September 9,
1996 (the "First Amendment") among the Borrower, Mafco Holdings Inc., a
Delaware corporation ("Mafco"), First Gibraltar Holdings Inc., a Delaware
corporation ("First Gibraltar"), the Lenders and the Agent.
Each of the undersigned, as a Loan Party under the Credit
Agreement, hereby consents to the First Amendment and hereby confirms and
agrees that (i) each Collateral Document to which such Loan Party is a party
and the Collateral described in each such Collateral Document does, and shall
continue to, secure the payment of all of the Secured Obligations and
Guaranteed Obligations, as the case may be, described in such Collateral
Document and (ii) each Loan Document to which such Loan Party is a party is,
and shall continue to be, in full force and effect and is hereby ratified and
confirmed in all respects except that, on and after the effective date of the
First Amendment, (A) each reference in the Credit Agreement to "this
Agreement", "hereunder", "hereof" or words of like import referring to the
Credit Agreement, and each reference in the other Loan Documents to "the Credit
Agreement", "thereunder", "thereof" or words of like import referring to the
Credit Agreement, shall mean and be a reference to the Credit Agreement as
amended thereby, (B) each reference in the Mafco Guaranty to "this Agreement",
"hereunder", "hereof" or words of like import referring to the Mafco Guaranty,
and each reference in the other Loan Documents to "the Mafco Guaranty",
"thereunder", "thereof" or words of like import referring to the Mafco
Guaranty, shall mean and be a reference to the Mafco Guaranty as amended
thereby, and (C) each reference in the First Gibraltar Loan Agreement to "this
Agreement", "hereunder", "hereof" or words of like import referring to the
First Gibraltar Loan Agreement, and each reference in the other Loan Documents
to "the First Gibraltar Loan Agreement", "thereunder", "thereof" or words of
like import referring to the First Gibraltar Loan Agreement, shall mean and be
a reference to the First Gibraltar Loan Agreement as amended thereby.
<PAGE>
2
This Consent may be executed in any number of counterparts
and by different parties hereto in separate counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which taken
together shall constitute but one and the same consent.
ANDREWS GROUP INCORPORATED
CONSOLIDATED CIGAR II
HOLDINGS INC.
COLEMAN (PARENT) HOLDINGS INC.
FLAVORS (PARENT) HOLDINGS INC.
FOUR STAR HOLDINGS
CORP.
MACANDREWS & FORBES
HOLDINGS INC.
MAFCO CONSOLIDATED
HOLDINGS INC.
MARVEL V HOLDINGS INC.
NEW COLEMAN HOLDINGS, INC.
NWCG (PARENT) HOLDINGS
CORPORATION
By /s/ Glenn Dickes
---------------------------
Glenn P. Dickes
An authorized signatory for each
of the above-named corporations
ANNEX B
ANNEX I
FIRST GIBRALTAR HOLDINGS INC.
Summary of Terms and Conditions
-------------------------------
[CAPITALIZED TERMS NOT OTHERWISE DEFINED
HEREIN HAVE THE MEANINGS SET FORTH IN THE
LETTER TO WHICH THIS ANNEX IS ATTACHED]
BORROWER: First Gibraltar Holdings Inc., a Delaware
- -------- corporation.
GUARANTORS: A newly formed bankruptcy remote corporation
- ---------- ("Parent Guarantor") which will be a direct
wholly-owned subsidiary of Trans Network Insurance
Services Inc. (formerly known as "First Gibraltar
(Parent) Holdings Inc."). The Borrower will be a
direct wholly-owned subsidiary of the Parent
Guarantor.
A newly formed bankruptcy remote corporation
("Newco") the common stock of which will be held by
Gerald J. Ford or another non-affiliate of Mafco
Holdings Inc.
LENDERS: NationsBank, N.A. ("NationsBank"), Citibank, N.A.
- ------- "Citibank") and a syndicate of financial
institutions acceptable to them.
ADMINISTRATIVE AGENT: NationsBank.
- --------------------
SYNDICATION AGENT: NationsBanc Capital Markets, Inc.
- -----------------
DOCUMENTATION AGENT: Citibank.
- -------------------
SENIOR FACILITY: $150,000,000 Term Loan.
- ---------------
PURPOSE: To finance the following transaction (the
- ------- "Transaction"): the loan (the "Newco Loan") by the
Borrower to Newco in an aggregate principal amount
not to exceed $150,000,000, the purchase by Newco,
with the proceeds of the Newco Loan, of
$150,000,000 in newly issued perpetual preferred
stock (the "Preferred Stock")
<PAGE>
2
from First Nationwide Holdings Inc. ("FN Holdings")
in order to provide, together with the net proceeds
of $525,000,000 principal amount of new senior
subordinated notes to be issued or assumed by FN
Holdings (the "New Notes"), the financing for the
acquisition (the "Acquisition") of California
Federal Bank, F.S.B. ("CalFed") by FN Holdings'
wholly-owned subsidiary, First Nationwide Bank,
F.S.B. (the "Bank").
AVAILABILITY: In one drawing concurrently with the purchase by
- ------------ Newco of the Preferred Stock.
CLOSING DATE: On or before September 27, 1996.
- ------------
AMORTIZATION: Amortization quarterly commencing either on March
- ------------ 31, 1997 or, if the Transaction shall be consummated
after December 31, 1996, on June 30, 1997, with
reductions of $50,000,000 each calendar year. Final
maturity on December 31, 1999; provided, however,
that the entire Facility will be due and payable on
June 30, 1997 if the Acquisition has not been
consummated by such date.
OPTIONAL PREPAYMENT: The Borrower may, upon at least one
- -------- business days' notice, in the case of Alternate Base
Rate Advances and three business days' notice, in
the case of Eurodollar Rate Advances, prepay, in
full or in part, the Facility without penalty;
provided, however, that each partial prepayment
shall be in an amount of $5,000,000 or an integral
multiple of $1,000,000 in excess thereof.
MANDATORY PREPAYMENT: Prepayment (to be applied pro rata to each remaining
- -------------------- installment) required in amounts equal to:
1. All net cash proceeds from the sale
of assets or the issuance of
additional debt or equity permitted
under the loan documentation by the
Parent Guarantor, the Borrower, FN
Holdings or First Nationwide
(Parent) Holdings Inc.("FN Parent").
2. All gains (net of taxes) received
by the Bank from the sale of its
Florida deposits and the sale of
other material deposits.
<PAGE>
3
3. All presently dividendable net cash
proceeds from the issuance of
additional equity (including any
net cash proceeds received from
"REIT Preferred") by the Bank.
4. All proceeds of redemptions of, and
dividends and other distributions
paid on or in respect of, the
Preferred Stock, in each case
except to the extent the same are
applied to scheduled payments of
principal of or interest on the
Facility or are used to effect the
prepayments referred to in items
1-3 above.
5. 50% of "Excess Cash Flow" until
such time as gains (net of taxes)
of not less than $50,000,000 are
received from the sale by the Bank
of its Florida deposits (such time
being referred to herein as the
"Florida Deposits Event") or at
any time during which the actual
Tier I Capital Amount is less than
the Minimum Tier I Capital Amount
(defined as the Tier I Capital
Amount on the date of the closing
of the Acquisition less
$100,000,000) (a "Tier I Capital
Event"). "Excess Cash Flow" means
all dividends and other
distributions, loans and other
advances and any other amounts
received by FN Holdings (including
any amounts received in respect of
the Bank Tax Sharing Agreement (as
defined below) net of any amounts
required to be paid by FN Holdings
in respect of the Bank Tax Sharing
Agreement) during any relevant
period, less (without duplication)
amounts applied to the following
during such period:
(i) interest obligations under
the FN Holdings and FN
Parent indebtedness
(including the New Notes),
(ii) reasonable and customary
fees and expenses relating
to the issuance of the New
Notes and the Preferred
Stock,
(iii) the dividend obligation in
respect of Gerald J.
Ford's FN Holdings Class B
Common Stock,
(iv) redemptions of and divi-
dends and other distribu-
tions paid on the Pre-
ferred Stock and, to the
extent otherwise includ-
able in this definition,
any dividend
<PAGE>
4
or other distribution
received by FN Holdings
that is covered under any
of items 1-4 above, and
(v) $5,200,000 per annum
(representing corporate
overhead of FN Holdings).
All Excess Cash Flow that is not
required to be applied to a
prepayment of the Senior Facility
shall be deposited in the
Collateral Account (see "Collateral
Account" below).
INTEREST: Payable at the Applicable Margin above the
- -------- Administrative Agent's Alternate Base Rate
(360 day basis) or, at the Borrower's
option, the Administrative Agent's
Eurodollar Rate (adjusted for reserves).
The "Applicable Margin" means 2-1/2% per
annum for Alternate Base Rate borrowings
and 4-1/2% per annum for Eurodollar Rate
borrowings.
During the continuance of any default under
the loan documentation, the Applicable
Margin shall increase by 2% per annum.
SECURITY: 1. Pledge by the Borrower of all of its
- -------- rights under the Newco Loan and
the related loan documentation and
all payments thereunder.
2. Amounts in the Collateral Account.
3. Pledge by Newco of the Preferred
Stock, together with all dividends,
distributions and other proceeds in
respect of the Preferred Stock.
4. Assignment by Mafco of amounts
payable under its tax sharing
agreement (the "Bank Tax Sharing
Agreement") with FN Holdings and the
Bank. Such assignment and the
security interest created thereby
will be subordinate to the assignment
and security interest currently in
effect (the "Existing Assignment").
<PAGE>
5
COLLATERAL ACCOUNT: Other amounts received by the Borrower (and, subject
- ------------------- to the Existing Assignment, all amounts received
by Mafco under the Bank Tax Sharing Agreement) and
not required (or elected by the Borrower) to be
applied to the immediate prepayment of the Facility
shall be deposited in a cash collateral account
maintained by the Borrower but under sole dominion
and control of the Administrative Agent (the
"Collateral Account"). In order for amounts to be
released from the Collateral Account, the Borrower
will be required to have delivered a "Look-Forward
Certificate" to the Lenders stating that on a pro
forma basis, as demonstrated by the most recent
annual business plan which continues to represent a
reasonable business plan in all material respects,
after the release of the requested amount there
will be sufficient cash distributions received by
the Borrower to meet all interest and principal
payments scheduled under the Facility.
RESTRICTED PAYMENT
- ------------------
EXCLUSION: So long as no default exists or would result under
- --------- the Facility, (i) the Borrower will be permitted to
make restricted payments in an aggregate amount
equal to 50% of Excess Cash Flow at any time prior
to the occurrence of the Florida Deposits Event,
and (ii) from and after the occurrence of the
Florida Deposits Event, the Borrower will be
permitted to make restricted payments in an
aggregate amount equal to 100% of Excess Cash Flow;
provided, however, that if a Tier I Capital Event
occurs at any time after the occurrence of the
Florida Deposits Event, then during such time as a
Tier I Capital Event has occurred and is
continuing, the Borrower will be permitted to make
restricted payments in an aggregate amount equal to
50% of Excess Cash Flow and from and after such
time as a Tier I Capital Event is no longer
continuing, the Borrower will be permitted to make
restricted payments in an aggregate amount equal to
100% of Excess Cash Flow.
CONDITIONS PRECEDENT
- --------------------
TO FUNDING: The funding of the Facility will be subject to the
- ----------- satisfaction of the conditions deemed appropriate
by the Administrative Agent, the Documentation
Agent and the Lenders for leveraged financings
generally and for this transaction in particular,
including but not limited to the following:
<PAGE>
6
(a) The Lenders shall be satisfied with
the final terms and conditions of
the Transaction, including, without
limitation, all legal and tax
aspects thereof; and all
documentation relating to the
Transaction (including the Preferred
Stock (with the terms and provisions
outlined in Exhibit A hereto,
provided that such terms and
provisions may be amended for
regulatory or accounting reasons
with the consent of the
Administrative Agent and the
Documentation Agent), the Newco Loan
(and all related loan documentation)
and the New Notes) shall be in form
and substance satisfactory to the
Lenders. (i) All material financing
portions of the Transaction shall
occur concurrently with the funding
of the Facility and (ii) the Lenders
shall be satisfied with the
arrangements with respect to the
completion of the other parts of the
Transaction and the arrangements for
repayment of the Facility if the
Acquisition is not completed by June
30, 1997.
(b) All documentation relating to the
Facility, including a credit
agreement incorporating substantially
the terms and conditions outlined
herein, shall be in form and
substance satisfactory to the
Lenders.
(c) The Lenders shall be satisfied with
the corporate and legal structure
and capitalization of the Parent
Guarantor, the Borrower and Newco,
including, without limitation, the
charter and bylaws of the Parent
Guarantor, the Borrower and Newco
and each agreement or instrument
relating thereto. The Parent
Guarantor, the Borrower and Newco
will be "bankruptcy remote"
corporations, and the Borrower's
existing charter will be amended in
order to permit the transactions
contemplated hereby. The Lenders
shall have reviewed, and shall be
satisfied with, the terms of all of
the existing debt instruments of FN
Holdings and FN Parent.
(d) The Administrative Agent, on behalf
of the Lenders, shall have a valid
and perfected first priority lien and
security interest in all of the
collateral referred to above under
"Security" and shall have received
executed undated stock powers and an
irrevocable power of attorney with
respect to the Preferred Stock.
<PAGE>
7
(e) FN Holdings, Newco and the
Administrative Agent shall have
entered into a Registration Rights
Agreement relating to the Preferred
Stock (which shall be assignable to
subsequent transferees of the
Preferred Stock and shall permit a
transferee of the Preferred Stock to
elect an "Exxon Capital" exchange
offer), in form and substance
satisfactory to the Lenders.
(f) The Credit Agreement dated as of June
3, 1996 with Marvel IV Holdings Inc.,
Citibank, as Agent and the lenders
named therein and all related loan
documentation shall have been amended
to permit the Facility, the
Transaction and the other
transactions contemplated thereby
and, the Lenders shall be satisfied
with all of the terms and conditions
thereof.
(g) There shall have occurred no material
adverse change in the business,
condition (financial or otherwise),
operations, performance, properties
or prospects of CalFed, the Parent
Guarantor, the Borrower or any of
the Borrower's subsidiaries, and all
information provided by or on behalf
of the Borrower to the Lenders prior
to their commitment (the
"Pre-Commitment Information") shall
be true and correct in all material
aspects.
(h) There shall exist no action, suit,
investigation, litigation or
proceeding pending or threatened in
any court or before any arbitrator
or governmental instrumentality that
(i) would be reasonably likely to
have a material adverse effect on
the business, condition (financial
or otherwise), operations,
performance, properties or prospects
of CalFed, the Parent Guarantor, the
Borrower or any of the Borrower's
subsidiaries or (ii) purports to
affect the Transaction or the
Facility (collectively, a "Material
Adverse Effect").
(i) All governmental and third party
consents and approvals necessary in
connection with the Transaction and
the Facility shall have been
obtained (without the imposition of
any conditions that are not
acceptable to the Lenders) and shall
remain in effect; all applicable
waiting periods shall have expired
without any action being taken by
any competent authority; and no law
or regulation shall be applicable in
the judgment of the Lenders that
restrains, prevents or imposes
<PAGE>
8
materially adverse conditions upon
the Transaction or the Facility.
(j) The Lenders shall have received (i)
satisfactory opinions of counsel to
the Borrower and of counsel to the
Administrative Agent and
Documentation Agent as to the
transactions contemplated hereby
(including, without limitation, the
tax aspects thereof and compliance
with all applicable securities laws)
and (ii) such corporate resolutions,
certificates and other documents as
the Lenders shall reasonably request.
(k) There shall exist no default under
any of the loan documentation, and
the representations and warranties of
the Parent Guarantor and the Borrower
therein shall be true and correct
immediately prior to, and after
giving effect to, funding of the
Facility.
REPRESENTATIONS AND
- -------------------
WARRANTIES: Usual and customary for transactions of this type.
- ----------
COVENANTS: Usual and customary for transactions of this type,
- --------- to include without limitation the following:
1. In the case of the Parent Guarantor
and the Borrower, covenants
appropriate for single-purpose
"bankruptcy- remote" corporations.
The Borrower will also covenant that
the proceeds of the Facility will be
used for the purpose of financing
the Acquisition and that pending
consummation of the Acquisition not
less than approximately $130,000,000
of such proceeds will be invested by
FN Holdings in liquid investments of
the type to be specified in the loan
documentation.
2. In the case of FN Holdings and FN
Parent, covenants will include in
any event the following:
(i) No additional indebtedness
or obligations, other
than the New Notes, and no
redemption, prepayment or
exchange of indebtedness.
<PAGE>
9
(ii) No greater or more onerous
payment and dividend
restrictions than in
existing agreements and no
amendment of agreements.
(iii) No liens.
(iv) No investments, other than
existing investments and
investments in cash and
cash equivalents.
(v) No sales of assets.
(vi) No amendment of charter or
by laws.
(vii) No change in control or
breaking of tax
consolidation.
3. In the case of FN Holdings, the
following additional covenants:
(i) Not agree to any amendment
to the Bank Tax Sharing
Agreement.
(ii) Cause the Bank to give
immediate notice upon
entering into any
regulatory agreement or
learning of any proposed
regulatory action.
EVENTS OF DEFAULT: Usual and customary for transactions of this type,
- ------------------ to include without limitation: failure to pay
principal or interest or fees when due; any
representation or warranty proving to have been
materially incorrect when made; failure to perform
or observe covenants (with agreed upon grace
periods when customary and appropriate);
cross-defaults to other indebtedness applicable to
the Parent Guarantor and its subsidiaries and
Newco; bankruptcy defaults applicable to the Parent
Guarantor and its subsidiaries and Newco; material
judgment defaults applicable to the Parent
Guarantor and its subsidiaries and Newco;
impairment of loan documentation or security;
change in ownership or control applicable to the
Parent Guarantor and its subsidiaries; amendment of
any provision of any debt of FN Holdings or FN
Parent; amendment of the charter docuement of Newco
without the consent of the Required Lenders;
failure of the Bank (i) to continue to be
considered "well capitalized" or (ii) to maintain a
ratio of the sum
<PAGE>
10
of Total Shareholders Equity plus the Gross
Valuation Allowance to Non-Performing Assets of at
least 3.3:1; Gerald J. Ford shall own any shares of
FN Holdings other than (x) shares of the Class B
Common Stock and (y) through Newco, the Preferred
Stock; and Ronald O. Perelman shall cease to
beneficially own at least 80% of the stock of the
Borrower or any of its subsidiaries.
EXPENSES: The Borrower shall pay all due diligence,
- -------- syndication (including printing, distribution and
bank meetings), transportation, computer,
duplication, appraisal, audit, insurance,
consultant, search, filing and recording fees and
all other out-of-pocket expenses incurred by the
Administrative Agent or the Documentation Agent
(including the fees and expenses of their counsel)
whether or not any of the transactions contemplated
hereby are consummated, as well as all expenses of
the Administrative Agent in connection with the
administration of the loan documentation. The
Borrower shall also pay the expenses of the Lenders
in connection with the enforcement of any of the
loan documentation.
INDEMNITY: The Borrower will indemnify and hold harmless the
- --------- Administrative Agent, the Syndication Agent, the
Documentation Agent, each Lender and each of their
affiliates and their officers, directors,
employees, agents and advisors (each, an
"Indemnified Party") from and against any and all
claims, damages, losses, liabilities and expenses
(including, without limitation, reasonable fees and
expenses of counsel) that may be incurred by or
asserted or awarded against any Indemnified Party,
in each case arising out of or in connection with
or by reason of (including, without limitation, in
connection with any investigation, litigation or
proceeding or preparation of a defense in
connection therewith (a) the Transaction or any
similar transaction of the Borrower or any of its
subsidiaries and any of the other transactions
contemplated in the loan documentation, and (b) the
Facility and any use made or proposed to be made
with the proceeds thereof, except to the extent
such claim, damage, loss, liability or expense is
found in a final, nonappealable judgment by a court
of competent jurisdiction to have resulted from
such Indemnified Party's gross negligence or
willful misconduct. In the case of an
investigation, litigation or proceeding to which
the indemnity described in this paragraph applies,
such indemnity shall be effective whether or not
such investigation, litigation or proceeding is
brought by the Borrower, its shareholders or
creditors or an Indemnified Party or an
<PAGE>
11
Indemnified Party is otherwise a party thereto and
whether or not the Transaction is consummated. The
Borrower will further agree that no Indemnified
Party shall have any liability (whether direct or
indirect, in contract or tort or otherwise) to the
borrower or any of its subsidiaries or to their
respective security holders or creditors arising
out of, related to or in connection with the
Transaction, except for direct, as opposed to
consequential, damages determined in a final
nonappealable judgment by a court of competent
jurisdiction have resulted from such Indemnified
Party's gross negligence or willful misconduct.
REQUIRED LENDERS: A majority in interest, provided that such term
- ---------------- shall include in any event both the Administrative
Agent and the Documentation Agent until such time
as they and their affiliates shall collectively
hold less than 50% of the Facility.
ASSIGNMENTS AND
- ---------------
PARTICIPATIONS: Assignments must be in a minimum amount of
- -------------- $5,000,000, other than in the case of an assignment
to a Lender or an assignment of the entirety of a
Lender's interest in the Facility. No participation
shall include voting rights, other than for
reductions or postponements of amounts payable or
releases of all or substantially all of the
collateral. An assignment fee of $3,500 shall be
payable by the assigning Lender to the
Administrative Agent upon any assignment
(including, but not limited to, an assignment to
another Lender).
MISCELLANEOUS: Standard yield protection (including compliance with
- ------------- risk-based capital guidelines, increased costs,
payments free and clear of withholding taxes and
interest period breakage indemnities), eurodollar
illegality and similar provisions. In addition, if
during the 180 day period following the Closing
Date, any breakage costs, charges or fees are
incurred with respect to Eurodollar Rate loans on
account of the syndication of the Facility, the
Borrower shall promptly reimburse the
Administrative Agent for any such costs, charges or
fees.
GOVERNING LAW: New York.
- -------------
COUNSEL TO THE
- --------------
ADMINISTRATIVE AGENT
- --------------------
AND DOCUMENTATION
- -----------------
<PAGE>
12
AGENT: Shearman & Sterling.
- -----
<PAGE>
EXHIBIT A
FIRST NATIONWIDE HOLDINGS INC.
Terms of Cumulative Perpetual Preferred Stock
---------------------------------------------
Issuer: First Nationwide Holdings Inc. the "Company")
Issue: $150,000,000 aggregate liquidation value of
Cumulative Perpetual Preferred Stock of the Company
(the "Cumulative Preferred Stock")
Dividends: Cumulative dividends payable, when, as and if
declared by the Board of Directors of the Company,
at a floating rate per annum equal to the sum of
the Eurodollar Rate of NationsBank, N.A. (adjusted
for reserves) plus 6-1/2% per annum. Dividends
will be payable quarterly on __________, _________,
_________ and ________ in cash, commencing
_________, out of funds legally available therefor.
For dividends accruing prior to January 1, 2000, a
portion of such dividends equal to the sum of the
Eurodollar Rate of NationsBank, N.A. (adjusted for
reserves) plus 4-1/2% per annum shall be payable in
cash and the remainder shall be payable in shares
of Cumulative Preferred Stock which shall have the
same rights, terms and preferences as the
"original" shares of the Cumulative Preferred Stock
(the "PIK Dividends"); for dividends accruing
after January 1, 2000, the full amount of
such dividends shall be payable in cash. If the
Company shall redeem shares of the Cumulative
Preferred Stock having $150,000,000 of aggregate
liquidation value on or prior to December 31, 1999,
the PIK Dividends shall be deemed contributed to
the capital of the Company and shall be cancelled
without any consideration being given therefor.
Liquidation Preference: In the event of any liquidation, dissolution or
winding up of the Company, the holders of
the Cumulative Preferred Stock will be entitled to
receive $15,000 per share plus accrued and unpaid
dividends thereon.
Ranking: Senior to the outstanding common stock of
the Company and to all other classes and series of
equity securities subsequently issued by the
Company as to dividend and
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2
liquidation rights; provided, however, that the
Company shall be entitled to redeem in full all of
the outstanding shares of the Cumulative Perpetual
Preferred Stock of First Nationwide Escrow Corp.
("FN Escrow") "assumed" by the Company in
connection with the merger of FN Escrow with and
into the Company.
Voting Rights: Except as (i) required by law and (ii) as set forth
in the next sentence, the holders of the Cumulative
Preferred Stock will not be entitled to any voting
rights. If (x) the equivalent of four quarterly
dividend payments on the Cumulative Preferred Stock
is in arrears or (y) certain events of bankruptcy,
receivership or similar proceedings relating to the
Company shall occur, the number of directors of the
Company will be increased by two and the holders of
the Cumulative Preferred Stock will have the right
to elect two members to the Company's Board of
Directors, who shall serve during the period that
such event shall be continuing. In addition, if the
Cumulative Preferred Stock is outstanding on and
after the tenth anniversary of its issuance, the
number of directors of the Company will be
increased by two and the holders of the Cumulative
Preferred Stock will thereafter have the right to
elect two members to the Company's Board of
Directors.
Optional Redemption: Upon (x) 3 days' notice if a newly- formed Delaware
corporation, the common stock of which will be held
by Gerald J. Ford or another non-affiliate of Mafco
Holdings Inc. ("Newco"), is the sole holder of the
Cumulative Preferred Stock or (y) 30 days'
notice otherwise, the Cumulative Preferred Stock
will be redeemable at any time at the option of the
Company, in whole or in part, at a redemption price
equal to the stated liquidation value of $15,000
per share, plus accrued and unpaid dividends
thereon (subject, in the case of the PIK Dividends,
to the provisions set forth under the caption
"Dividends" above); provided, however,
that, on and after the date on which Newco is
not the sole holder of the Cumulative
Preferred Stock, the Cumulative Preferred Stock
will not be redeemable at
<PAGE>
3
the option of the Company until the fifth
anniversary of its issuance.
Protective Provision: The Company shall not, without first obtaining
consent or approval of the holders of at least
two-thirds of the Cumulative Preferred Stock,
redeem or repurchase any junior stock, warrants or
parity stock; provided, -------- however, that the
Company shall be entitled to redeem in ------- full
all of the outstanding shares of the Cumulative
Perpetual Preferred Stock of FN Escrow Corp.
"assumed" by the Company in connection with the
merger of FN Escrow with and into the Company.
Information Requirements: The Company shall provide the holders of the
Cumulative Preferred Stock with all reports that
the Securities Exchange Act of 1934, as amended,
requires a reporting corporation to provide even if
the Company ceases to be a reporting corporation.
Term: Perpetual
Purchaser: Newco
Purchase Price: $145,000,000
Employment Agreement
EMPLOYMENT AGREEMENT, dated as of October 21, 1996, between AGI
Management Corp., a Delaware corporation (the "Company") and Scott M. Sassa
(the "Executive").
The Company wishes to employ the Executive, and the Executive
wishes to accept such employment, on the terms and conditions set forth in
this Agreement.
Accordingly, the Company and the Executive hereby agree as follows:
Employment, Duties and Acceptance.
1.1 Employment, Duties. The Company hereby employs the
Executive for the Term (as defined in Section 2.1), to render exclusive and
full-time services as President and Chief Operating Officer of Andrews Group
Incorporated ("AGI"), and Chairman of the Board and Chief Executive Officer of
Marvel Entertainment Group, Inc. ("Marvel") or in such other executive
position as may be mutually agreed upon by the Company and the Executive which
decision shall be in Executive's absolute discretion to accept or reject if so
offered by the Company. The Executive shall report directly and solely to the
Chairman of the Board and Chief Executive Officer of AGI and the Board of
Directors and the Executive Committee of the Board of Directors of Marvel. If
during the Term William C. Bevins ceases to be Chief Executive Officer of AGI,
the Executive also shall be appointed to such position. The Executive also
shall be elected to the Marvel Board of Directors and the Executive Committee
of Marvel's Board of Directors. As Chairman and Chief Executive Officer of
Marvel, the Executive shall have the authority customarily accorded to
officers holding such title at New York Stock Exchange listed companies and no
other executive of Marvel shall have a title or job description which gives
such other executive equal or greater authority except Ronald O. Perelman. All
employees of Marvel shall report directly or indirectly to the Executive as
Executive shall designate.
1.2 Acceptance. The Executive hereby accepts such employment
and agrees to render the services described above. During the Term, the
Executive agrees to serve the Company faithfully and to the best of the Exec-
utive's ability, and, except as otherwise herein provided, to devote the
Executive's entire business time, energy and skill to such employment, and to
use the Executive's best
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efforts, skill and ability to promote the Company's interests. Subject to
Section 1.1, the Executive further agrees to accept election, and to serve
during all or any part of the Term, as an officer or director of the Company
and of any subsidiary of the Company without any compensation therefor other
than that specified in this Agreement, if elected to any such position by the
shareholders or by the Board of Directors of the Company or of any subsidiary,
as the case may be. The Executive shall be permitted to serve as a director of
unaffiliated companies with the prior consent of the Chairman of the Board of
AGI which shall not be unreasonably withheld.
1.3 Location. The duties to be performed by the Executive
hereunder shall be performed primarily at the principal office of Marvel in
New York City, subject to reasonable travel requirements on behalf of the
Company. The Executive shall be provided with a suitable office commensurate
with his position at the corporate headquarters of Marvel.
2. Term of Employment; Certain Post-Term Benefits.
2.1 The Term. The term of the Executive's employment under
this Agreement (the "Term") shall commence on October 21, 1996 and shall end
on December 31, 1999.
2.2 Special Curtailment. The Term shall end earlier than the
original December 31, 1999 termination date provided in Section 2.1 if sooner
terminated pursuant to Section 4.
3. Compensation; Benefits.
3.1 Salary. As compensation for services to be rendered
pursuant to this Agreement, the Company agrees to pay the Executive during the
Term a base salary, payable semi-monthly in arrears, at the annual rate of not
less than $2,000,000, less such deductions or amounts to be withheld as
required by applicable law and regulations (the "Base Salary"). In the event
that the Company, in its sole discretion, from time to time determines to
increase the Base Salary, such increased amount shall, from and after the
effective date of the increase, constitute "Base Salary" for purposes of this
Agreement.
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3.2 Bonus. In addition to the amounts to be paid to the Executive
pursuant to Section 3.1, the Executive shall receive an annual bonus of
$1,000,000 payable on or about December 31, 1997, 1998 and 1999 and will be
eligible, upon the decision of the Board of Directors and in the Board's sole
discretion, to receive an additional discretionary bonus with respect to each
year of the Term in such amount as the Board in its sole discretion may
determine. Such bonus shall vest pro-rata over the course of each year of the
Term.
3.3 Business Expenses. The Company shall pay or reimburse the
Executive for all reasonable expenses actually incurred or paid by the
Executive during the Term in the performance of the Executive's services under
this Agreement (including, without limitation, travel and entertainment
expenses customary in the businesses of the Company, AGI and Marvel), upon
presentation of expense statements or vouchers or such other supporting
information as the Company customarily may require of its officers provided,
however, that the maximum amount available for such expenses during any period
may be fixed in advance by the Chairman of the Board of Directors or the Board
of Directors.
3.4 Vacation. During the Term, the Executive shall be entitled
to a vacation period or periods of four weeks taken in accordance with the
vacation policy of the Company during each year of the Term. Vacation time not
used by the end of a year shall be forfeited.
3.5 Fringe Benefits. During the Term, the Executive shall be
entitled to all benefits for which the Executive shall be entitled to receive
all benefits available to senior executives of the Company, including any
qualified pension plan, 401(k) plan, group insurance or other so-called
"fringe" benefit plan which the Company provides to its senior executives or
employees generally, together with executive medical benefits for the
Executive, the Executive's spouse and the Executive's children as from time to
time in effect for officers of the Company generally. The Executive shall
receive all benefits which AGI or Marvel provide to any other senior executive
officer.
3.6 Additional Benefits. As a material provision of this
Agreement, during the Term, the Executive shall be entitled to such other
benefits as are specified in Appendix I to this Agreement.
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<PAGE>
4. Termination.
4.1 Death. If the Executive shall die during the Term, the
Term shall terminate and no further amounts or benefits shall be payable
hereunder, except that the Executive's legal representatives shall be entitled
to receive all amounts earned prior to death, including Base Salary and
pro-rated bonus (and to any stock and options which by their terms vest upon
death) and to receive continued payments in an amount equal to 60% of the Base
Salary, in the manner specified in Section 3.1, until the end of the Term.
4.2 Disability. If during the Term the Executive shall become
physically or mentally disabled such that the Executive is unable to perform
the Executive's services hereunder for (i) a period of six consecutive months
or (ii) for shorter periods aggregating six months during any twelve month
period, the Company may at any time after the last day of the six consecutive
months of disability or the day on which the shorter periods of disability
shall have equalled an aggregate of six months, by written notice to the
Executive (but before the Executive has recovered from such disability),
terminate the Term and no further amounts or benefits shall be payable
hereunder, except that the Executive shall be entitled to receive (i) all
amounts earned prior to such termination, including Base Salary and pro-rated
bonus and to receive continued payments in an amount equal to 60% of the Base
Salary, in the manner specified in Section 3.1, until the end of the Term and
(ii) such amounts and benefits, if any, specified in Paragraph 6 of Appendix
I. If the Executive shall die before receiving all payments to be made by the
Company in accordance with the foregoing, such payments shall be made to a
beneficiary designated by the Executive on a form prescribed for such purpose
by the Company, or in the absence of such designation to the Executive's legal
representative.
4.3 Cause. In the event of conviction of the Executive of any
felony, conviction of the Executive of any lesser crime of taking the property
of the Company or any of its subsidiaries or affiliates (in each case after
appeals have been exhausted), breach by the Executive of any material
provision of this Agreement, the Company may at any time by written notice to
the Executive terminate the Term and, upon such termination, this Agreement
shall
4
<PAGE>
terminate and the Executive shall be entitled to receive no further
amounts or benefits hereunder, except any as shall have been earned and/or
vested to the date of such termination. In the case of a breach by the
Executive of any material provision of this Agreement, the Company may
terminate the Term only after providing the Executive with written notice of
the breach and an opportunity to cure such breach within five business days of
such notice. In the event that Executive timely cures within such five day
period, such notice of breach shall have no further force or effect.
4.4 Company Breach. In the event of (i) the breach of any material
provision of this Agreement by the Company or (ii) a Change in Control of AGI
or Marvel, the Executive shall be entitled to terminate the Term upon 60 days'
prior written notice to the Company. Upon such termination, or in the event
the Company terminates the Term or this Agreement other than pursuant to the
provisions of Section 4.2 or 4.3, the Company shall continue to provide the
Executive (i) payments of Base Salary and bonus, in the manner and amount
specified in Section 3.1 and Section 3.2, respectively, and (ii) fringe
benefits and additional benefits in the manner and amounts specified in
Sections 3.5 and 3.6 until the end of the Term (the "Damage Period"). For
purposes of this Agreement, a "Change in Control" shall be deemed to occur if,
during the Term, Ronald O. Perelman, individually, or his estate, heirs or
personal representatives or any trust created for the benefit of his wife or
children, or any corporation or other entity which such persons control
(collectively, "Permitted Holders"), directly or indirectly, cease to maintain
"beneficial ownership" (as defined in Rule 13d-3 of the Securities Exchange
Act of 1934, as amended), individually or in the aggregate, of securities of
AGI or the Company, as the case may be, representing a sufficient number of
shares effectively to designate a majority of the members of the Board of
Directors. Upon breach by the Company, the Executive shall have no duty to
mitigate damages and any amounts earned by the Executive in the Damage Period
shall not offset amounts due to the Executive hereunder.
4.5 Litigation Expenses. Except as provided for in Section
5.7, if the Company and the Executive become involved in any action, suit or
proceeding relating to the alleged breach of this Agreement by the Company or
the Executive, and if a judgment in such action, suit or
5
<PAGE>
proceeding is rendered in favor of the Executive or if said action is settled
in Executive's favor prior to judgement, the Company shall reimburse the
Executive for all expenses (including reasonable attorneys' fees) incurred by
the Executive in connection with such action, suit or proceeding. Such costs
shall be paid to the Executive promptly upon presentation of expense
statements or other supporting information evidencing the incurrence of such
expenses.
5. Protection of Confidential Information;
Non-Competition.
5.1 In view of the fact that the Executive's work for the
Company will bring the Executive into close contact with many confidential
affairs of the Company not readily available to the public, and plans for
future developments, the Executive agrees:
5.1.1 To keep and retain in the strictest confidence all
confidential matters of the Company, including, without limitation, "know
how", trade secrets, customer lists, pricing policies, operational methods,
technical processes, formulae, inventions and research projects, other
business affairs of the Company, and any personal or non-public business
related information concerning any director, officer, employee or agent of the
Company or their respective family members learned by the Executive hereafter,
and not to disclose them to anyone outside of the Company, either during or
after the Executive's employment with the Company, except in the course of
performing the Executive's duties hereunder or with the Company's express
written consent. The foregoing prohibitions shall include, without limitation,
directly or indirectly publishing (or causing, participating in, assisting or
providing any statement, opinion or information in connection with the
publication of) any diary, memoir, letter, story, photograph, interview,
article, essay, account or description (whether fictionalized or not)
concerning any of the foregoing, publication being deemed to include any
presentation or reproduction of any written, verbal or visual material in any
communication medium, including any book, magazine, newspaper, theatrical
production or movie, or television or radio programming or commercial; and
5.1.2 To deliver promptly to the Company on termination of the
Executive's employment by the Company, or at any time the Company may so
request, all memoranda,
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<PAGE>
notes, records, reports, manuals, drawings, blueprints and other documents
(and all copies thereof) relating to the Company's business and all property
associated therewith, which the Executive may then possess or have under the
Executive's control.
5.2 During the Term, the Executive shall not, directly or
indirectly, enter the employ of, or render any services to, any person, firm
or corporation engaged in any business competitive with the business of the
Company or of any of its subsidiaries or affiliates except as otherwise
provided in Section 1.2; the Executive shall not engage in such business on
the Executive's own account; and the Executive shall not become financially
interested in any such business, directly or indirectly, as an individual,
partner, shareholder, director, officer, principal, agent, employee, trustee,
consultant, or in any other relationship or capacity provided, however, that
nothing contained in this Section 5.2 shall be deemed to prohibit the
Executive from acquiring, solely as an investment, up to five percent (5%) of
the outstanding shares of capital stock of any public corporation.
5.3 If the Executive commits a breach, or threatens to commit
a breach, of any of the provisions of Sections 5.1 or 5.2 hereof, the Company
shall have the following rights and remedies (it being acknowledged that the
fact that the Company seeks the remedies below in connection with a threatened
breach shall not constitute an admission by the Executive that Executive has
breached this Agreement):
5.3.1 The right and remedy to have the provisions of this
Agreement specifically enforced by any court having equity jurisdiction, it
being acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to the Company and that money damages will not
provide an adequate remedy to the Company; and
5.3.2 The right and remedy to require the Executive to account
for and pay over to the Company all compensation, profits, monies, accruals,
increments or other benefits (collectively "Benefits") received by the
Executive as the result of any transactions constituting a breach of any of
the provisions of the preceding paragraph, and the Executive hereby agrees to
account for and pay over such Benefits to the Company.
7
<PAGE>
Each of the rights and remedies enumerated above shall be independent of the
other, and shall be severally enforceable, and all of such rights and remedies
shall be in addition to, and not in lieu of, any other rights and remedies
available to the Company under law or in equity.
5.4 If any of the covenants contained in Sections 5.1 or 5.2,
or any part thereof, hereafter are construed to be invalid or unenforceable,
the same shall not affect the remainder of the covenant or covenants, which
shall be given full effect, without regard to the invalid portions.
5.5 If any of the covenants contained in Sections 5.1 or 5.2,
or any part thereof, are held to be unenforceable because of the duration of
such provision or the area covered thereby, the parties agree that the court
making such determination shall have the power to reduce the duration and/or
area of such provision and, in its reduced form, said provision shall then be
enforceable.
5.6 In the event that any action, suit or other proceeding in
law or in equity is brought to enforce the covenants contained in Sections 5.1
and 5.2 or to obtain money damages for the breach thereof, and such action
results in the award of a judgment for money damages or in the granting of any
injunction in favor of the Company, all expenses (including reasonable
attorneys' fees) of the Company in such action, suit or other proceeding shall
(on demand of the Company) be paid by the Executive. In the event the Company
fails to obtain a judgment for money damages or an injunction in favor of the
Company, all expenses (including reasonable attorneys' fees) of the Executive
in such action, suit or other proceeding shall (on demand of the Executive) be
paid by the Company.
6. Inventions and Patents.
6.1 The Executive agrees that all processes, technologies and
inventions (collectively, "Inventions"), including new contributions,
improvements, ideas and discoveries, whether patentable or not, conceived,
developed, invented or made by him during the Term shall belong to the
Company, provided that such Inventions grew out of the Executive's work with
the Company or any of its subsidiaries or affiliates, are related in any
manner to the business (commercial or experimental) of the Company or any of
its subsidiaries or affiliates or are conceived or
8
<PAGE>
made on the Company's time or with the use of the Company's facilities or
materials. The Executive shall further: (a) promptly disclose such Inventions
to the Company; (b) assign to the Company, without additional compensation,
all patent and other rights to such Inventions for the United States and
foreign countries; (c) sign all papers necessary to carry out the foregoing;
and (d) give testimony in support of the Executive's inventorship.
6.2 If any Invention is described in a patent application or
is disclosed to third parties, directly or indirectly, by the Executive within
two years after the termination of the Executive's employment by the Company,
it is to be presumed that the Invention was conceived or made during the Term.
6.3 The Executive agrees that the Executive will not assert
any rights to any Invention as having been made or acquired by the Executive
prior to the date of this Agreement, except for Inventions, if any, disclosed
to the Company in writing prior to the date hereof.
7. Intellectual Property.
The Company shall be the sole owner of all the products and
proceeds of the Executive's services hereunder, including, but not limited to,
all materials, ideas, concepts, formats, suggestions, developments,
arrangements, packages, programs and other intellectual properties that the
Executive may acquire, obtain, develop or create in connection with and during
the Term, free and clear of any claims by the Executive (or anyone claiming
under the Executive) of any kind or character whatsoever (other than the
Executive's right to receive payments hereunder). The Executive shall, at the
request of the Company, execute such assignments, certificates or other
instruments as the Company may from time to time deem necessary or desirable
to evidence, establish, maintain, perfect, protect, enforce or defend its
right, title or interest in or to any such properties.
8. Indemnification.
The Company will indemnify the Executive, to the maximum extent
permitted by applicable law, against all costs, charges and expenses incurred
or sustained by the Executive in connection with any action, suit or
proceeding to which the Executive may be made a party by reason of the
9
<PAGE>
Executive being an officer, director or employee of the Company or of any
subsidiary or affiliate of the Company. The provisions of this paragraph shall
survive the expiration or termination of the Term (for any reason).
9. Notices.
All notices, requests, consents and other communications required
or permitted to be given hereunder shall be in writing and shall be deemed to
have been duly given if delivered personally, sent via facsimile transmission,
sent by overnight courier or mailed first class, postage prepaid, by
registered or certified mail (notices mailed shall be deemed to have been
given on the date mailed), as follows (or to such other address as either
party shall designate by notice in writing to the other in accordance
herewith):
If to the Company, to:
AGI Management Corp.
35 East 62nd Street
New York, New York 10021
Attention: General Counsel
Fax: 212-572-5056
10
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If to the Executive, to:
Scott M. Sassa
Essex House
160 Central Park South
Suite 1901
New York, New York 10019
with an additional copy to the Executive at
his office address
with a copy to:
Gang, Tyre, Ramer & Brown
132 South Rodeo Drive
Beverly Hills, California 90212
Attn: Jeffrey M. Mandell or Bruce Ramer
Fax: 310-777-4801
10. General.
10.1 This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely in New York.
10.2 The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
10.3 This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, relating to the subject matter hereof. No representation, promise or
inducement has been made by either party that is not embodied in this
Agreement, and neither party shall be bound by or liable for any alleged
representation, promise or inducement not so set forth.
10.4 This Agreement, and the Executive's rights and
obligations hereunder, may not be assigned by the Executive. Subject to
Section 4.4 and the other rights granted to the Executive hereunder, the
Company may assign its rights, together with its obligations, hereunder only
(i) to any affiliate or (ii) to third parties in connection with any sale,
transfer or other disposition of all or
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substantially all of its business or assets; in any event the obligations of
the Company hereunder shall be binding on its successors or assigns, whether
by merger, consolidation or acquisition of all or substantially all of its
business or assets. Upon any such assignment, the Company shall remain
secondarily liable to the Executive for all of the obligations under this
Agreement.
10.5 This Agreement may be amended, modified, superseded,
canceled, renewed or extended and the terms or covenants hereof may be waived,
only by a written instrument executed by both of the parties hereto, or in the
case of a waiver, by the party waiving compliance. The failure of either party
at any time or times to require performance of any provision hereof shall in
no manner affect the right at a later time to enforce the same. No waiver by
either party of the breach of any term or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing waiver of any
such breach, or a waiver of the breach of any other term or covenant contained
in this Agreement.
11. Subsidiaries and Affiliates.
11.1 As used herein, the term "subsidiary" shall mean any
corporation or other business entity controlled directly or indirectly by the
corporation or other business entity in question, and the term "affiliate"
shall mean and include any corporation or other business entity directly or
indirectly controlling, controlled by or under common control with the
corporation or other business entity in question.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
AGI MANAGEMENT CORP.
By:
-------------------------------------------------
Howard Gittis
Vice Chairman
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-------------------------------------------
Scott M. Sassa
As a material inducement to Executive to sign this Agreement,
Andrews Group Incorporated, a Delaware corporation, hereby unconditionally
guarantees all of the obligations of AGI Management Corp. set forth in the
foregoing agreement. Notwithstanding any assignment of this Agreement pursuant
to Section 10.4, this guarantee shall continue in full force and effect.
Andrews Group Incorporated hereby waives presentment, demand for payment and
any requirement that the Executive exhaust any right to proceed against the
Company under the Agreement for the obligations guaranteed hereunder.
ANDREWS GROUP INCORPORATED
By:
-------------------------------------------------
Howard Gittis
Vice Chairman
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APPENDIX I
Additional Benefits:
1. Medical Examination. The Executive shall be
reimbursed by the Company for the reasonable cost of one
annual medical examination upon presentation of an expense
statement.
2. Automobile. The Company shall afford the Executive and his
family the exclusive right to use an automobile with a driver on a continuing
basis and shall provide garaging near the Executive's residence. The Company
shall pay all reasonable expenses associated with the operation of such
automobile. The automobile furnished by the Company shall be a late model
top-of-the-line vehicle comparable to other AGI executives to be reasonably
selected by the Executive. Upon the expiration of the Term, the Executive
promptly shall return the automobile to the Company.
3. Aircraft. The Executive shall be provided the use of a late
model Hawker 1000 or other executive jet for business and personal travel. To
the extent that the Executive uses the aircraft for personal use, he shall pay
$1,500 per hour of use; provided, that such charge to the Executive shall be
no higher than the charge for personal use to any other senior executive
officer of the Company or its affiliates.
4. Insurance. The Company agrees to provide the Executive with
additional term life insurance coverage with a face amount of twice the then
current Base Salary plus bonus, subject to the insurer's satisfaction with the
results of any required medical examination to which the Executive hereby
agrees to submit, on the following basis. The Executive may select a plan of
his choice and may designate the beneficiary of such plan. The Company shall
pay, upon presentation of an expense statement, the periodic standard
(non-rated) premiums relating to such additional term life insurance payable
during the Term.
5. Long Term Disability Insurance. The Company agrees to provide
the Executive with additional long term disability insurance coverage with a
monthly benefit of $35,000, subject to insurer's satisfaction with the results
of any required medical examination to which the Executive
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<PAGE>
agrees to submit. Such coverage shall provide that, if the Executive is
permanently disabled during the Term, the Executive shall be entitled to a
benefit until age 65.
6. Disability. If the Company elects to terminate the Term pursuant
to Section 4.2 of the Agreement, in addition to the amounts payable under such
Section, for the shorter of the period the Executive remains disabled or until
the Executive has attained the age of 65, the Company shall continue to
provide benefits for the Executive under the corporate group life insurance
plan and for the Executive, his spouse and children under the corporate group
medical (including the executive medical plan) insurance plan, to the extent
permitted by such plans and to the extent such benefits continue to be
provided to the Company's employees or officers, as applicable, generally.
7. Tax Advisor. The Executive shall be reimbursed by the Company,
upon presentation of an expense statement, for the reasonable fees and
disbursements of a personal tax advisor to be selected by the Executive.
8. Club Membership. The Company shall reimburse the Executive,
upon presentation of an expense statement, for all reasonable initiation
fees and periodic dues for membership in a club of the Executive's choice.
9. Estate Planning. The Executive shall be reimbursed by the
Company, upon presentation of an expense statement, for the reasonable fees
and disbursements of an estate planning advisor to be selected by the
Executive.
10. Townhouse. The Company shall purchase an agreed upon townhouse
and shall make agreed upon improvements to the townhouse. The Company shall
provide such townhouse as a residence for the Executive and his family for the
Term at a monthly rate of $25,000. The Company hereby grants to the Executive
the option to purchase such townhouse at any time during the Term at a
purchase price equal to the Company's purchase price plus the cost of all
improvements.
11. Moving Expenses. The Executive shall be reimbursed or the
Company shall pay on the Executive's behalf the reasonable expenses of moving
the Executive and his family to New York City, including the expenses of a
temporary residence pending the availability of the townhouse to be leased to
the Executive and reasonable
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travel expenses for the Executive and his family to and from Atlanta, Georgia,
for a reasonable period after the commencement of the Term not to exceed six
months pending their permanent move to New York City.
12. Stock Grant. Upon the first to occur of (i) ten days after the
time that AGI or any of its affiliates (other than Marvel) acquire additional
shares of Marvel or (ii) eighteen months after the commencement of the Term,
Marvel shall issue to the Executive shares of Marvel common stock with a value
of $8,000,000 (such value to be based on the lesser of (a) the lowest price
paid for shares (if any) by AGI or its affiliates after the date hereof or (b)
the lower of the closing price per share as reported by The Wall Street
Journal on (i) the commencement of the Term or (ii) the day that the
Executive's appointment to Marvel is announced. Regardless of when issued,
such shares shall vest in accordance with a vesting schedule that provides
that 25% of such shares vest as of the commencement of the Term and an
additional 25% vest at the end of each year of the Term. In the event of the
death of the Executive during the Term or if the Term is terminated other than
pursuant to Section 4.3, all shares shall vest immediately, if the Term is
terminated pursuant to Section 4.3, unvested shares shall be forfeited. If
such Marvel common stock is not issued in accordance with the aforementioned
terms, the Company shall upon request at any time(s) during the Term after
such shares should have been issued hereunder provide the Executive with a
payment(s) equal to the economic benefit, if any, that would have inured to
him had said shares been timely issued on said terms.
If at any time(s) prior to the issuance of the shares hereunder the
Executive provides to the Company a written notice that, had such shares been
issued at the commencement of the Term, the Executive would have disposed of
such shares on such day and the Executive would otherwise have been able at
such time to sell such shares, the Company shall pay to the Executive an
amount which would hold the Executive harmless and reimburse the Executive for
any loss the Executive suffers due to the delay in the issuance of such
shares. For purposes of the preceding sentence, it shall be assumed that the
shares would have been issued at the commencement of the Term at the closing
price per share on such day as reported by The Wall Street Journal. The
payment to the Executive shall include the gain the Executive would have
realized on such sale and shall also include any federal, state and/or local
adverse
16
<PAGE>
tax consequences to the Executive as a result of the fact that the
shares were not issued at the commencement of the Term (e.g. such sum to be
grossed-up in accordance with paragraph 14 below to reimburse the Executive
for any loss due to his inability to qualify for long-term capital gains
treatment on account of the delayed issuance of the stock). Thereafter, upon
the issuance of shares pursuant to this paragraph the number of shares
issuable shall be reduced by the number of shares in respect of which the
Company has made payment hereunder.
In connection with the issuance of the stock hereunder, the Company
shall loan to the Executive an amount sufficient to pay the income taxes due
on account of such issuance, such loan shall be made at such times as
necessary for the Executive to make timely payments of the taxes due (e.g.
restrictions lapse and the taxes are payable). Such loan will have a term
coincident with the Term, will bear interest at the minimum statutory rate set
from time to time by the Internal Revenue Service and shall be secured on a
first priority perfected basis by the stock issued pursuant to this paragraph.
Such loan shall be nonrecourse to the Executive.
13. Stock Options. At or about the execution of this Agreement, the
Executive shall be granted options to purchase 250,000 shares of Marvel common
stock in accordance with Marvel's Stock Option Plan. The Executive shall be
granted an additional 250,000 options on or about each January 1 during the
Term. In the event of the death of the Executive during the Term, all options
theretofore granted shall be vested immediately and shall be exercis- able for
one year thereafter.
14. Gross-up. To the extent that the Executive is required to
include in income, for federal, state and local income taxes, amounts paid in
respect of benefits provided pursuant to paragraph 11, the Company shall, on
or about March 30 of each year, pay the Executive an amount such that the
payment made pursuant to such paragraph 11 shall be tax neutral. To accomplish
that result, Company shall pay Executive a sum equal to the amount included in
Executive's income for tax purposes due to such paragraph 11 multiplied by the
Executive's aggregate tax rate (federal, state and local) which product shall
then be divided by a number equal to 1.00 minus the Executive's aggregate tax
rate (as described above) stated as a decimal.
17
<PAGE>
15. Press Announcements. The Company hereby agrees to provide to
the Executive advance notice of and an opportunity to comment upon the content
and timing of any press announcement concerning the Executive or his employ-
ment with the Company or its affiliates.
16. Legal Fees. The Company shall pay the rea- sonable fees of the
Executive's attorney in connection with this Agreement, not to exceed $30,000.
18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Andrews
Group Incorporated Consolidated Balance Sheet and statement of Operations and is
qualified in its entirety by reference to such financial statement.
</LEGEND>
<CIK> 0000277025
<NAME> ANDREWS GROUP INCORPORATED
<MULTIPLIER> 1,000,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 38
<SECURITIES> 0
<RECEIVABLES> 292
<ALLOWANCES> (35)
<INVENTORY> 99
<CURRENT-ASSETS> 504
<PP&E> 133
<DEPRECIATION> (37)
<TOTAL-ASSETS> 2,060
<CURRENT-LIABILITIES> 1,018
<BONDS> 0
5
0
<COMMON> 0
<OTHER-SE> (703)
<TOTAL-LIABILITY-AND-EQUITY> 2,060
<SALES> 581
<TOTAL-REVENUES> 581
<CGS> 372
<TOTAL-COSTS> 585
<OTHER-EXPENSES> (53)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 148
<INCOME-PRETAX> (99)
<INCOME-TAX> 1
<INCOME-CONTINUING> (107)
<DISCONTINUED> (23)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (130)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
