<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended November 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________________________
Commission File Number: 0-15817
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THE TOPPS COMPANY, INC.
(Exact name of registrant as specified in its charter)
Delaware 11-2849283
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Whitehall Street, New York, NY 10004
(Address of principal executive offices, including zip code)
(212) 376-0300
(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 .
-- --
The number of outstanding shares of Common Stock as of January 10, 1997 was
46,685,010.
<PAGE>
THE TOPPS COMPANY, INC.
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PART I - FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
Index Page
----- ----
Condensed Consolidated Balance Sheets as of
November 30, 1996 and March 2, 1996 3
Condensed Consolidated Statements of Operations
for the thirteen and thirty-nine weeks ended
November 30, 1996 and November 25, 1995 4
Condensed Consolidated Statements of Cash Flows
for the thirty-nine weeks ended November 30, 1996 and
November 25, 1995 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 9
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PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 12
The condensed consolidated financial statements for the thirty-nine weeks ended
November 30, 1996 included herein have been reviewed by Deloitte & Touche LLP
independent public accountants, in accordance with established professional
standards for such a review. The report of Deloitte & Touche LLP is included on
page 8.
2
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
November March
30, 1996 2, 1996
-------- -------
(amounts in thousands)
<S> <C> <C>
ASSETS
- ------
CURRENT ASSETS:
Cash $ 30,101 $ 24,154
Accounts receivable - net 49,890 43,357
Inventories 23,336 27,887
Income tax receivable 6,217 3,008
Deferred tax assets 2,158 2,598
Prepaid expenses and other current assets 9,811 11,267
--------- ---------
TOTAL CURRENT ASSETS 121,513 112,271
--------- ---------
PROPERTY, PLANT, & EQUIPMENT 15,547 53,232
Less: accumulated depreciation 3,443 21,622
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NET PROPERTY, PLANT & EQUIPMENT 12,104 31,610
--------- ---------
INTANGIBLE ASSETS, net of accumulated
amortization of $34,806 and $32,844 68,472 70,447
OTHER ASSETS 3,594 2,799
--------- ---------
TOTAL ASSETS $ 205,683 $ 217,127
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 22,374 $ 28,848
Accrued expenses and other liabilities 64,333 39,879
Current portion of long-term debt 7,500 6,800
Income taxes payable 5,010 5,466
--------- ---------
TOTAL CURRENT LIABILITIES 99,217 80,993
LONG-TERM DEBT, less current portion 29,950 37,500
DEFERRED INCOME TAXES 3,381 11,192
OTHER LIABILITIES 5,400 5,592
--------- ---------
TOTAL LIABILITIES 137,948 135,277
--------- ---------
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share authorized
10,000,000 shares, none issued
Common stock, par value $.01 per share, authorized
100,000,000 shares; issued 47,502,510 shares,
less 555,000 shares in Treasury Stock 475 475
Additional paid-in capital 16,812 16,812
Treasury stock, at cost (6,622) (6,120)
Retained earnings 56,187 69,719
Minimum pension liability adjustment (110) (110)
Cumulative foreign currency adjustment 993 1,074
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 67,735 81,850
--------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $ 205,683 $ 217,127
========= =========
</TABLE>
See Notes to Condensed Consolidated Financial Statements and Accountants'
Review Report.
3
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
(Unaudited)
Thirteen weeks ended Thirty-nine weeks ended
November November November November
30, 1996 25, 1995 30, 1996 25, 1995
-------- -------- -------- --------
(amounts in thousands, except share data)
<S> <C> <C> <C> <C>
Net sales $ 62,491 $ 69,458 $ 196,777 $ 197,551
Cost of sales 41,736 50,061 129,520 136,601
--------- --------- --------- ---------
Gross profit on sales 20,755 19,397 67,257 60,950
Royalties and other income 547 919 1,785 1,860
--------- --------- --------- ---------
21,302 20,316 69,042 62,810
Selling, general and administrative expenses 18,069 17,644 55,680 49,361
Plant closure reserve 30,000 -- 30,000 --
Impairment loss 1,350 -- 1,350 --
--------- --------- --------- ---------
Income (loss) from operations (28,117) 2,672 (17,988) 13,449
Interest income (expense), net (501) (601) (1,600) (827)
--------- --------- --------- ---------
Income (loss) before provision for income taxes (28,618) 2,071 (19,588) 12,622
Provision for income taxes (10,120) 774 (6,056) 5,680
--------- --------- --------- ---------
Net income (loss) $ (18,498) $ 1,297 $ (13,532) $ 6,942
========= ========= ========= =========
Net income (loss) per share $(.39) $.03 $(.29) $.15
Weighted average shares outstanding 46,947,510 47,047,510 47,002,070 47,047,158
</TABLE>
See Notes to Condensed Consolidated Financial Statements and Accountants'
Review Report.
4
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
Thirty-nine weeks ended
November November
30, 1996 25, 1995
-------- --------
(amounts in thousands)
<S> <C> <C>
Cash provided by (used for) operations:
Net income (loss) $(13,532) $ 6,942
Add(subtract) non-cash items included in net (loss) income:
Plant closure reserve 29,844 --
Impairment loss 1,350 --
Depreciation and amortization 4,386 4,026
Deferred income taxes (7,371) 1,709
Change in assets and liabilities net of effects from purchase of
subsidiary:
Receivables (6,531) (4,034)
Inventories 3,549 1,017
Income tax receivable (3,207) (4,446)
Prepaid expenses and other current assets 1,456 494
Payables and other current liabilities 4,804 (4,139)
Other ( 429) ( 172)
-------- --------
Cash provided by operations 14,319 1,397
-------- --------
Cash used for investing activities:
Additions to property, plant and equipment (1,020) (1,946)
Purchase of subsidiary, net of cash acquired -- (39,998)
-------- --------
Cash used for investing activities (1,020) (41,944)
-------- --------
Cash provided by (used for) financing activities:
Proceeds from long-term debt 50,000
Payments of long-term debt (6,850) ( 3,800)
Exercise of employee stock options 20
Purchase of treasury stock ( 502) --
-------- --------
Cash provided by (used for) financing activities (7,352) 46,220
-------- --------
Net increase in cash 5,947 5,673
Cash at beginning of year 24,154 17,785
-------- --------
Cash at end of quarter $ 30,101 $ 23,458
======== ========
Supplemental information:
Interest paid $ 1,941 $ 1,067
Income taxes paid $ 5,222 $ 8,343
</TABLE>
See Notes to Condensed Consolidated Financial Statements and Accountants'
Review Report.
5
<PAGE>
THE TOPPS COMPANY, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THIRTY-NINE WEEKS ENDED NOVEMBER 30, 1996
1. Basis of Presentation
The accompanying unaudited condensed interim consolidated financial
statements have been prepared by The Topps Company, Inc. and
subsidiaries (the "Company") pursuant to the rules and regulations of
the Securities and Exchange Commission and reflect all adjustments,
which are, in the opinion of management, considered necessary for a
fair presentation. These statements do not include all information
required by generally accepted accounting principles to be included in
a full set of financial statements. Operating results for the
thirty-nine weeks ended November 30, 1996 and November 25, 1995 are not
necessarily indicative of the results that may be expected for the year
ending March 1, 1997. For further information refer to the consolidated
financial statements and notes thereto in the Company's annual report
for the year ended March 2, 1996.
Certain items in the prior year's financial statements have been
reclassified to conform with the current year's presentation.
2. Acquisition
On July 6, 1995, the Company acquired 100% of the shares of Merlin
Publishing International Limited ("Merlin"), a privately-held U.K.
publisher and marketer of sticker and album collections (the
"Acquisition"). The purchase price for the Acquisition was $46,244,700.
The Company financed the Acquisition using a $50 million term loan with
a five-year amortization schedule provided by a syndicate of banks.
The Acquisition has been accounted for using the purchase method of
accounting. The cost of the Acquisition has been allocated to tangible
and intangible assets acquired and liabilities assumed based upon
management's estimate of their respective fair values at the
acquisition date as adjusted to reflect additional reserves for product
returns. Management is presently finalizing its estimate of these
respective fair values and may make further refinement if required. The
excess of purchase price over the fair value of the net assets acquired
(goodwill) is being amortized on a straight-line basis over a
forty-year period.
3. Quarterly Comparison
Management believes that quarter-to-quarter comparisons of sales and
operating results are affected by a number of factors, including the
timing of product introductions and variations in shipping and factory
scheduling requirements. Thus, annual sales and earnings amounts are
unlikely to consist of equal quarterly portions.
4. Inventories
<TABLE>
<CAPTION>
(Unaudited)
November March
30, 1996 2, 1996
-------- -------
(amounts in thousands)
<S> <C> <C>
Raw materials $ 5,995 $ 8,581
Work in process 1,164 3,221
Finished products 16,177 16,085
------- -------
Total $23,336 $27,887
======= =======
</TABLE>
6
<PAGE>
5. Other Statement of Operations Charges
During the third quarter of fiscal 1997, the Company announced that it
will discontinue operations at its Duryea, Pennsylvania factory
following the expiration of a labor agreement in December 1996. This
will result in the severance of both union and non-union employees and
the outsourcing of all production activities previously performed at
that location.
As a result of the closing, the Company recorded a charge of
$30,000,000, before applicable income tax effects. The charge consisted
of approximately $16,100,000 in non-cash write-offs relating to the
disposition of factory and related equipment and approximately
$13,900,000 relating to severance and other employee-related costs,
costs to hold and sell the factory and other costs of the closure. The
Company made $156,000 in related payments during the third quarter of
fiscal 1997 with the majority of the remainder to be paid in the fourth
quarter and fiscal 1998. The ultimate costs associated with the factory
and related equipment will not be finalized until their disposition is
completed, which is expected to require in excess of a year.
In addition, during the third quarter, the Company recorded an
impairment reserve of $1,350,000 in accordance with Statement #121 of
the Financial Accounting Standards Board for the impairment of its
factory in Cork, Ireland.
As a result of these charges for Duryea and Cork, net income (loss) for
the period was adversely impacted by $20,436,000 ($.43 per share),
after applicable income tax effects.
7
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INDEPENDENT ACCOUNTANTS' REPORT
- -------------------------------
Board of Directors and Stockholders
The Topps Company, Inc.
We have made a review of the accompanying condensed consolidated balance sheet
of The Topps Company, Inc. and subsidiaries, (the "Company"), as of November 30,
1996, and the related condensed consolidated statements of operations and cash
flows for the thirty-nine week periods ended November 30, 1996 and November 25,
1995, in accordance with the standards established by the American Institute of
Certified Public Accountants.
A review of interim financial information consists principally of obtaining an
understanding of the system for the preparation of interim financial
information, applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting matters. It is
substantially less in scope than an audit conducted in accordance with generally
accepted auditing standards, the objective of which is the expression of an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of the Company as of March 2, 1996,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the year then ended (not presented herein); and in our report
dated March 27, 1996, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying condensed consolidated balance sheet as of March 2, 1996 is fairly
stated, in all material respects, in relation to the consolidated balance sheet
from which it has been derived.
DELOITTE & TOUCHE LLP
December 20, 1996
8
<PAGE>
ITEM 2. Management's Discussion and Analysis of Financial Condition and
------------------------------------------------------------------
Results of Operations
---------------------
Three Months Ended November 30, 1996 Compared with the Three Months Ended
- ---------------------------------------------------------------------------
November 25, 1995
- -----------------
Net sales for the third quarter of fiscal 1997 decreased 10.0%, to $62,491,000
from $69,458,000 for the same period last year. The decrease resulted from lower
net sales of entertainment products (sticker album collections and cards),
partially offset by increased sales of baseball products and lower returns of
sports products, in general.
Gross profit as a percentage of net sales for the third quarter increased to
33.2% from 27.9% for the same period last year. Improved margins were the result
of reduced material and labor costs in the U.S. and Ireland, as well as the
Company's ongoing cost reduction efforts, particularly in the areas of card
design and inventory obsolescence.
Selling, general and administrative expenses for the third quarter of fiscal
1997 increased to $18,069,000 or 28.9% of net sales, from $17,644,000 or 25.4%
for the same period last year. This increase occurred primarily as a result of
higher selling expenses and the costs associated with the start-up of operations
in certain foreign markets.
As a result of the cessation of manufacturing activity at its Duryea,
Pennsylvania plant, the Company established a plant closure reserve of
$30,000,000 in the third quarter of fiscal 1997. The reserve consisted of a
$16.1 million fixed asset write-off plus a $13.9 million reserve for exit costs
including employee severance. The Company has begun the transition associated
with outsourcing Bazooka bubble gum and has begun cutting, collating and
packaging its card products at third-party manufacturers in the U.S.
In compliance with Statement No. 121 of the Financial Accounting Standards
Board, the Company recorded an impairment loss of $1,350,000 in the third
quarter of fiscal 1997 related to long-lived assets at its Cork, Ireland plant.
The write-off brings the carrying value of the plant in line with the fair value
of the assets.
The decrease in net interest expense to $501,000 in the third quarter of fiscal
1997, from $601,000 last year, was attributable to a reduction in outstanding
debt as the Company continues to make scheduled principal payments on its term
loan.
In the third quarter of fiscal 1997, the Company reported an effective tax rate
of 35.4% compared to a tax rate of 37.4% for the same period a year ago. The
lower tax rate this year was driven primarily by the impact of non-deductible
items on the Company's pre-tax loss this year versus the Company's pre-tax
income in the prior year.
Net income (loss) for the third quarter of fiscal 1997 including plant-related
charges described above was $(18,498,000), or $(0.39) per share, as compared
with $1,297,000, or $0.03 per share for the same period last year. Excluding the
plant-related charges, net income for the third quarter this year would have
been $1,937,000, or $0.04 per share.
Nine Months Ended November 30, 1996 Compared with the Nine Months Ended
- ---------------------------------------------------------------------------
November 25, 1995
- -----------------
Net sales for the nine months ended November 30, 1996 decreased 0.4%, to
$196,777,000 from $197,551,000 for the same period last year. The decrease
resulted from lower sales of sports card products other than baseball, and to a
lesser extent, lollipops, partially offset by stronger sales of baseball
products and the impact of a full nine months of Merlin, which was acquired in
July 1995.
Gross profit as a percentage of net sales for the nine months increased to 34.2%
as compared with 30.9% for the same period last year. The margin improvement was
the result of lower material and labor costs in both the U.S. and Ireland as
well as lower costs for card design.
9
<PAGE>
Selling, general and administrative expenses ("S,G&A") for the nine months ended
November 30, 1996 increased to $55,680,000, or 28.3% of net sales, from
$49,361,000, or 25.0% for the same period a year ago. The dollar increase
occurred primarily as a result of the acquisition of Merlin. The increase in
S,G&A as a percentage of net sales was due to selective additions of sales and
other personnel, the Merlin acquisition and the costs associated with the
start-up of operations in certain foreign markets.
As a result of the cessation of manufacturing activity at its Duryea,
Pennsylvania plant, the Company established a plant closure reserve of
$30,000,000 in the third quarter of fiscal 1997. The reserve consisted of a
$16.1 million fixed asset write-off plus a $13.9 million reserve for exit costs
including employee severance. The Company has begun the transition associated
with outsourcing Bazooka bubble gum and has begun cutting, collating and
packaging its card products at third-party manufacturers in the U.S.
In compliance with Statement No. 121 of the Financial Accounting Standards
Board, the Company recorded an impairment loss of $1,350,000 in the third
quarter of fiscal 1997 related to long-lived assets at its Cork, Ireland plant.
The write-off brings the carrying value of the plant in line with the fair value
of the assets.
The increase in net interest expense for the first nine months of fiscal
1997, to $1,600,000 from $827,000, was a function of debt incurred as a result
of the Merlin acquisition.
For the nine months ended November 30, 1996, the Company reported an effective
tax rate of 30.9% compared to a tax rate of 45.0% for the same period a year
ago. The lower rate this year is driven primarily by the impact of
non-deductible items on the Company's pre-tax loss this year versus the
Company's pre-tax income in the prior year.
Net income (loss) for the nine months ended November 30, 1996 including
plant-related charges described above was $(13,532,000), or $(0.29) per share,
as compared with $6,942,000, or $0.15 per share for the same period last year.
Excluding the plant-related charges, net income for the nine months ended
November 30, 1996 would have been $6,904,000, or $0.15 per share.
Liquidity and Capital Resources
- -------------------------------
On June 30, 1995, the Company entered into a $65 million credit agreement (the
"Credit Agreement") with a syndicate of banks which consisted of a $50 million
term loan to finance the Merlin acquisition, a $2 million letter of credit
facility and a $13 million revolving credit facility to be used for working
capital and general corporate purposes. Interest rates are variable on half of
the outstanding principal and, as a result of swap transactions, fixed on the
remaining balance for two years, commencing April 1996. The Credit Agreement
contains restrictions and prohibitions of a nature generally found in loan
agreements of this type and requires the Company, among other things, to comply
with certain financial covenants, limits the Company's ability to sell or
acquire assets or borrow additional money (other than through the revolving
facility,) and prohibits the payment of dividends. The Credit Agreement is
secured by a pledge of 65% of the stock of Merlin. In November 1996, the Company
renegotiated certain financial covenants contained in the Credit Agreement in
order to reflect the plant-related charges.
On June 27, 1996, the Company announced that its Board of Directors had
authorized the repurchase of up to 2,000,000 shares of its common stock. The
total number of shares to be repurchased and the price the Company will pay will
depend on a variety of factors, including prevailing market conditions. As of
January 8, 1997, the Company had repurchased 337,500 shares pursuant to this
authorization at an average per share price of $4.50.
As of November 30, 1996, the Company had $30,101,000 in cash, and $37,450,000 in
debt as a result of the Merlin acquisition. Management believes, in light of the
Company's borrowing capacity and cash on hand as of November 30, 1996, that the
Company has adequate means to meet its working capital, capital expenditure,
interest and principal repayment requirements for the foreseeable future.
10
<PAGE>
Cautionary Statements
- ---------------------
In connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company is hereby filing cautionary
statements identifying important factors that could cause the Company's actual
results to differ materially from those projected in any forward-looking
statements made by, or on behalf of, the Company, whether oral or written. Among
these factors are the following: (i) significant changes in production
requirements; (ii) significant and unexpected changes in the costs related to
closure of the Duryea plant; (iii) the result of charges filed by the Company's
labor union; (iv) quarterly fluctuations in results; (v) the Company's
dependence on licensing and supply arrangements with third parties; (vi) the
further prolonged and material contraction in the trading card industry; (vii)
excessive returns of the Company's products; and (viii) the effect of
restrictions and financial convenants imposed by the Company's bank loan
agreement, as well as other risks detailed from time to time in the Company's
reports and registration statements filed with the Securities and Exchange
Commission.
11
<PAGE>
THE TOPPS COMPANY, INC.
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits as required by Item 601 of Regulation S-K
10.28 - Amendment Number 2 to Credit Agreement
12
<PAGE>
SIGNATURE
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.
THE TOPPS COMPANY, INC.
-----------------------
REGISTRANT
/s/ Catherine Jessup
------------------------------
Vice President-Chief Financial
Officer
January 14, 1997
13
<PAGE>
AMENDMENT NO. 2 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 2 TO CREDIT AGREEMENT (this "Agreement") is made and
entered into as of this 6th day of December, 1996 among THE TOPPS COMPANY, INC.,
a Delaware corporation ("Borrower"), NATIONSBANK, N.A., a national banking
association formerly known as NationsBank, National Association (Carolinas),
each other lender signatory hereto (each individually, a "Lender" and
collectively, the "Lenders"), and NATIONSBANK, N.A., a national banking
association formerly known as NationsBank, National Association (Carolinas), in
its capacity as agent for the Lenders (in such capacity, the "Agent");
W I T N E S S E T H:
-------------------
WHEREAS, the Borrower, the Lenders and the Agent have entered into a
Credit Agreement dated as of June 30, 1995, as amended pursuant to Amendment No.
1 to Credit Agreement dated as of June 5, 1996 among the Borrower, the Lenders
and the Agent (as amended hereby and as from time to time further amended,
supplemented or replaced, the "Credit Agreement"), pursuant to which the Lenders
agreed to make certain revolving credit, term loan and letter of credit
facilities available to the Borrower; and
WHEREAS, the Borrower has requested that the Credit Agreement be
amended in the manner set forth herein and the Agent and the Lenders are willing
to agree to such amendment;
NOW, THEREFORE, in consideration of the mutual covenants and the
fulfillment of the conditions set forth herein, the parties hereto do hereby
agree as follows:
1. Definitions. Any capitalized terms used herein without
-----------
definition shall have the meaning set forth in the Credit Agreement.
2. Amendment of Consolidated Leverage Ratio. Subject to the
----------------------------------------
terms and conditions set forth herein, the definition of "Consolidated Leverage
Ratio" in Section 1.1 of the Credit Agreement is hereby deleted in its entirety
and replaced by the following definition:
"Consolidated Leverage Ratio" means, as of the date of
computation thereof, the ratio of (i) the sum of (without duplication)
Consolidated Indebtedness (determined as at such date) plus the
aggregate stated amount of all Standby Letters of Credit then
outstanding plus the aggregate principal amount of Indebtedness for
which the Borrower or any Subsidiary has entered into a Guaranty to
(ii) Consolidated EBITDA (for the Four- Quarter Period ending on (or
most recently ended prior to) such date); provided, however, that for
-------- -------
any Four- Quarter Period which includes the third or fourth fiscal
Doc No: 92617 v.10
<PAGE>
quarter of the Fiscal Year ended March 1, 1997, the calculation of
Consolidated Net Income, as a component of Consolidated EBITDA, shall
not include (i) up to $33,000,000 in expenses and charges directly
incurred in connection with the closing of the Borrower's manufacturing
facility in Duryea, Pennsylvania during either such fiscal quarter,
(ii) up to $3,000,000 in charges incurred during either such fiscal
quarter as a result of a write-down of the valuation of the Borrower's
manufacturing facility in Ireland in compliance with Statement No. 121
of the Financial Accounting Standards Board and (iii) up to $1,000,000
in expenses and charges directly incurred in connection with the
closing during either such quarter of the Merlin B.V. office in the
Netherlands (all such expenses calculated on a pre-tax basis and
whether or not classified as extraordinary in accordance with GAAP);
provided further, however, such expenses and charges in excess of
-----------------
$33,000,000, $3,000,000 and $1,000,000, respectively, shall be so
included in the calculation of Consolidated Net Income as a component
of Consolidated EBITDA;
3. Amendment of Consolidated Fixed Charge Ratio. Subject to the
--------------------------------------------
terms and conditions set forth herein, the definition of "Consolidated Fixed
Charge Ratio" in Section 1.1 of the Credit Agreement is hereby deleted in its
entirety and replaced by the following definition:
"Consolidated Fixed Charge Ratio" means, with respect to the
Borrower and its Subsidiaries for any Four-Quarter Period ending on the
date of computation thereof, the ratio of (i) Consolidated EBITDA for
such period less (without duplication) Capital Expenditures for such
period less all income taxes accrued during such period, to (ii)
Consolidated Fixed Charges for such period; provided, however, that for
-------- -------
any Four-Quarter Period which includes the third or fourth fiscal
quarter of the Fiscal Year ended March 1, 1997, the calculation of
Consolidated Net Income, as a component of Consolidated EBITDA, shall
not include (i) up to $33,000,000 in expenses and charges directly
incurred in connection with the closing of the Borrower's manufacturing
facility in Duryea, Pennsylvania during either such fiscal quarter,
(ii) up to $3,000,000 in charges incurred during either such fiscal
quarter as a result of a write-down of the valuation of the Borrower's
manufacturing facility in Ireland in compliance with Statement No. 121
of the Financial Accounting Standards Board and (iii) up to $1,000,000
in expenses and charges directly incurred in connection with the
closing during either such quarter of the Merlin B.V. office in the
Netherlands (all such expenses calculated on a pre-tax basis and
whether or not classified as extraordinary in
Doc No: 92617 v.10
2
<PAGE>
accordance with GAAP); provided further, however, such expenses and
-----------------
charges in excess of $33,000,000, $3,000,000, and $1,000,000
respectively, shall be so included in the calculation of Consolidated
Net Income as a component of Consolidated EBITDA;
4. Amendment of Consolidated Net Worth. Subject to the terms and
-----------------------------------
conditions set forth herein, the definition of "Consolidated Net Worth" in
Section 1.1 of the Credit Agreement is hereby deleted in its entirety and
replaced by the following definition:
"Consolidated Net Worth" means at any time as of which the
amount thereof is to be determined, Consolidated Shareholders' Equity
minus (without duplication of deductions in respect of items already
deducted in arriving at surplus and retained earnings) all reserves
(other than contingency reserves not allocated to any particular
purpose), including without limitation reserves for depreciation,
depletion, amortization, obsolescence, deferred income taxes, insurance
and inventory valuation all as determined on a consolidated basis in
accordance with GAAP applied on a Consistent Basis; provided, however,
-------- -------
that at any time on or after the last day of the third fiscal quarter
of the Borrower of the Fiscal Year ended March 1, 1997, Consolidated
Net Worth shall not be decreased by (i) up to $33,000,000 in expenses
and charges directly incurred in connection with the closing of the
Borrower's manufacturing facility in Duryea, Pennsylvania during such
fiscal quarter or the immediately following fiscal quarter, (ii) up to
$3,000,000 in charges incurred during either such fiscal quarter as a
result of a write-down of the valuation of the Borrower's manufacturing
facility in Ireland in compliance with Statement No. 121 of the
Financial Accounting Standards Board and (iii) up to $1,000,000 in
expenses and charges directly incurred in connection with the closing
during either such quarter of the Merlin B.V. office in the Netherlands
(all such expenses calculated against the limitations above on a
pre-tax basis but deducted from Consolidated Net Worth on an after-tax
basis and whether or not classified as extraordinary in accordance with
GAAP); provided further, however, Consolidated Net Worth shall be
----------------
decreased by such expenses and charges in excess of $33,000,000,
$3,000,000, and $1,0000,000 respectively;
5. Effectiveness. This Agreement shall become effective as of the
-------------
date hereof upon receipt by the Agent of (a) twelve (12) fully executed copies
of this Agreement (which may be signed in counterparts) and (b) an amendment fee
in the amount of $52,450 paid in immediately available funds and to be
distributed by the
Doc No: 92617 v.10
3
<PAGE>
Agent to the Lenders based on their Applicable Commitment Percentages.
6. Representations and Warranties. In order to induce the Agent
------------------------------
and the Lenders to enter into this Agreement, the Borrower represents and
warrants to the Agent and the Lenders as follows:
(a) There has been no material adverse change in the
condition, financial or otherwise, of the Borrower and its
Subsidiaries, taken as a whole, since the date of the most recent
financial reports of the Borrower received by the Agent and the Lenders
under Section 9.1(a) of the Credit Agreement, other than changes in the
--------------
ordinary course of business;
(b) The business and properties of the Borrower and its
Subsidiaries, taken as a whole, are not, and since the date of the most
recent financial report of the Borrower and its Subsidiaries received
by the Agent and the Lenders under Section 9.1(a) of the Credit
--------------
Agreement, have not been, adversely affected in any substantial way as
the result of any fire, explosion, earthquake, accident, strike,
lockout, combination of workers, flood, embargo, riot, activities of
armed forces, war or acts of God or the public enemy, or cancellation
or loss of any major contracts; and
(c) No event has occurred and is continuing which constitutes,
and no condition exists which upon the consummation of the transaction
contemplated hereby would constitute, a Default or an Event of Default
under the Credit Agreement, either immediately or with the lapse of
time or the giving of notice, or both.
7. Entire Agreement. This Agreement sets forth the entire
----------------
understanding and agreement of the parties hereto in relation to the subject
matter hereof and supersedes any prior negotiations and agreements among the
parties relative to such subject matter.
8. Full Force and Effect of Agreement. Except as hereby specifically
-----------------------------------
amended, modified or supplemented, the Credit Agreement and all other Loan
Documents are hereby confirmed and ratified in all respects and shall remain in
full force and effect according to their respective terms.
9. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original as against any party
whose signature appears thereon, and all of which shall together constitute one
and the same instrument.
10. Governing Law. This Agreement shall in all respects be
-------------
governed by the laws and judicial decisions of the State of New York.
Doc No: 92617 v.10
4
<PAGE>
11. Enforceability. Should any one or more of the provisions of
--------------
this Agreement be determined to be illegal or unenforceable as to one or more of
the parties hereto, all other provisions nevertheless shall remain effective and
binding on the parties hereto.
12. Credit Agreement. All references in any of the Loan Documents
----------------
to the Credit Agreement shall mean the Credit Agreement as amended hereby.
[Signature pages follow.]
Doc No: 92617 v.10
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their duly authorized officers, all as of the day and year
first above written.
BORROWER:
THE TOPPS COMPANY, INC.
By: /s/ C. K. Jessup
-------------------------------
Name: C. K. Jessup
-----------------------------
Title: Vice President-CFO
----------------------------
AGENT:
NATIONSBANK, N.A., as Agent for the
Lenders
By: /s/ Peter C. Hall
-------------------------------
Name: Peter C. Hall
-----------------------------
Title: Vice President
----------------------------
LENDERS:
NATIONSBANK, N.A.
By: /s/ Peter C. Hall
-------------------------------
Name: Peter C. Hall
-----------------------------
Title: Vice President
----------------------------
THE CHASE MANHATTAN BANK (N.A.)
By: /s/ Alicia Schreibstein
-------------------------------
Name: Alicia Schreibstein
-----------------------------
Title: Vice President
----------------------------
FLEET BANK, N.A.
By: /s/ Thomas J. Levy
-------------------------------
Name: Thomas J. Levy
-----------------------------
Title: Vice President
----------------------------
[Signature Page 1 of 2]
<PAGE>
THE BANK OF NEW YORK
By: /s/ George Glasser
--------------------------------
Name: George Glasser
------------------------------
Title: Vice President
-----------------------------
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ Gregory F. Mathis
--------------------------------
Name: Gregory F. Mathis
------------------------------
Title: Vice President
-----------------------------
By: /s/ Stacy Harmon
--------------------------------
Name: Stacy Harmon
------------------------------
Title: Senior Associate
-----------------------------
THE SUMITOMO BANK LIMITED,
CHICAGO BRANCH
By: /s/ Ronald W. Gale
--------------------------------
Name: Ronald W. Gale
------------------------------
Title: Vice President
-----------------------------
By: /s/ William N. Paty
--------------------------------
Name: William N. Paty
------------------------------
Title: Vice President & Manager
-----------------------------
TORONTO DOMINION (NEW YORK), INC.
By: /s/ Jorge Garcia
--------------------------------
Name: Jorge Garcia
------------------------------
Title: Vice President
-----------------------------
THE MITSUBISHI BANK, LIMITED-
NEW YORK BRANCH
By: /s/ Glenn B. Eckert
--------------------------------
Name: Glenn B. Eckert
------------------------------
Title: Vice President
-----------------------------
[Signature Page 2 of 2]
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> MAR-01-1997
<PERIOD-END> NOV-30-1996
<CASH> 30,101
<SECURITIES> 0
<RECEIVABLES> 49,890
<ALLOWANCES> 1,127
<INVENTORY> 23,336
<CURRENT-ASSETS> 121,513
<PP&E> 15,547
<DEPRECIATION> 3,443
<TOTAL-ASSETS> 205,683
<CURRENT-LIABILITIES> 99,217
<BONDS> 37,450
0
0
<COMMON> 475
<OTHER-SE> 67,260
<TOTAL-LIABILITY-AND-EQUITY> 205,683
<SALES> 196,777
<TOTAL-REVENUES> 199,349
<CGS> 129,520
<TOTAL-COSTS> 216,550
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 216
<INTEREST-EXPENSE> 2,387
<INCOME-PRETAX> (19,588)
<INCOME-TAX> (6,056)
<INCOME-CONTINUING> (13,532)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,532)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> (.29)
</TABLE>
