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 June 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 1-10779
MARVEL ENTERTAINMENT GROUP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-3024816
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
387 PARK AVENUE SOUTH, NEW YORK, NY 10016
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
212-696-0808
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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
--- ---
At August 5, 1996, the number of outstanding shares of the registrant's common
stock, par value $.01 per share, was 101,809,657 shares, of which 82,628,392
shares were held by indirect wholly owned subsidiaries of Mafco Holdings Inc.
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
INDEX TO CONTENTS OF THE SECOND QUARTER 1996 FORM 10-Q
<TABLE>
<CAPTION>
Page
----
<S> <C>
Condensed Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995-----------------------------------3
Condensed Consolidated Statements of Operations for the quarters and six months ended June 30, 1996 & 1995--------4
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 1996 & 1995---------------------5
Notes to Condensed Consolidated Financial Statements--------------------------------------------------------------6
Management's Discussion and Analysis of Financial Condition and Results of Operations----------------------------11
Other Information------------------------------------------------------------------------------------------------17
Signatures-------------------------------------------------------------------------------------------------------19
</TABLE>
2
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash ............................................. $22.7 $37.0
Accounts receivable, net ......................... 215.2 240.0
Inventories, net ................................. 95.9 82.4
Deferred income taxes ............................ 51.9 50.4
Income tax receivable ............................ 22.6 24.6
Prepaid expenses and other ....................... 54.6 42.9
-------- --------
Total current assets .......................... 462.9 477.3
Property, plant and equipment, net .................. 82.2 71.3
Goodwill and other intangibles, net ................. 598.9 603.6
Deferred charges and other .......................... 56.4 60.8
-------- --------
Total Assets ................................. $1,200.4 $1,213.0
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable ................................. $102.0 $104.8
Accrued expenses and other ....................... 141.9 194.8
Short term borrowings ............................ 11.0 --
Current portion of long-term debt ................ 5.4 5.2
-------- --------
Total current liabilities ...................... 260.3 304.8
Long-term debt ...................................... 622.7 581.3
Other long-term liabilities ......................... 49.4 48.7
-------- --------
Total Liabilities .............................. 932.4 934.8
-------- --------
Minority interest in Toy Biz ........................ 75.6 70.4
Stockholders' equity:
Common Stock ..................................... 1.0 1.0
Additional paid-in capital ....................... 93.1 92.4
Retained earnings ................................ 98.7 114.1
Cumulative translation adjustment ................ (0.4) 0.3
-------- --------
Total Stockholders' Equity ..................... 192.4 207.8
-------- --------
Total Liabilities and Stockholders' Equity ..... $1,200.4 $1,213.0
======== ========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
3
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in millions, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
-------------------- --------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net revenues ............................................. $ 182.2 $ 169.2 $ 371.8 $ 327.1
--------- --------- --------- ---------
Operating Expenses:
Cost of sales ............................................ 115.4 116.9 229.3 213.8
Selling, general & administrative expenses ............... 55.6 50.2 107.9 93.6
Depreciation and amortization ............................ 4.9 5.0 9.3 7.5
--------- --------- --------- ---------
Total Operating Expenses . 175.9 172.1 346.5 314.9
Amortization of goodwill, intangibles and deferred charges 5.5 4.0 11.0 7.3
Interest expense, net .................................... 13.8 10.4 27.5 18.3
Foreign exchange loss/ (gain), net ....................... 0.9 0.8 1.5 (0.8)
Other income ............................................. -- 0.3 -- 14.3
Equity in net income of unconsolidated subsidiaries ...... 0.4 0.6 0.5 0.8
--------- --------- --------- ---------
(Loss) income before (benefit) provision for income taxes,
minority interest and extraordinary item ............... (13.5) (17.2) (14.2) 2.5
(Benefit) provision for income taxes ..................... (5.4) (5.5) (3.7) 4.6
--------- --------- --------- ---------
Loss before minority interest and extraordinary item ..... (8.1) (11.7) (10.5) (2.1)
Minority interest in earnings of Toy Biz ................. 2.9 2.7 4.9 4.1
--------- --------- --------- ---------
Loss before extraordinary item ........................... (11.0) (14.4) (15.4) (6.2)
Extraordinary item, net of taxes ......................... -- (3.3) -- (3.3)
--------- --------- --------- ---------
Net loss ................................................. ($11.0) ($17.7) ($15.4) ($9.5)
========= ========= ========= =========
Loss per share:
Loss before extraordinary item ........................... ($ .11) ($ .14) ($ .15) ($ .06)
Extraordinary item ....................................... -- ($ .03) -- ($ .03)
--------- --------- --------- ---------
Net loss ................................................. ($ .11) ($ .17) ($ .15) ($ .09)
========= ========= ========= =========
Weighted average number of common and
common equivalent shares outstanding (in millions) ..... 101.8 101.6 101.8 101.6
========= ========= ========= =========
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
4
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in millions)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
------------------
1996 1995
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net loss ....................................................................... ($15.4) ($9.5)
------- -------
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization ............................................... 20.3 14.7
Provision for deferred income taxes ......................................... 1.6 15.5
Extraordinary item, net ..................................................... -- 3.3
Undistributed earnings of unconsolidated subsidiaries ....................... (0.5) (0.8)
Distributions from unconsolidated subsidiary ................................ -- 3.0
Gain from Toy Biz IPO ....................................................... -- (14.3)
Minority interest in earnings of Toy Biz .................................... 4.9 4.1
Changes in assets and liabilities, net of effect in 1995 of previously
unconsolidated subsidiary and SkyBox Acquisition ......................... (46.0) (11.5)
------- -------
Total adjustments .............................................................. (19.7) 14.0
------- -------
Net cash (used in) provided by operating activities ....................... (35.1) 4.5
------- -------
Cash flows from investing activities:
Capital expenditures (including product development and package design costs) (21.3) (15.0)
Acquisition of SkyBox, net of cash and cash equivalents acquired ............. -- (152.6)
Other acquisitions ........................................................... -- (6.7)
Other investing activities ................................................... (5.5) (4.4)
------- -------
Net cash used in investing activities ..................................... (26.8) (178.7)
------- -------
Cash flows from financing activities:
Net (repayments) borrowings under term portion of credit agreements .......... (2.6) 187.4
Net borrowings (repayments) under revolving portion of credit agreement ...... 32.5 (12.0)
Borrowings related to Adespan adhesives facility ............................. 6.3 --
Net borrowings (repayments) of other debt .................................... 11.0 (5.7)
Toy Biz IPO net proceeds ..................................................... -- 44.2
Proceeds from exercise of stock options ...................................... 0.5 6.9
Debt issuance costs .......................................................... -- (8.1)
Other financing activities ................................................... (1.0) --
------- -------
Net cash provided by financing activities ................................. 46.7 212.7
------- -------
Effect of exchange rate changes on cash ........................................ 0.9 2.1
------- -------
Cash balance from previously unconsolidated subsidiary ......................... -- 7.5
------- -------
Net (decrease) increase in cash ................................................ (14.3) 48.1
Cash, at beginning of period ................................................... 37.0 18.1
------- -------
Cash, at end of period ......................................................... $ 22.7 $ 66.2
======= =======
Supplemental disclosures of cash flow information:
Interest paid during the period ........................................... $ 29.9 $ 17.8
Income taxes paid, net of refunds, during the period ...................... $ 7.9 $ 9.2
</TABLE>
The accompanying Notes to Condensed Consolidated Financial Statements are an
integral part of these statements.
5
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
1. BACKGROUND AND BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying condensed consolidated financial statements of
Marvel Entertainment Group, Inc. and its subsidiaries (the "Company") are
unaudited. In the opinion of management, all adjustments and intercompany
eliminations necessary for a fair presentation of the results of operations,
financial position and cash flows have been made and were of a normal
recurring nature. The Company's operations consist of (i) the publication and
sale of comic books and children's magazines, (ii) the marketing and
distribution of sports and entertainment trading cards and activity sticker
collections, (iii) consumer products, media and advertising promotions
licensing of the various characters owned by the Company, (iv) the design,
marketing and distribution of toys and (v) the manufacture and distribution of
adhesives and confectionery products. These interim condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements and related notes thereto contained in the Company's 1995
Annual Report on Form 10-K. Certain prior year amounts have been reclassified
to conform with the current year presentation.
2. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
<TABLE>
<CAPTION>
ACCOUNTS RECEIVABLE, NET:
June 30, December 31,
1996 1995
--------------- ----------------
<S> <C> <C>
Accounts receivable------------------------- $ 251.4 $ 317.9
Less: Allowances--------------------------- (36.2) (77.9)
---------------- ----------------
$ 215.2 $ 240.0
================ ================
INVENTORIES, NET:
Finished goods------------------------------ $ 74.1 $ 58.8
Work in process----------------------------- 21.8 22.3
Raw materials------------------------------- 23.0 23.7
Less: Reserve for obsolescence----------- (23.0) (22.4)
---------------- ----------------
$ 95.9 $ 82.4
================ ================
GOODWILL AND OTHER INTANGIBLES, NET:
Goodwill and other intangibles-------------- $ 649.2 $ 645.1
Less: Accumulated amortization------------- (50.3) (41.5)
--------------- ----------------
$ 598.9 $ 603.6
=============== ================
ACCRUED EXPENSES AND OTHER:
Royalties and incentives-------------------- $ 20.5 $ 33.5
Reserve for returns------------------------- 41.0 59.0
Income taxes payable------------------------ 1.3 19.7
Other--------------------------------------- 79.1 82.6
--------------- ----------------
$ 141.9 $ 194.8
=============== ================
</TABLE>
6
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
3. LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following: June 30, December 31,
1996 1995
--------------- ---------------
<S> <C> <C>
U.S. Term Loan Agreement --------------------------------------- $ 350.0 $ 350.0
Term Loan Agreement -------------------------------------------- 141.8 139.5
Amended and Restated Credit Agreement:
Revolving credit facility------------------------------ 120.0 87.5
Capital lease obligations and other long term debt-------------- 16.3 9.5
--------------- ---------------
628.1 586.5
Less current maturities ---------------------------------------- 5.4 5.2
--------------- ---------------
Long-term debt ------------------------------------------------- $ 622.7 $ 581.3
=============== ===============
</TABLE>
Long-term debt principally represents the outstanding balance under
the U.S. Term Loan Agreement, as defined below, the Amended and Restated
Credit Agreement effective August 30, 1994 between the Company, a syndicate of
banks, the Co-Agents and The Chase Manhattan Bank (formerly named Chemical
Bank), as administrative agent (the "Amended and Restated Credit Agreement"),
and the outstanding balance of the Term Loan Agreement, as defined below. The
U.S. Term Loan Agreement is repayable in six semi-annual installments
beginning August 31, 1999. The Term Loan Agreement is repayable in fourteen
increasing semi-annual installments, which began February 28, 1995. Portions
of the revolving credit facility under the Amended and Restated Credit
Agreement mature on September 1, 1999, 2000 and 2001.
In April 1995, the Company entered into a $350.0 term loan agreement
with a syndicate of banks, the Co-Agents and The Chase Manhattan Bank
(formerly named Chemical Bank), as administrative agent (the "U.S. Term Loan
Agreement"). The Company borrowed $350.0 under the U.S. Term Loan Agreement to
finance the acquisition of SkyBox (see Note 6), refinance the term loan
portion of the Amended and Restated Credit Agreement, and for general
corporate purposes.
Loans under the U.S. Term Loan Agreement bear interest at a rate per
annum equal to the Eurodollar Rate (as defined in the U.S. Term Loan
Agreement), plus the Applicable Margin (as defined in this paragraph), or the
Alternate Base Rate (as defined in the U.S. Term Loan Agreement). Eurodollar
Rate Loans will, at the option of Fleer Corp., have interest periods of one,
two, three or six months. Applicable Margin means (a) with respect to
Eurodollar Rate loans, 2% to 2 1/2% through the first Anniversary Date (as
defined in the U.S. Term Loan Agreement) and 1 1/8% to 2 1/2% thereafter, to
be determined based on the Company's financial performance and (b) with
respect to Alternate Base Rate loans, 1% to 1 1/2% through the first
Anniversary Date and 1/8 of 1% to 1 1/2% thereafter, to be determined based on
the Company's financial performance. The interest rate on Eurodollar Rate
Loans at June 30, 1996, was approximately 7 15/16% to 8% depending upon the
length of the relevant interest period. Interest on Alternate Base Rate Loans
is payable quarterly in arrears, and interest on Eurodollar Rate Loans is
payable at the end of the applicable interest period, except that if the
interest period is six months, interest is payable ninety days after the
commencement of the interest period and at the end of the interest period.
In connection with the U.S. Term Loan Agreement, the Company also
entered into an amendment to the existing Amended and Restated Credit
Agreement which, among other things, permitted the Company to incur the
indebtedness under the U.S. Term Loan Agreement. Pursuant to this amendment,
the Applicable Margin under the existing Amended and Restated Credit Agreement
for Alternate Base Rate loans will range from 0% to 1% and for Eurodollar Rate
loans will range from 5/8 of 1% to 2%, in each case depending on the Company's
financial performance. The interest rate on Eurodollar Rate Loans at June 30,
1996 was approximately 7 7/16% to 7 9/16% per annum, depending upon the length
of the relevant interest period. The proceeds of loans incurred under the
revolving credit portion of the Amended and Restated Credit Agreement may be
used for general corporate
7
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
purposes of the Company and for investments within an aggregate
limit. Portions of the loans under the Amended and Restated Credit Agreement
will mature on September 1, 1999, 2000 and 2001.
On August 30, 1994, the Company, Marvel Italia Srl (now Panini
S.p.A.) and Instituto Bancario San Paolo Di Torino S.p.A. (the "Lender"),
entered into a term loan and guarantee agreement (the "Term Loan Agreement")
providing for a term loan credit facility of Italian Lire 244.5 billion
(approximately $154.0 based on exchange rates in effect on the date of
acquisition) (the "Term Loan Facility"). Marvel Italia borrowed Italian Lire
244.5 billion under the Term Loan Agreement, and the Company borrowed
additional funds under its Amended and Restated Credit Agreement to finance
the purchase of Panini and to pay certain fees and expenses related to the
acquisition. Through June 30, 1996 the Company paid Italian Lire 27.3 billion
(approximately $16.9) due under the Term Loan Facility. The remaining amount
outstanding under the Term Loan Facility is repayable in 11 increasing
semi-annual installments, with the next payment of Italian Lire 4.1 billion
due August 31, 1996.
The Term Loan Facility bears interest at a rate per annum equal to
the Eurocurrency Rate (as defined in the Term Loan Agreement) or, in certain
limited circumstances, the Negotiated Rate (as defined in the Term Loan
Agreement), in each case plus the Applicable Margin (as defined in this
paragraph). Eurocurrency Rate Loans have, at the option of Panini, interest
periods of one, two, three or six months. Applicable Margin means (a) with
respect to Eurocurrency Loans, 5/8 of 1% to 2%, to be determined based on the
Company's financial performance and (b) with respect to Negotiated Rate Loans,
1%. The interest rate on Eurocurrency Rate Loans at June 30, 1996, was
approximately 11 3/16%. Interest on Negotiated Rate Loans is payable quarterly
in arrears and interest on Eurocurrency Rate Loans is payable at the end of
the applicable interest period, except that if the interest period is six
months, interest is payable ninety days after the commencement of the interest
period and at the end of the interest period.
The U.S. Term Loan Agreement (through incorporation by reference to
the Amended and Restated Credit Agreement), the Amended and Restated Credit
Agreement and the Term Loan Agreement include various restrictive covenants
prohibiting the Company from, among other things, incurring additional
indebtedness, with certain limited exceptions, and making dividend, redemption
and certain other payments on its capital stock. The U.S. Term Loan Agreement,
the Amended and Restated Credit Agreement and the Term Loan Agreement also
contain certain customary financial covenants and events of default for
financing of this type, including a limitation of a change of ownership
covenant of more than 25% of the voting shares of the Company. Mandatory
prepayments are required to be made out of net proceeds from sales of assets
by the Company, with certain exceptions, and from certain excess cash flow (as
defined in the Amended and Restated Credit Agreement).
During March 1996 and August 1996, the Company amended its credit
agreements to, among other things; 1) provide for an additional $25.0
revolving credit facility which will expire on December 31, 1996; 2) secure
the borrowings with substantially all of the Company's domestic assets and all
of the capital stock of the Company's domestic subsidiaries and 65% of the
capital stock of the Company's first tier foreign subsidiaries; and 3) amend
certain financial covenants. The additional revolving credit facility is pari
passu with the loans extended by the banks pursuant to the Company's existing
loan agreements.
In conjunction with the Toy Biz IPO, Toy Biz entered into a three
year $30.0 revolving line of credit with a syndicate of banks for which The
Chase Manhattan Bank (formerly named Chemical Bank) serves as administrative
agent. Substantially all of the assets of Toy Biz have been pledged to secure
borrowings under the Toy Biz credit facility. Borrowings under the credit
facility bear interest at either The Chase Manhattan Bank's alternate base
rate or at the Eurodollar rate plus the applicable margin. The applicable
margin is 1% unless Toy Biz meets specific financial operating levels, in
which case the applicable margin decreases to 3/4 of 1%. The credit facility
requires Toy Biz to pay a commitment fee of 3/8 of 1% per annum on the average
daily unused portion of the credit facility.
The Toy Biz credit facility contains various financial covenants, as
well as restrictions, on the incurrence of new indebtedness, prepaying or
amending subordinated debt, acquisitions and similar investments, the sale or
8
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
transfer of assets, capital expenditures, limitations on restricted payments,
dividends, issuing guarantees and creating liens. The credit facility also
requires that (a) the Company control Toy Biz and (b) that the exclusive,
royalty free perpetual worldwide license agreement between Toy Biz and the
Company remain in effect. The Toy Biz credit facility is not guaranteed by the
Company.
4. RESTRUCTURING OF OPERATIONS
In the fourth quarter of 1995, the Company recorded restructuring
charges of $25.0 related primarily to publishing and confections operations.
As part of the restructuring, the Company has terminated approximately 275
employees, covering editorial, production, distribution and administrative
employee groups and, accordingly, provided for $10.7 of termination benefits,
of which $5.7 has been paid as of June 30, 1996. Additionally, approximately
$6.7 relates to facility closure and consolidation costs, of which $4.2 has
been paid as of June 30, 1996, and $7.6 relates to other costs, of which $4.6
has been paid as of June 30, 1996. The remaining amounts, as of June 30, 1996,
are included in accrued expenses and other.
5. TOY BIZ IPO
On March 2, 1995, Toy Biz, Inc. ("Toy Biz") completed an initial
public offering (the "Toy Biz IPO") in which it issued and sold 2,750,000
shares of class A common stock at $18 per share. The net proceeds to Toy Biz,
after deducting commissions and offering expenses, of $44.1 were used to pay
outstanding amounts due under subordinated notes held by the Company and the
sole stockholder of the predecessor to Toy Biz and for working capital and
general corporate purposes. In 1995, the Company recorded a gain of $14.3 on
the Toy Biz IPO in recognition of the net increase in value of the Company's
investment in Toy Biz. This amount was reflected in other income in the
financial statements. In conjunction with the Toy Biz IPO, the Company's
equity ownership was reduced to approximately 36.6% and its voting control
increased to 85.3%, and, as a result of the increase, the condensed
consolidated financial statements of the Company include the result of
operations, financial position and cash flows of Toy Biz. For periods prior to
the Toy Biz IPO, Toy Biz was accounted for under the equity method.
6. SKYBOX ACQUISITION
On April 27, 1995, pursuant to an Agreement and Plan of Merger dated
as of March 8, 1995 (the "SkyBox Merger Agreement"), among SkyBox, a Delaware
corporation, the Company and an indirect wholly owned subsidiary of the
Company, the Company acquired all of the issued and outstanding shares of
SkyBox common stock for $16 per share. The purchase price, including fees,
expenses and other costs related to the acquisition, totaled $165.0. The
transaction was accomplished through a tender offer (the "Tender Offer") and
subsequent merger (the "Merger", and collectively with the Tender Offer, the
"SkyBox Acquisition"). The purchase price includes an obligation to former
SkyBox stockholders who did not exchange their shares.
The SkyBox Acquisition was accounted for using the purchase method of
accounting. The purchase price has been allocated to assets and liabilities
based on their respective fair values at April 27, 1995. The fair values of
the assets and liabilities acquired are summarized below. The total purchase
price exceeded the fair value of the net assets of SkyBox by $158.4 and has
been assigned to goodwill, which is being amortized over forty years on the
straight-line basis.
Current assets ....................................... $ 31.6
Noncurrent assets .................................... $ 5.4
Current liabilities .................................. $ 27.1
Noncurrent liabilities ............................... $ 3.3
----------------
$ 6.6
================
9
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
The following unaudited pro forma consolidated financial information
gives effect to the SkyBox Acquisition as if it had occurred at the beginning
of 1995. The pro forma results include certain adjustments, primarily
increased amortization and interest expense, and are not necessarily
indicative of what the results would have been had the SkyBox Acquisition
occurred at the beginning of the period. In addition, Toy Biz net revenues
were $58.3 for the six months ended June 30, 1995, of which $43.6 was included
in the Company's consolidated net revenues.
For the Six Months Ended
June 30, 1995
-------------
Net revenues............................ $351.3
Loss before extraordinary item......... ($ 10.8)
Net loss............................... ($ 14.1)
Loss per share:
Loss before extraordinary item......... ($ .10)
Extraordinary item..................... ($ .03)
--------
Net loss............................... ($ .13)
========
7. SUBSEQUENT EVENT
In August, 1996, Toy Biz sold in an offering .7 million shares of its
Class A common stock at a price to the public of $15 per share. As part of Toy
Biz's offering, the Company sold 2.5 million shares of Toy Biz Class A common
stock. In the third quarter of 1996, the Company will record a gain on the
sale of this common stock. The net proceeds to Toy Biz and Marvel were
approximately $9.0 million and $35.0 million, respectively. The net proceeds
from each of those sales, along with additional funds provided by Toy Biz from
operations and by the Company from operations and borrowings, are expected to
be contributed from time to time to an entity to be formed by the Company and
Toy Biz to facilitate the development of television programming, feature films
and other media and theatrical productions based upon the Company's characters
("Marvel Studios"). The Company will receive common equity interests in Marvel
Studios representing 75% of the equity and Toy Biz will receive preferred
equity interests representing 25% of the equity. Pending such use, the Company
intends to use its net proceeds from this offering to repay debt and for
working capital and general corporate purposes and Toy Biz, pending such
investment in Marvel Studios, intends to use its net proceeds for working
capital and general corporate purposes.
As a result of the offering by Toy Biz and the sale of Class A common
stock of Toy Biz by the Company, the Company's ownership percentage of Toy Biz
decreased to 26.7% and its voting control decreased to 78.4%.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
The Company is a leading creator, publisher and distributor of youth
entertainment products for domestic and international markets based on action
adventure characters owned by the Company, licenses from professional
athletes, sports teams and leagues and popular entertainment characters and
other properties owned by third parties. The Company also licenses its
characters and properties for consumer products, television and film and
advertising promotions. The Company's products include comic book and other
publications, sports and entertainment trading cards, activity stickers, toys,
adhesives and confectionery products.
RESULTS OF OPERATIONS
Over the past five years, the Company has diversified into a broadly
based youth entertainment company. As a result, an increasing portion of the
Company's net revenues have been derived from businesses other than comic book
publishing. For the year ended December 31, 1995, net publishing revenues
represented approximately 17.8% of the Company's total net revenues. The
Company's business has been augmented by the marketing and distribution of
sports and entertainment trading cards and activity stickers and the licensing
of the Company's characters for consumer products, television and film,
advertising promotions and toys. Although the Company'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 the Company's net revenues and operating
results in recent periods.
As a result of a significant reduction in speculative purchases of
comic books, the Company has undertaken several strategic actions which it
believes will have the long-term effect of bolstering its publishing business.
The Company has substantially completed eliminating unprofitable and
marginally profitable titles to create a strong line-up comprising Marvel's
most popular and most profitable titles; focused its comic books more on
editorial content and less on physical product features and enhancements; and
streamlined operations through introduction of new technology and
consolidation of facilities. Combined with the reduction in titles, these
measures will reduce editorial, production, distribution, manufacturing and
administrative overhead expense. The Company believes these actions, together
with the exclusive distribution by Heroes World of the Company's comic books
to the direct market, which commenced July 1995, should improve the future
operating results of the Company's publishing business.
The Company believes that there has been a general 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 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, and the level of fan interest, although
showing signs of improvement, has not returned to the levels experienced prior
to the 1994 strike. Consistent with decreased fan interest, the Company
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. Accordingly, the Company
believes that the overall trading card industry has been negatively affected,
causing the Company to experience lower sales, higher returns and higher
inventory obsolescence.
Throughout 1995, the lower sales and higher returns of the Company's
trading cards primarily related to distribution channels other than trading
card specialty stores. The Company 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 Company believes that
these distribution channels have a more focused customer base and proven
efficiencies, and therefore should allow Fleer/SkyBox to realize an
improvement in operating income in the future.
11
<PAGE>
Also as part of the revamping of Fleer, operational overhead has been
reduced through the closure of Fleer's Philadelphia facility, which had been
used for confections and trading card manufacturing. The Company anticipates
additional reductions in future operating expenses of Fleer/SkyBox due to the
concentration of sales activities to trading card specialty stores and
selected mass market accounts.
With these actions, the Company has simplified and refocused its
publishing and trading card operations by concentrating on what it believes to
be the strongest elements of the businesses and more efficient channels of
distribution. Although the Company believes that these actions will position
the Company for an improvement in future operating performance of these
businesses, the extent and timing of improvement will be determined by, among
other things, the state of the markets in which the Company's products are
sold, the effectiveness of the Company's implementation of changes to these
businesses, and the level of reception by consumers to the Company's changes
in these businesses and to the Company's products.
THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE THREE MONTHS ENDED
JUNE 30, 1995
The Company's net revenues were $182.2 million and $169.2 million in
the 1996 and 1995 periods, respectively, an increase of $13.0 million or
10.8%. This increase reflects an increase of $15.2 million in toy revenues,
$11.3 million in net trading card and sticker revenues and $1.8 million in
other revenues. This increase was partially offset by a $12.0 million decrease
in net publishing revenues and a $3.3 million decrease in licensing revenues.
The increase in toy revenues was principally due to Toy Biz's expanded product
offerings and increased international distribution of products. The increase
in net sticker and trading card revenues was primarily due to increased Panini
net revenues of stickers. Panini net revenues increased due to the 1996
European Cup soccer tournament and expansion into new markets such as Brazil,
partially offset by lower net revenues in certain European markets principally
due to lower net revenues from entertainment stickers based on properties
licensed from third parties due to lower commercial success of such properties
in 1996 as compared to 1995. Net revenues from trading cards increased
slightly as compared to 1995. The Company's concentration of distribution to
trading card specialty stores and select mass market accounts generally
resulted in lower gross sales in 1996. In addition, entertainment card sales
decreased due to 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, as well as lower sales of cards based on comic book
characters due in part to market conditions in the comic book specialty store
market. 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 related to market conditions. Such lower sales returns
provisions offset the lower sales discussed above, resulting in a slight
increase in net revenues from trading cards. The decrease in net publishing
revenues was due to the reduction of unprofitable titles, in accordance with
the Company's business strategy, and the discontinuance commencing in July
1995 of the distribution by Heroes World of comic book publications other than
the Company's titles. 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
the Company's characters.
Gross profit was $66.8 million and $52.3 million in the 1996 and 1995
periods, respectively, an increase of $14.5 million. As a percentage of net
revenues, gross profit was 36.7% in the 1996 period as compared to 30.9% in
the 1995 period. The increase in gross profit as a percentage of net revenues
was due primarily to lower provisions for sales returns and inventory
obsolescence in the trading card business and a reduction of unprofitable
titles in the Company's publishing business, offset by an unfavorable product
mix for trading cards, stickers and toys as compared to 1995 as well as weaker
operating results in certain of Panini's European markets.
Selling and general administrative expenses ("SG&A") were $55.6
million and $50.2 million in the 1996 and 1995 periods, respectively. The
increase of $5.4 million was mainly attributable to the increase in Toy Biz's
and Panini's advertising, promotion and selling costs, partially offset by a
general reduction in overhead expenses associated with the restructuring of
the trading card, publishing and confectionery operations.
12
<PAGE>
Amortization of goodwill, intangibles and deferred charges was $5.5
million and $4.0 million in the 1996 and 1995 periods, respectively. The
increase of $1.5 million primarily reflects the amortization related to the
SkyBox Acquisition in April, 1995.
Interest expense, net was $13.8 million and $10.4 million in the 1996
and 1995 periods, respectively. The increase in interest expense of $3.4
million primarily reflects the increased borrowings under the U.S. Term Loan
Facility in connection with the SkyBox Acquisition, increased borrowings
associated with the Amended and Restated Credit Agreement and, to a lesser
extent, the interest expense associated with a Panini loan for the expansion
of the Adespan adhesives facility and higher average borrowing rates.
Benefit for income taxes was $5.4 million and $5.5 million in the
1996 and 1995 periods, respectively. For 1996, the effective tax rate was 40%
as compared to 32% in 1995. This change is due primarily to the increase in
non-deductible goodwill amortization offset by a reduction in foreign taxes.
In 1995, the Company recorded a $3.3 million extraordinary loss, net
of taxes of $2.1 million, which represented a write-off of the related
deferred financing costs associated with the term loan portion of the Amended
and Restated Credit Agreement.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH THE SIX MONTHS ENDED JUNE 30, 1995
The Company's net revenues were $371.8 million and $327.1 million in
the 1996 and 1995 periods, respectively, an increase of $44.7 million or
13.7%. This increase reflects an increase of $40.4 million in toy revenues,
$28.0 million in trading card and sticker net revenues and $4.0 million in
other revenues, partially offset by a $23.8 million decrease in net publishing
revenues and a $3.9 million decrease in licensing revenues. 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 six months in 1996 as compared to four months in 1995. The increase in
net sticker and trading card revenues was primarily due to increased net
trading card revenues and, to a lesser extent, increased net revenues from
stickers. Net revenues from trading cards increased by approximately $20
million for the six months of 1996 as compared to 1995. The Company's
concentration of distribution to trading card specialty stores and select mass
market accounts generally resulted in lower sales in 1996. In addition,
entertainment card sales decreased due to 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, as well as lower sales of
cards based on comic book characters due in part to market conditions in the
comic book specialty store market. 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 trading
cards for six months in 1996 versus only two months in 1995 as SkyBox was
acquired on April 27, 1995, offset the lower sales discussed above, resulting
in the increase in net revenues from trading cards for the six months ended
June 30, 1996 as compared to the same period in 1995. Panini net revenues
increased due to the 1996 European Cup soccer tournament and expansion into
new markets such as Brazil, partially offset by lower net revenues in certain
European markets principally due to lower net revenues from entertainment
stickers based on properties licensed from third parties due to lower
commercial success of such properties in 1996 as compared to 1995. The
decrease in net publishing revenues was due to the reduction of unprofitable
titles, in accordance with the Company's business strategy, and the
discontinuance commencing in July 1995 of the distribution by Heroes World of
comic book publications other than the Company's titles. 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 the Company's characters.
Gross profit was $142.5 million and $113.3 million in the 1996 and
1995 periods, respectively, an increase of $29.2 million. As a percentage of
net revenues, gross profit was 38.3% in the 1996 period as compared to 34.6%
in the 1995 period. The increase in gross profit as a percentage of net
revenues was due primarily to lower provisions for sales returns and inventory
obsolescence in the trading card business and a reduction of unprofitable
titles in the Company's publishing business, offset by an unfavorable product
mix for trading cards, stickers and toys as compared to 1995 as well as weaker
operating results in certain of Panini's European markets.
13
<PAGE>
SG&A were $107.9 million and $93.6 million in the 1996 and 1995
periods, respectively. The increase of $14.3 million 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 six months in 1996 as
compared to four months in 1995, and the inclusion of Sky Box for six months
in 1996 as compared to two 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.
Depreciation and amortization was $9.3 million and $7.5 million in
the 1996 and 1995 periods, respectively. The increase of $1.8 million was
primarily due to the consolidation of Toy Biz for six months in 1996 as
compared to only four months in 1995 .
Amortization of goodwill, intangibles and deferred charges was $11.0
million and $7.3 million in the 1996 and 1995 periods, respectively. The
increase of $3.7 million mainly reflects the amortization related to the
SkyBox Acquisition in April, 1995.
Interest expense, net was $27.5 million and $18.3 million in the 1996
and 1995 periods, respectively. The increase in interest expense of $9.2
million primarily reflects the increased borrowings under the U.S. Term Loan
Facility in connection with the SkyBox Acquisition, increased borrowings
associated with the Amended and Restated Credit Agreement and, to a lesser
extent, the interest associated with a Panini loan for the expansion of the
Adespan adhesives facility and higher average borrowing rates.
In 1995, other income of $14.3 million represents the net increase in
value of the Company's investment in Toy Biz as a result of the Toy Biz IPO.
For 1996, as a result of its losses, the Company recorded a net tax
benefit of $3.7 million as compared to a tax provision of $4.6 million in
1995. In 1996, the Company's benefit was reduced as a result of taxes on
income from Toy Biz operations.
In 1995, the Company recorded a $3.3 million extraordinary loss, net
of taxes of $2.1 million, which represented a write-off of the related
deferred financing costs associated with the term loan portion of the Amended
and Restated Credit Agreement.
LIQUIDITY AND CAPITAL RESOURCES
For the six months ended June 30, 1996, the Company used $35.1
million of cash as a result of its operating activities. On a cash basis,
results of operations generated $10.9 million, while working capital changes
resulted in a use of funds of $46.0 million. The use of funds was principally
due to a reduction in accrued expenses and increased investments in inventory
and prepaid expenses offset partially by a reduction in accounts receivable.
Cash shown on the Consolidated Balance Sheets at June 30, 1996 and December
31, 1995, includes $7.7 million and $22.5 million, respectively, of Toy Biz
cash.
Cash used for investing activities for the six months ended June 30,
1996, was $26.8 million. The primary use of these funds was for capital
expenditures for its Adespan adhesives facility and tooling and molds and
capitalized product development costs primarily related to Toy Biz.
Cash provided by financing activities for the six months ended June
30, 1996, was $46.7 million, primarily consisting of increased borrowings
under the Company's credit facilities for working capital and investment
requirements, including the expansion of the Company's Adespan adhesives
facility.
In August, 1996, Toy Biz sold in an offering .7 million shares of its
Class A common stock at a price to the public of $15 per share. As part of Toy
Biz's offering, the Company sold 2.5 million shares of Toy Biz Class A common
stock. In the third quarter of 1996, the Company will record a gain on the
sale of this common stock. The net proceeds to Toy Biz and Marvel were
approximately $9.0 million and $35.0 million, respectively. The net
14
<PAGE>
proceeds from each of those sales, along with additional funds provided
by Toy Biz from operations and by the Company from operations and
borrowings, are expected to be contributed from time to time to Marvel
Studios, an entity to be formed by the Company and Toy Biz to facilitate the
development of television programming, feature films and other media and
theatrical productions based upon the Company's characters. The Company will
receive common equity interests in Marvel Studios representing 75% of the
equity and Toy Biz will receive preferred equity interests representing 25% of
the equity. Pending such use, the Company intends to use its net proceeds from
this offering to repay debt and for working capital and general corporate
purposes and Toy Biz, pending such investment in Marvel Studios, intends to
use its net proceeds for working capital and general corporate purposes. The
Company expects to incur approximately $4 million in net production costs for
The Hulk animated series (which costs would be offset by any sales of video
cassettes or international distribution rights to the series). The Hulk series
is expected to begin broadcasting on the United Paramount Network in September
1996. The Hulk series is expected to be a project of Marvel Studios. The
Company announced a project with Fox Kids Worldwide ("FKW"), which will
involve the development and production of a variety of the Company'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).
The Company will be required to reimburse FKW a portion of its production
costs. The arrangements with FKW are expected to be a project of Marvel
Studios.
As a result of the offering by Toy Biz and the sale of Class A common
stock of Toy Biz by the Company, the Company's ownership percentage of Toy Biz
decreased to 26.7% and its voting control decreased to 78.4%.
During the first quarter of 1996, the Company formed Marvel
Interactive for the development of on-line services and interactive software
utilizing or based upon the Company's characters. The Company anticipates
commencing development of titles in the second half of 1996 with commercial
release scheduled for 1997.
The Company, along with its joint venture partner, is continuing
development of Marvel theme restaurants. Five restaurants are currently under
development, with the first restaurant expected to open in the first half of
1997. The Company expects to invest approximately $36 million over the next
three years to fund the development of such restaurants.
During March 1996 and August 1996, the Company amended its credit
agreements to, among other things; 1) provide for an additional $25.0 million
revolving credit facility which will expire on December 31, 1996; 2) secure
the borrowings with substantially all of the Company's domestic assets and all
of the capital stock of the Company's domestic subsidiaries and 65% of the
capital stock of the Company's first tier foreign subsidiaries; and 3) amend
certain financial covenants. The additional revolving credit facility is pari
passu with the loans extended by the banks pursuant to the Company's existing
loan agreements.
At August 13, 1996, the Company's outstanding bank indebtedness was
approximately $643 million, of which $16.5 million relates to the borrowings
for the Adespan adhesives facility. The Company had approximately $35 million
available under its domestic credit facilities and approximately $25 million
available under its foreign credit facilities. In addition, there was $30.0
million available under the Toy Biz line of credit at August 13, 1996.
As of August 5, 1996, 79,407,725 shares, or 78.0%, of the Company's
Common Stock were pledged by subsidiaries of Mafco Holdings Inc. ("Mafco"),
other than the Company and its subsidiaries, to secure indebtedness or letters
of credit of such subsidiaries. In addition, 2,932,167 shares, or 2.9% of the
Company's Common Stock, are subject to a negative pledge under the terms of
the Marvel Holdings Notes indenture. The indentures governing this
indebtedness contain various covenants relating to the Company, including
certain limitations on the Company's indebtedness.
Although there can be no assurance, the Company anticipates that
internally generated funds, the net proceeds from the offering by Toy Biz and
the Company of Class A common stock of Toy Biz, borrowings under the various
credit agreements of the Company and Toy Biz, other borrowings and
refinancings of existing indebtedness will be sufficient to enable the Company
to meet its consolidated cash requirements, including debt service and
repayment, for the foreseeable future.
15
<PAGE>
FORWARD-LOOKING STATEMENTS
Statements in this quarterly report on Form 10-Q for the quarter
ended June 30, 1996 which are not historical are forward-looking statements
that involve risks and uncertainties. Such statements include, without
limitation, Marvel's expectation as to financial performance for the remainder
of 1996. 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) the failure of fan
interest in baseball to return to traditional levels prior to the 1994
baseball strike, thereby negatively impacting the Company's baseball card
business; (ii) continued weakness in the comic book market which cannot be
overcome by the Company's new editorial and production initiatives in comic
publishing; (iii) continued weakness in the trading card market; (iv) the
effectiveness of the Company's changes to its trading card and publishing
distribution; (v) a decrease in the popularity or level of media exposure of
the Company's characters resulting in declining licensing revenues; (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; and (vii) unanticipated costs or delays in
completing projects associated with the Company's new ventures including
media, interactive software and on-line services and theme restaurants.
16
<PAGE>
PART II.
OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
The Company is a party to various legal proceedings as described in
previous filings. During the quarter there were no material developments in
any of such proceedings. In addition, there were no new reportable legal
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The 1996 Annual Meeting of Stockholders of the Company was held on
May 21, 1996. There were 101,790,657 shares of Common Stock of the Company
eligible to vote at the Annual Meeting. As proposed in the proxy solicitation
issued pursuant to Regulation 14A of the Securities Exchange Act of 1934, the
following persons were elected to serve as directors of the Company until the
next Annual Meeting of Stockholders or until their successors are elected and
shall have qualified: Ronald O. Perelman, William C. Bevins, Donald G.
Drapkin, Michael J. Fuchs, Frank Gifford, E. Gregory Hookstratten, Morton L.
Janklow, Quincy Jones, Stan Lee, Scott C. Marden, Terry C. Stewart and Kenneth
Ziffren. Stockholders also ratified the selection of Ernst & Young LLP as the
Company's independent auditors for the 1996 fiscal year.
The results of shares voted for the election of directors by
nominated director were as follows:
Director Voted For Authority Withheld
- -------- --------- ------------------
Ronald O. Perelman 99,948,785 309,447
William C. Bevins 99,955,000 303,232
Donald G. Drapkin 99,952,505 305,727
Michael J. Fuchs 99,765,513 492,719
Frank Gifford 99,952,411 305,821
E. Gregory Hookstratten 99,956,459 301,773
Morton L. Janklow 99,765,425 492,807
Quincy Jones 99,759,822 498,410
Stan Lee 99,956,681 301,551
Scott C. Marden 99,956,661 301,571
Terry C. Stewart 99,952,498 305,734
Kenneth Ziffren 99,951,752 306,480
There were 100,046,522 shares voted for the ratification of the
selection of Ernst & Young LLP as the Company's independent auditors for the
1996 fiscal year with 130,607 shares voted against and 81,103 abstentions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) Exhibits
10.1 Consent Number Three dated as of June 30, 1996
to the Credit and Guarantee Agreement among the
Registrant, Fleer Corp., the financial
institutions from time to time parties thereto,
and The Chase Manhattan Bank (formerly Chemical
Bank) as administrative agent.
17
<PAGE>
10.2 Consent Number Two and Fourth Amendment, dated
as of June 30, 1996, to the Amended and
Restated Credit and Guarantee Agreement, by and
among the Registrant, Fleer Corp., the
financial institutions from time to time
parties thereto, and The Chase Manhattan Bank
(formerly named Chemical Bank).
10.3 Line of Credit, dated as of March 27, 1996
between Fleer Corp. and The Chase
Manhattan Bank (formerly named Chemical Bank).
(B) Reports on Form 8-K
None.
18
<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.
MARVEL ENTERTAINMENT GROUP, INC.
(Registrant)
By: /s/ August J. Liguori
---------------------------------
Dated: August 14, 1996 August J. Liguori
Vice President, Finance
Principal Accounting Officer
19
CONSENT NUMBER 3
CONSENT NUMBER 3, dated as of June 30, 1996, to the Credit
and Guarantee Agreement, dated as of April 24, 1995 (as amended, supplemented
or otherwise modified from time to time, the "SkyBox Credit Agreement"), among
the Company, Fleer, the financial institutions parties thereto (the "Banks";
together with the Panini Banks, the "Banks") and The Chase Manhattan Bank
(formerly named Chemical Bank), as administrative agent (in such capacity, the
"Administrative Agent") for the Banks.
W I T N E S S E T H:
WHEREAS, the Company, Fleer, the Banks and the
Administrative Agent are parties to the SkyBox Credit Agreement;
WHEREAS, the Company and Fleer are parties to the Amended
and Restated Credit and Guarantee Agreement, dated as of August 30, 1994 (as
amended, supplemented or otherwise modified, the "Panini Credit Agreement"),
among the Company, Fleer, the financial institutions parties thereto, the
co-agents named therein and The Chase Manhattan Bank (formerly named Chemical
Bank), as administrative agent for the Banks;
WHEREAS, the Company and Fleer have requested that the
Panini Credit Agreement be amended as provided in Exhibit A hereto; and
WHEREAS, the Administrative Agent and the Banks are willing
to consent to such amendments to the Panini Credit Agreement, subject to the
conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual
agreements contained herein, and for other good and valuable consideration,
the sufficiency of which is hereby acknowledged, the Company, Fleer, the Banks
and the Administrative Agent hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms
defined in the SkyBox Credit Agreement shall have such meanings when used
herein.
2. Consents. The Agent and the Banks hereby:
(a) consent to the amendment of the Panini Credit Agreement substantially
in accordance with the provisions of Consent Number 2 and Fourth
Amendment attached hereto as Exhibit A (the "Panini Amendment") and
acknowledge and agree that provisions of the Panini Credit Agreement
which are expressly stated to be incorporated by reference in the
SkyBox Credit Agreement shall be so incorporated in the form which is
in effect under the Panini Credit Agreement after giving effect to
the Panini Amendment; and
(b) consent that the Company may retain the Net Proceeds of its sale of
up to 2,500,000 shares of Class A common stock of Toy Biz in a public
offering pursuant to the Registration Statement (No. 333-07455) filed
with the Securities and Exchange
<PAGE>
2
Commission on July 2, 1996 and hereby waive compliance with the
provisions of subsection 3.2(a) to the extent and only to the extent
necessary to permit such retention of Net Proceeds.
3. Representations and Warranties. Each of the Company and
Fleer hereby confirms, reaffirms and restates the representations and
warranties made by it in Section 4 of the SkyBox Credit Agreement, provided
that each reference to the SkyBox Credit Agreement therein shall be deemed to
be a reference to the SkyBox Credit Agreement after giving effect to this
Consent. The Company represents and warrants that, after giving effect to this
Amendment, no Default or Event of Default has occurred and is continuing.
4. Continuing Effect of SkyBox Credit Agreement. This
Consent shall not constitute a waiver, amendment or modification of any other
provision of the SkyBox Credit Agreement not expressly referred to herein and
shall not be construed as a waiver or consent to any further or future action
on the part of the Company or Fleer that would require a waiver or consent of
the Banks or the Administrative Agent. Except as expressly amended or modified
herein, the provisions of the SkyBox Credit Agreement are and shall remain in
full force and effect.
5. Counterparts. This Consent may be executed by one or more
of the parties hereto on any number of separate counterparts and all such
counterparts shall be deemed to be one and the same instrument. Each party
hereto confirms that any facsimile copy of such party's executed counterpart
of this Consent (or its signature page thereof) shall be deemed to be an
executed original thereof.
6. Effectiveness. This Consent shall be effective upon
receipt by the Administrative Agent of:
(a) counterparts hereof, duly executed and delivered by the Company,
Fleer and the Majority Banks; provided that the provisions of Section
2(b) of the Panini Credit Agreement shall not become effective with
respect to the SkyBox Credit Agreement until the Administrative Agent
shall have received counterparts hereof, duly executed and delivered
by the Company, Fleer and the Required Banks; and
(b) an amendment fee, for the account of each Bank, in the amount equal
to 1/4 of 1% of the sum of such Bank's then outstanding Loans.
<PAGE>
3
7. GOVERNING LAW. THIS CONSENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
IN WITNESS WHEREOF, the parties hereto have caused this
Consent to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.
MARVEL ENTERTAINMENT GROUP, INC.
By: /s/ Bobby G. Jenkins
--------------------------------------------
Name: Bobby G. Jenkins
Title: Chief Financial Officer
FLEER CORP.
By: /s/ William H. Marks
---------------------------------------------
Name: William H. Marks
Title: Chief Financial Officer
THE CHASE MANHATTAN BANK
(formerly named Chemical Bank
and as successor by merger to
The Chase Manhattan Bank,
N.A.), as Administrative
Agent and as a Bank
By: /s/ John J. Huber
---------------------------------------------
Name: John J. Huber III
Title: Managing Director
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY
By: /s/ Genichi Imai
---------------------------------------------
Name: Genichi Imai
Title: Joint General Manager
4
THE BANK OF NEW YORK
By: /s/ Catherine G. Goff
---------------------------------------------
Name: Catherine G. Goff
Title: Assistant Vice President
CIBC, INC.
By:
---------------------------------------------
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Attila Koc
---------------------------------------------
Name: Attila Koc
Title: Vice President
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By: /s/ Attila Koc
---------------------------------------------
Name: Attila Koc
Title: Vice President
NATIONSBANK, N.A.
By: /s/ Lynn Callicott
----------------------------------------------
Name: Lynn Callicott
Title: Vice President
CORESTATES BANK, N.A.
By: /s/ Edmund J. Kothery
---------------------------------------------
Name: Edmund J. Kothery
Title: Vice President
5
TORONTO-DOMINION (NEW YORK) INC.
By: /s/ Kimberly Burleson
----------------------------------------------
Name: Kimberly Burleson
Title: Vice President
THE NIPPON CREDIT BANK, LTD.
By: /s/ Yoshihide Watanabe
----------------------------------------------
Name: Yoshihide Watanabe
Title: Vice President & Manager
BANK OF AMERICA ILLINOIS
By: /s/ Phillip F. Van Winkle
----------------------------------------------
Name: Phillip F. Van Winkle
Title: Vice President
BANK OF HAWAII
By: /s/ J. Bryan Scearce
----------------------------------------------
Name: Bryan Scearce
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Richard D. Hill, Jr.
----------------------------------------------
Name: Richard D. Hill, Jr.
Title: Director
FLEET BANK
By:
----------------------------------------------
Name:
Title:
<PAGE>
6
THE SUMITOMO BANK, LIMITED, NEW YORK
BRANCH
By: /s/ H. Kawamure
-------------------------------------------
Name: H. Kawamure
Title:
RESTRUCTURED OBLIGATIONS BACKED
BY SENIOR ASSETS B.V.
By: Chancellor Senior Secured Management, Inc.,
as Investment Advisor
By: /s/ Christopher A. Bondy
-------------------------------------------
Name: Christopher A. Bondy
Title: Vice President
UNION BANK
By: /s/ Gabe Renga
-------------------------------------------
Name: Gabe Renga
Title: Senior Vice President
THE FUJI BANK, LTD. - NEW YORK
BRANCH
By: /s/ Teiji Teramoto
-------------------------------------------
Name: Teiji Teramoto
Title: Vice President & Manager
VAN KAMPEN AMERICAN CAPITAL PRIME
RATE INCOME TRUST
By: /s/ Kathleen A. Zarn
-------------------------------------------
Name: Kathleen A. Zarn
Title: Vice President
<PAGE>
7
BANKERS TRUST COMPANY
By: /s/ Mary Jo Jolly
-------------------------------------------
Name: Mary Jo Jolly
Title: Assistant vice President
CHL HIGH YIELD LOAN PORTFOLIO, A UNIT
OF CHEMICAL BANK
By: /s/ Andrew D. Gordon
-------------------------------------------
Name: Andrew D. Gordon
Title: Managing Director
CREDIT SUISSE
By: /s/ Kristina Catlin
-------------------------------------------
Name: Kristina Catlin
Title: Associate
By: /s/ J. Hamilton Crawford
-------------------------------------------
Name: J. Hamilton Crawford
Title: Associate
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By: /s/ Patricia Loret de Mola
-------------------------------------------
Name: Patricia Loret de Mola
Title: Senior Vice President
BANCO CENTRAL HISPANOAMERICANO
S.A.
By: /s/ Louis Ferreira
-------------------------------------------
Name: Louis Ferreira
Title: Vice President
<PAGE>
8
MERRILL LYNCH SENIOR FLOATING RATE
FUND, INC.
By: /s/ R. Douglas Henderson
-------------------------------------------
Name: R. Douglas Henderson
Title: Authorized Signatory
MERRILL LYNCH PRIME RATE PORTFOLIO
By: Merrill Lynch Asset Managment, L.P.,
as Investment Advisor
By: /s/ R. Douglas Henderson
-------------------------------------------
Name: R. Douglas Henderson
Title: Authorized Signatory
<PAGE>
9
CERES FINANCE, LTD.
By Chancellor Senior Secured Management
Inc., as Financial Manager
By: /s/ Christopher A. Bondy
-------------------------------------------
Name: Christopher A. Bondy
Title: Vice President
CAPTIVA FINANCE, LTD.
By: /s/ Christopher A. Bondy
-------------------------------------------
Name: Christopher A. Bondy
Title: Vice President
<PAGE>
EXHIBIT A
CONSENT NUMBER 2 AND FOURTH AMENDMENT
CONSENT NUMBER 2 AND FOURTH AMENDMENT, dated as of June 30,
1996 (this "Amendment"), to the Amended and Restated Credit and Guarantee
Agreement, dated as of August 30, 1994 (as amended, supplemented or otherwise
modified, the "Credit Agreement"), among Marvel Entertainment Group, Inc. (the
"Company"), Fleer Corp. ("Fleer"), the financial institutions parties thereto
(the "Banks"), the co-agents named therein and The Chase Manhattan Bank
(formerly named Chemical Bank), as administrative agent (in such capacity, the
"Administrative Agent") for the Banks.
W I T N E S S E T H:
WHEREAS, the Company, Fleer, the Banks and the
Administrative Agent are parties to the Credit Agreement;
WHEREAS, the Company and Fleer have requested that the
Credit Agreement be amended as provided herein; and
WHEREAS, the Administrative Agent and the Banks are willing
to so amend the Credit Agreement, subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual
agreements contained herein, and for other good and valuable consideration,
the sufficiency of which is hereby acknowledged, the Company, Fleer, the Banks
and the Administrative Agent hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms
defined in the Credit Agreement shall have such meanings when used herein.
2. Consent. The Agent and the Banks hereby:
(a) consent that the Company and its Subsidiaries may sell up to
2,500,000 shares in the aggregate of Class A common stock of Toy Biz
in a public offering pursuant to the Registration Statement (No.
333-07455) filed with the Securities and Exchange Commission on July
2, 1996 (the "Sale") and waive compliance with the provisions of
subsection 8.6 of the Credit Agreement to the extent and only to the
extent necessary to permit the Sale; and
(b) consent that the Company may retain the Net Proceeds of the Sale and
hereby waive compliance with the provisions of subsection 4.3(d) to
the extent and only to the extent necessary to permit such retention
of Net Proceeds.
<PAGE>
2
3. Amendment of Subsection 1.1. Subsection 1.1 of the Credit Agreement hereby
is amended by (a) deleting in its entirety the definition of the term
"Consolidated Operating Cash Flow" contained therein and (b) inserting
therein, in proper alphabetical order, the following new definitions:
"Consolidated Operating Cash Flow" for any fiscal period of
the Company shall mean the Consolidated Net Income or Consolidated
Net Loss, as the case may be, for such fiscal period, (a) after
restoring thereto amounts deducted for (without duplication) (i)
extraordinary losses, (ii) depreciation and amortization (including
write-offs or write-downs of amortizable and depreciable items),
(iii) Consolidated Interest Expense, (iv) taxes accrued with respect
to such fiscal period, (v) any charges (whether in cash or otherwise,
but not to exceed $40,000,000 in the aggregate) actually taken by the
Company and its Subsidiaries during the second quarter of the 1995
fiscal year of the Company, (vi) any charges (whether in cash or
otherwise, but not to exceed $95,000,000 in the aggregate) actually
taken by the Company and its Subsidiaries during the fourth quarter
of the 1995 fiscal year of the Company and (vii) any foreign currency
losses of Panini and its Subsidiaries during such fiscal period and
(b) after deducting therefrom (without duplication) (i) extraordinary
gains (which extraordinary items of gain shall include, whether or
not so includable in accordance with GAAP, any item of gain resulting
from the sale, lease or other disposition of any principal property
of the Company or any of its Subsidiaries or the stock of any
Subsidiary of the Company), (ii) the portion of net income of the
Company and its Subsidiaries allocable to interests in unconsolidated
Persons to the extent that cash dividends or distributions in respect
of such portion of net income have not actually been received by the
Company or any of its Subsidiaries and (iii) any foreign currency
gains of Panini and its Subsidiaries during such fiscal period;
provided that, in calculating Consolidated Operating Cash Flow for
all purposes, only amounts derived from continuing operations, and
not from any assets which are held for disposition, of the Company
and its Subsidiaries shall be included in the calculation of
Consolidated Operating Cash Flow; and provided, further, that in
calculating Consolidated Operating Cash Flow for purposes of
calculating Excess Cash Flow, Toy Biz shall be deemed an
unconsolidated Person for purposes of clause (b)(ii) of this
definition;
"Marvel Studios" shall mean an entity to be formed by the
Company and/or any of its Subsidiaries and Toy Biz to facilitate the
development of feature films, television programming and other media;
"Participation Agreement" shall mean the Participation
Agreement, dated as of August 30, 1994, among the Local Lender, the
Banks and the Administrative Agent, as the same may be amended,
supplemented or otherwise modified from time to time;
<PAGE>
3
4. Amendment of Subsection 8.1. Subsection 8.1 of the
Credit Agreement hereby is amended by deleting said subsection in its entirety
and by substituting therefor the following:
(a) Leverage. Permit the Leverage Ratio as of the last day
of any fiscal quarter to occur during a period set forth below to
exceed the ratio set forth below opposite such period:
Period Ratio
Closing Date - 03/31/95 3.50 to 1.00
04/01/95 - 09/30/95 5.00 to 1.00
10/01/95 - 03/31/96 4.50 to 1.00
04/01/96 - 06/30/96 6.00 to 1.00
07/01/96 - 09/30/96 7.75 to 1.00
10/01/96 - 03/31/97 6.00 to 1.00
04/01/97 - 09/30/97 5.00 to 1.00
10/01/97 - 12/31/97 4.00 to 1.00
01/01/98 - thereafter 3.50 to 1.00
(b) Interest Coverage. Permit the Interest Coverage Ratio as
of the last day of any fiscal quarter to occur during a period set
forth below to be less than the ratio set forth below opposite such
period:
Period Ratio
Closing Date - 03/31/95 4.00 to 1.00
04/01/95 - 09/30/95 2.50 to 1.00
10/01/95 - 03/31/96 2.25 to 1.00
04/01/96 - 06/30/96 1.75 to 1.00
07/01/96 - 09/30/96 1.35 to 1.00
10/01/96 - 03/31/97 1.75 to 1.00
04/01/97 - 09/30/97 2.00 to 1.00
10/01/97 - 12/31/97 2.50 to 1.00
01/01/98 - thereafter 3.00 to 1.00
(c) Fixed Charge Coverage. Permit the ratio of (i)
Annualized Consolidated Operating Cash Flow as of the end of any
fiscal quarter which occurs during a period set forth below to (ii)
Fixed Charges for the four fiscal quarters then ending to be less
than the ratio set forth below opposite such period:
Period Ratio
Closing Date - 12/31/94 1.30 to 1.00
01/01/95 - 03/31/96 1.35 to 1.00
<PAGE>
4
04/01/96 - 06/30/96 1.25 to 1.00
07/01/96 - 09/30/96 1.10 to 1.00
10/01/96 - 03/31/97 1.25 to 1.00
04/01/97 - 06/30/97 1.35 to 1.00
07/01/97 - thereafter 1.50 to 1.00
5. Amendment of Subsection 7.2. Subsection 7.2 of the
Credit Agreement hereby is amended by:
(a) deleting the word "and" at the end of clause (e) thereof;
(b) inserting therein as a new clause (f) thereof the following:
"(f) during the month of December of the 1996
calendar year, (i) a budget for the 1997 fiscal year of the
Company and (ii) financial models for each remaining year
through the Termination Date, with such budget and financial
models being substantially similar in form to those
previously delivered to the Administrative Agent and being
accompanied by a certificate of a Responsible Officer of the
Company stating that such budget and financial models
represent the Company's best estimate of future performance
(based upon reasonable assumptions and with it being
understood that assumptions as to future results are
inherently subject to uncertainty and contingencies beyond
the control of the Company which can cause actual results to
be significantly higher or lower than those modelled); and"
(c) re-lettering existing clause (f) thereof as clause (g) thereof.
6. Amendment of Subsection 8.2(j). Subsection 8.2(j) of the
Credit Agreement hereby is amended by deleting the amount "Italian Lire
20,000,000,000" contained therein and by substituting therefor the amount
"Italian Lire 50,000,000,000".
7. Amendment of Subsection 8.3(q). Subsection 8.3(q) of the
Credit Agreement hereby is amended by deleting said subsection in its entirety
and by substituting therefor the following:
"(q) restrictions on the transfer of shares of capital stock
or other equity interests of (i) Toy Biz pursuant to the Stockholders
Agreement, dated as of April 30, 1993, among Toy Biz, Inc., Isaac
Perlmutter, Isaac Perlmutter T.A., the Company, Avi Arad and Toy Biz
and (ii) Marvel Studios pursuant to an agreement between the Company
(or any Subsidiary thereof which is the direct holder of equity
interests in Marvel Studios) and Toy Biz;"
8. Amendment of Subsection 8.8. Subsection 8.8 of the
Credit Agreement hereby is amended by:
<PAGE>
5
(a) deleting the word "and" which appears at the end of clause (e) thereof;
(b) deleting the period at the end of clause (f) thereof and substituting
a semi-colon followed by the word "and"; and
(c) inserting therein as a new clause (g) thereof the following:
"(g) the Company and its Subsidiaries may make
advances, loans, extensions of credit and capital
contributions to, or other investments in, Marvel Studios;
provided that the amount of such advances, loans, extensions
of credit, capital contributions and other investments shall
not exceed the lesser of (i) $15,000,000 and (ii) the Net
Proceeds from the sale by the Company and its Subsidiaries
of capital stock held by them in Toy Biz pursuant to
Registration Statement No. 333-07455 (filed with the
Securities and Exchange Commission on July 2, 1996)."
9. Amendment of Subsection 8.16. Subsection 8.16 of the
Credit Agreement hereby is amended by inserting at the end thereof the
following:
"provided that, for purposes of this subsection 8.16, Marvel Studios
shall, in any event, be deemed to be a Subsidiary of the Company;"
10. Representations and Warranties. Each of the Company and
Fleer hereby confirms, reaffirms and restates the representations and
warranties made by it in Section 5 of the Credit Agreement, provided that each
reference to the Credit Agreement therein shall be deemed to be a reference to
the Credit Agreement after giving effect to this Amendment. The Company
represents and warrants that, after giving effect to this Amendment, no
Default or Event of Default has occurred and is continuing.
11. Continuing Effect of Credit Agreement. This Amendment
shall not constitute a waiver, amendment or modification of any other
provision of the Credit Agreement not expressly referred to herein and shall
not be construed as a waiver or consent to any further or future action on the
part of the Company or Fleer that would require a waiver or consent of the
Banks or the Administrative Agent. Except as expressly amended or modified
herein, the provisions of the Credit Agreement are and shall remain in full
force and effect.
12. Counterparts. This Amendment may be executed by one or
more of the parties hereto on any number of separate counterparts and all such
counterparts shall be deemed to be one and the same instrument. Each party
hereto confirms that any facsimile copy of such party's executed counterpart
of this Amendment (or its signature page thereof) shall be deemed to be an
executed original thereof.
13. Effectiveness. This Amendment shall be effective upon
receipt by the Administrative Agent of:
<PAGE>
6
(a) counterparts hereof, duly executed and delivered by the Company,
Fleer and the Majority Banks; provided that the provisions of Section
2(b) hereof shall become effective only upon receipt of counterparts
hereof, duly executed and delivered by the Company, Fleer and the
Required Banks;
(b) an amendment fee, for the account of each Bank, in the amount
equal to 1/4 of 1% of the sum of such Bank's (i) Commitment under the
Credit Agreement and (ii) Participating Interest under (and as
defined in) the Participation Agreement.
14. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
MARVEL ENTERTAINMENT GROUP, INC.
By:
-------------------------------------------
Name:
Title:
FLEER CORP.
By:
-------------------------------------------
Name:
Title:
THE CHASE MANHATTAN BANK
(formerly named Chemical Bank
and as successor by merger to
The Chase Manhattan Bank,
N.A.), as Administrative
Agent and as a Bank
By:
-------------------------------------------
Name:
Title:
<PAGE>
7
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY
By:
-------------------------------------------
Name:
Title:
THE BANK OF NEW YORK
By:
-------------------------------------------
Name:
Title:
CIBC, INC.
By:
-------------------------------------------
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By:
-------------------------------------------
Name:
Title:
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By:
-------------------------------------------
Name:
Title:
NATIONSBANK, N.A.
By:
-------------------------------------------
Name:
Title:
<PAGE>
8
CORESTATES BANK, N.A.
By:
-------------------------------------------
Name:
Title:
THE TORONTO-DOMINION BANK
By:
-------------------------------------------
Name:
Title:
THE NIPPON CREDIT BANK, LTD.
By:
-------------------------------------------
Name:
Title:
BANK OF AMERICA ILLINOIS
By:
-------------------------------------------
Name:
Title:
BANK OF HAWAII
By:
-------------------------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF BOSTON
By:
-------------------------------------------
Name:
Title:
<PAGE>
9
FLEET BANK
By:
-------------------------------------------
Name:
Title:
THE SUMITOMO BANK, LIMITED, NEW YORK
BRANCH
By:
-------------------------------------------
Name:
Title:
UNION BANK
By:
-------------------------------------------
Name:
Title:
THE FUJI BANK, LTD. - NEW YORK
BRANCH
By:
-------------------------------------------
Name:
Title:
CITIBANK, N.A.
By:
-------------------------------------------
Name:
Title:
IBJ SCHRODER BANK & TRUST COMPANY
By:
-------------------------------------------
Name:
Title:
<PAGE>
10
ISTITUTO BANCARIO SAN PAOLO DI
TORINO, S.P.A., NEW YORK LIMITED BRANCH
By:
-------------------------------------------
Name:
Title:
FIRST HAWAIIAN BANK
By:
-------------------------------------------
Name:
Title:
CONSENT NUMBER 2 AND FOURTH AMENDMENT
CONSENT NUMBER 2 AND FOURTH AMENDMENT, dated as of June 30,
1996 (this "Amendment"), to the Amended and Restated Credit and Guarantee
Agreement, dated as of August 30, 1994 (as amended, supplemented or otherwise
modified, the "Credit Agreement"), among Marvel Entertainment Group, Inc. (the
"Company"), Fleer Corp. ("Fleer"), the financial institutions parties thereto
(the "Banks"), the co-agents named therein and The Chase Manhattan Bank
(formerly named Chemical Bank), as administrative agent (in such capacity, the
"Administrative Agent") for the Banks.
W I T N E S S E T H:
WHEREAS, the Company, Fleer, the Banks and the
Administrative Agent are parties to the Credit Agreement;
WHEREAS, the Company and Fleer have requested that the
Credit Agreement be amended as provided herein; and
WHEREAS, the Administrative Agent and the Banks are willing
to so amend the Credit Agreement, subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual
agreements contained herein, and for other good and valuable consideration,
the sufficiency of which is hereby acknowledged, the Company, Fleer, the Banks
and the Administrative Agent hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, terms
defined in the Credit Agreement shall have such meanings when used herein.
2. Consent. The Agent and the Banks hereby:
(a) consent that the Company and its Subsidiaries may sell up to
2,500,000 shares in the aggregate of Class A common stock of Toy Biz
in a public offering pursuant to the Registration Statement (No.
333-07455) filed with the Securities and Exchange Commission on July
2, 1996 (the "Sale") and waive compliance with the provisions of
subsection 8.6 of the Credit Agreement to the extent and only to the
extent necessary to permit the Sale; and
(b) consent that the Company may retain the Net Proceeds of the Sale and
hereby waive compliance with the provisions of subsection 4.3(d) to
the extent and only to the extent necessary to permit such retention
of Net Proceeds.
<PAGE>
2
3. Amendment of Subsection 1.1. Subsection 1.1 of the Credit
Agreement hereby is amended by (a) deleting in its entirety the definition of
the term "Consolidated Operating Cash Flow" contained therein and (b)
inserting therein, in proper alphabetical order, the following new
definitions:
"Consolidated Operating Cash Flow" for any fiscal period of
the Company shall mean the Consolidated Net Income or Consolidated
Net Loss, as the case may be, for such fiscal period, (a) after
restoring thereto amounts deducted for (without duplication) (i)
extraordinary losses, (ii) depreciation and amortization (including
write-offs or write-downs of amortizable and depreciable items),
(iii) Consolidated Interest Expense, (iv) taxes accrued with respect
to such fiscal period, (v) any charges (whether in cash or otherwise,
but not to exceed $40,000,000 in the aggregate) actually taken by the
Company and its Subsidiaries during the second quarter of the 1995
fiscal year of the Company, (vi) any charges (whether in cash or
otherwise, but not to exceed $95,000,000 in the aggregate) actually
taken by the Company and its Subsidiaries during the fourth quarter
of the 1995 fiscal year of the Company and (vii) any foreign currency
losses of Panini and its Subsidiaries during such fiscal period and
(b) after deducting therefrom (without duplication) (i) extraordinary
gains (which extraordinary items of gain shall include, whether or
not so includable in accordance with GAAP, any item of gain resulting
from the sale, lease or other disposition of any principal property
of the Company or any of its Subsidiaries or the stock of any
Subsidiary of the Company), (ii) the portion of net income of the
Company and its Subsidiaries allocable to interests in unconsolidated
Persons to the extent that cash dividends or distributions in respect
of such portion of net income have not actually been received by the
Company or any of its Subsidiaries and (iii) any foreign currency
gains of Panini and its Subsidiaries during such fiscal period;
provided that, in calculating Consolidated Operating Cash Flow for
all purposes, only amounts derived from continuing operations, and
not from any assets which are held for disposition, of the Company
and its Subsidiaries shall be included in the calculation of
Consolidated Operating Cash Flow; and provided, further, that in
calculating Consolidated Operating Cash Flow for purposes of
calculating Excess Cash Flow, Toy Biz shall be deemed an
unconsolidated Person for purposes of clause (b)(ii) of this
definition;
"Marvel Studios" shall mean an entity to be formed by the
Company and/or any of its Subsidiaries and Toy Biz to facilitate the
development of feature films, television programming and other media;
"Participation Agreement" shall mean the Participation
Agreement, dated as of August 30, 1994, among the Local Lender, the
Banks and the Administrative Agent, as the same may be amended,
supplemented or otherwise modified from time to time;
<PAGE>
3
4. Amendment of Subsection 8.1. Subsection 8.1 of the Credit
Agreement hereby is amended by deleting said subsection in its entirety and by
substituting therefor the following:
(a) Leverage. Permit the Leverage Ratio as of the last day
of any fiscal quarter to occur during a period set forth below to
exceed the ratio set forth below opposite such period:
Period Ratio
Closing Date - 03/31/95 3.50 to 1.00
04/01/95 - 09/30/95 5.00 to 1.00
10/01/95 - 03/31/96 4.50 to 1.00
04/01/96 - 06/30/96 6.00 to 1.00
07/01/96 - 09/30/96 7.75 to 1.00
10/01/96 - 03/31/97 6.00 to 1.00
04/01/97 - 09/30/97 5.00 to 1.00
10/01/97 - 12/31/97 4.00 to 1.00
01/01/98 - thereafter 3.50 to 1.00
(b) Interest Coverage. Permit the Interest Coverage Ratio as
of the last day of any fiscal quarter to occur during a period set
forth below to be less than the ratio set forth below opposite such
period:
Period Ratio
Closing Date - 03/31/95 4.00 to 1.00
04/01/95 - 09/30/95 2.50 to 1.00
10/01/95 - 03/31/96 2.25 to 1.00
04/01/96 - 06/30/96 1.75 to 1.00
07/01/96 - 09/30/96 1.35 to 1.00
10/01/96 - 03/31/97 1.75 to 1.00
04/01/97 - 09/30/97 2.00 to 1.00
10/01/97 - 12/31/97 2.50 to 1.00
01/01/98 - thereafter 3.00 to 1.00
(c) Fixed Charge Coverage. Permit the ratio of (i)
Annualized Consolidated Operating Cash Flow as of the end of any
fiscal quarter which occurs during a period set forth below to (ii)
Fixed Charges for the four fiscal quarters then ending to be less
than the ratio set forth below opposite such period:
Period Ratio
Closing Date - 12/31/94 1.30 to 1.00
01/01/95 - 03/31/96 1.35 to 1.00
04/01/96 - 06/30/96 1.25 to 1.00
<PAGE>
4
07/01/96 - 09/30/96 1.10 to 1.00
10/01/96 - 03/31/97 1.25 to 1.00
04/01/97 - 06/30/97 1.35 to 1.00
07/01/97 - thereafter 1.50 to 1.00
5. Amendment of Subsection 7.2. Subsection 7.2 of the Credit
Agreement hereby is amended by:
(a) deleting the word "and" at the end of clause (e) thereof;
(b) inserting therein as a new clause (f) thereof the following:
"(f) during the month of December of the 1996
calendar year, (i) a budget for the 1997 fiscal year of the
Company and (ii) financial models for each remaining year
through the Termination Date, with such budget and financial
models being substantially similar in form to those
previously delivered to the Administrative Agent and being
accompanied by a certificate of a Responsible Officer of the
Company stating that such budget and financial models
represent the Company's best estimate of future performance
(based upon reasonable assumptions and with it being
understood that assumptions as to future results are
inherently subject to uncertainty and contingencies beyond
the control of the Company which can cause actual results to
be significantly higher or lower than those modelled); and"
(c) re-lettering existing clause (f) thereof as clause (g) thereof.
6. Amendment of Subsection 8.2(j). Subsection 8.2(j) of the
Credit Agreement hereby is amended by deleting the amount "Italian Lire
20,000,000,000" contained therein and by substituting therefor the amount
"Italian Lire 50,000,000,000".
7. Amendment of Subsection 8.3(q). Subsection 8.3(q) of the
Credit Agreement hereby is amended by deleting said subsection in its entirety
and by substituting therefor the following:
"(q) restrictions on the transfer of shares of capital stock
or other equity interests of (i) Toy Biz pursuant to the Stockholders
Agreement, dated as of April 30, 1993, among Toy Biz, Inc., Isaac
Perlmutter, Isaac Perlmutter T.A., the Company, Avi Arad and Toy Biz
and (ii) Marvel Studios pursuant to an agreement between the Company
(or any Subsidiary thereof which is the direct holder of equity
interests in Marvel Studios) and Toy Biz;"
8. Amendment of Subsection 8.8. Subsection 8.8 of the Credit
Agreement hereby is amended by:
(a) deleting the word "and" which appears at the end of clause (e) thereof;
<PAGE>
5
(b) deleting the period at the end of clause (f) thereof and substituting a
semi-colon followed by the word "and"; and
(c) inserting therein as a new clause (g) thereof the following:
"(g) the Company and its Subsidiaries may make
advances, loans, extensions of credit and capital
contributions to, or other investments in, Marvel Studios;
provided that the amount of such advances, loans, extensions
of credit, capital contributions and other investments shall
not exceed the lesser of (i) $15,000,000 and (ii) the Net
Proceeds from the sale by the Company and its Subsidiaries
of capital stock held by them in Toy Biz pursuant to
Registration Statement No. 333-07455 (filed with the
Securities and Exchange Commission on July 2, 1996)."
9. Amendment of Subsection 8.16. Subsection 8.16 of the
Credit Agreement hereby is amended by inserting at the end thereof the
following:
"provided that, for purposes of this subsection 8.16, Marvel Studios
shall, in any event, be deemed to be a Subsidiary of the Company;"
10. Representations and Warranties. Each of the Company and
Fleer hereby confirms, reaffirms and restates the representations and
warranties made by it in Section 5 of the Credit Agreement, provided that each
reference to the Credit Agreement therein shall be deemed to be a reference to
the Credit Agreement after giving effect to this Amendment. The Company
represents and warrants that, after giving effect to this Amendment, no
Default or Event of Default has occurred and is continuing.
11. Continuing Effect of Credit Agreement. This Amendment
shall not constitute a waiver, amendment or modification of any other
provision of the Credit Agreement not expressly referred to herein and shall
not be construed as a waiver or consent to any further or future action on the
part of the Company or Fleer that would require a waiver or consent of the
Banks or the Administrative Agent. Except as expressly amended or modified
herein, the provisions of the Credit Agreement are and shall remain in full
force and effect.
12. Counterparts. This Amendment may be executed by one or
more of the parties hereto on any number of separate counterparts and all such
counterparts shall be deemed to be one and the same instrument. Each party
hereto confirms that any facsimile copy of such party's executed counterpart
of this Amendment (or its signature page thereof) shall be deemed to be an
executed original thereof.
13. Effectiveness. This Amendment shall be effective upon
receipt by the Administrative Agent of:
<PAGE>
6
(a) counterparts hereof, duly executed and delivered by the Company,
Fleer and the Majority Banks; provided that the provisions of Section
2(b) hereof shall become effective only upon receipt of counterparts
hereof, duly executed and delivered by the Company, Fleer and the
Required Banks;
b) an amendment fee, for the account of each Bank, in the amount
equal to 1/4 of 1% of the sum of such Bank's (i) Commitment under the
Credit Agreement and (ii) Participating Interest under (and as
defined in) the Participation Agreement.
14. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
MARVEL ENTERTAINMENT GROUP, INC.
By: /s/ Bobby G. Jenkins
----------------------------------------------
Name: Bobby G. Jenkins
Title: Chief Financial Officer
FLEER CORP.
By: /s/ William H. Marks
----------------------------------------------
Name: William H. Marks
Title: Chief Financial Officer
THE CHASE MANHATTAN BANK
(formerly named Chemical Bank
and as successor by merger to
The Chase Manhattan Bank,
N.A.), as Administrative
Agent and as a Bank
By: /s/ John J. Huber
----------------------------------------------
Name: John J. Huber III
Title: Managing Director
<PAGE>
7
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., LOS ANGELES AGENCY
By: /s/ Genichi Imai
----------------------------------------------
Name: Genichi Imai
Title: Joint General Manager
THE BANK OF NEW YORK
By: /s/ Catherine G. Goff
----------------------------------------------
Name: Catherine G. Goff
Title: Assistant Vice President
CIBC, INC.
By:
----------------------------------------------
Name:
Title:
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Attila Koc
----------------------------------------------
Name: Attila Koc
Title: Vice President
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By: /s/ Attila Koc
----------------------------------------------
Name: Attila Koc
Title: Vice President
NATIONSBANK, N.A.
By: /s/ Lynn Callicott
----------------------------------------------
Name: Lynn Callicott
Title: Vice President
<PAGE>
8
CORESTATES BANK, N.A.
By: /s/ Edward J. Kothery
----------------------------------------------
Name: Edward J. Kothery
Title: Vice President
THE TORONTO-DOMINION BANK
By: /s/ Kimberly Burleson
----------------------------------------------
Name: Kimberly Burleson
Title: Mgr. Cr. Admin.
THE NIPPON CREDIT BANK, LTD.
By: /s/ Yoshihide Watanabe
----------------------------------------------
Name: Yoshihide Watanabe
Title: Vice President & Manager
BANK OF AMERICA ILLINOIS
By: /s/ Phillip F. Van Winkle
----------------------------------------------
Name: Phillip F. Van Winkle
Title: Vice President
BANK OF HAWAII
By: /s/ J. Bryan Scearce
----------------------------------------------
Name: J. Bryan Scearce
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON
By: /s/ Richard D. Hill, Jr.
----------------------------------------------
Name: Richard D. Hill, Jr.
Title: Director
<PAGE>
9
FLEET BANK
By:
----------------------------------------------
Name:
Title:
THE SUMITOMO BANK, LIMITED, NEW YORK
BRANCH
By: /s/ H. Kawamure
----------------------------------------------
Name: H. Kawamure
Title:
UNION BANK
By: /s/ Gabe Renga
----------------------------------------------
Name: Gabe Renga
Title: Senior Vice President
THE FUJI BANK, LTD. - NEW YORK
BRANCH
By: /s/ Teiji Teramoto
----------------------------------------------
Name: Teiji Teramoto
Title: Vice President & Manager
CITIBANK, N.A.
By: /s/ James Buchanan
----------------------------------------------
Name: James Buchanan
Title: Attorney-in-Fact
IBJ SCHRODER BANK & TRUST COMPANY
By: /s/ Ken Phillips
----------------------------------------------
Name: Ken Phillips
Title:
<PAGE>
10
ISTITUTO BANCARIO SAN PAOLO DI
TORINO, S.P.A., NEW YORK LIMITED BRANCH
By: /s/ Wendell Jones
----------------------------------------------
Name: Wendell Jones
Title: Vice President
By: /s/ Ittore Viazzo
----------------------------------------------
Name: Ittore Viazzo
Title: Vice President
FIRST HAWAIIAN BANK
By: /s/ William B. Schink
----------------------------------------------
Name: William B. Schink
Title: Vice President
LINE OF CREDIT
as of March 27, 1996
Fleer Corp.
Executive Plaza, Suite 300
1120 Route 73
Mount Laurel, New Jersey 08054
Dear Sirs:
We are pleased to advise you that each of the undersigned
financial institutions (each, a "Bank") hereby commits to provide to Fleer
Corp., a Delaware corporation ("Fleer"), revolving credit loans (the "Loans")
in an amount at any one time outstanding not to exceed the amount set forth
under its signature hereto and otherwise upon the terms (and subject to the
conditions) set forth herein. The obligations of the Banks hereunder are
several (and not joint), such that no Bank shall be responsible for the
failure of any other Bank to make its Loans hereunder.
1. Defined Terms. (a) Unless otherwise defined herein,
capitalized terms which are used herein and in the Notes shall have the
meanings assigned thereto in the Amended and Restated Credit and Guarantee
Agreement, dated as of August 30, 1994 (as amended, supplemented or otherwise
modified from time to time, the "Panini Credit Agreement"), among Marvel
Entertainment Group, Inc. ("Marvel"), Fleer, the financial institutions from
time to time parties thereto and Chemical Bank, as administrative agent.
(b) As used herein, the following terms shall have the
following meanings:
"Covered Documents" means the collective reference to (i)
the Panini Credit Agreement, (ii) the SkyBox Credit Agreement and
(iii) this Line of Credit.
"Marvel Guarantee" means the Marvel Guarantee, dated as of
March 27, 1996, made by Marvel in favor of the Agent, as the same may
be amended, supplemented or otherwise modified from time to time.
"SkyBox Credit Agreement" means the Credit and Guarantee
Agreement, dated as of April 24, 1995, among Marvel, Fleer, the banks
and other financial institutions from time to time parties thereto,
the Co-Agents named therein and Chemical Bank, as administrative
agent, as the same may be amended, supplemented or otherwise modified
from time to time.
<PAGE>
2
2. Availability and Maturity. (a) Subject to the terms and
conditions contained in this Line of Credit, Fleer may from time to time
borrow the Loans hereunder on any Business Day by giving irrevocable notice to
Chemical Bank, as agent for the Banks hereunder (in such capacity, the
"Agent"), specifying (i) the aggregate principal amount to be borrowed, (ii)
the requested borrowing date, (iii) whether the Loans to be borrowed are to be
Eurodollar Loans or Alternate Base Rate Loans or a combination thereof and, if
a combination, the respective aggregate amount of each type of borrowing and
(iv) if the Loans to be borrowed are Eurodollar Loans, the length of the
Interest Period or Interest Periods applicable thereto. Any such notice of
borrowing must be signed by an officer of Fleer and countersigned by the Chief
Financial Officer, the Chief Operating Officer or the Secretary of Fleer and
be received by the Agent prior to 11:00 A.M., New York City time, three
Working Days prior to the requested borrowing date, in the case of Eurodollar
Loans, and one Business Day prior to the requested borrowing date, in the case
of Alternate Base Rate Loans. Each borrowing hereunder shall be in an
aggregate principal amount equal to the lesser of (A) $1,000,000 or a whole
multiple of $100,000 in excess thereof (in the case of Eurodollar Loans) or
$250,000 or a whole multiple of $100,000 in excess thereof (in the case of
Alternate Base Rate Loans) or (B) the maximum amount then available hereunder.
Upon receipt of any such notice, the Agent will promptly notify each Bank
thereof. Each Bank will make available to the Agent at its office (the "Agency
Office") at 270 Park Avenue, New York, New York 10017 (or at such other
location as the Agent may direct), by 1:00 P.M., New York City time, on the
requested borrowing date, an amount equal to such Bank's ratable share of the
aggregate principal amount of the Loans requested to be borrowed on such date,
in Dollars and in funds immediately available to the Agent. The proceeds of
Loans received by the Agent hereunder shall promptly be made available to
Fleer by the Agent's crediting the account of Fleer, at the Agency Office,
with the aggregate amount actually received by the Agent from the Banks and in
like funds as received by the Agent.
(a) The commitments of the Banks hereunder shall expire on
December 31, 1996, at which time all amounts owing hereunder shall be due and
payable.
(b) The proceeds of the Loans shall be used only for the
purposes for which Revolving Credit Loans are available under (and as defined
in) the Panini Credit Agreement.
(c) The agreement of each Bank to make any Loan requested to
be made by it on any date is subject to the satisfaction of the following
conditions precedent:
(i) each of the representations and warranties made by
each party to this Line of Credit, each Security Document
and the Marvel Guarantee in or pursuant to this Line of
Credit, such Security Document or the Marvel Guarantee, or
contained in any certificate or financial statement
furnished at any time under or in connection with this Line
of Credit or any other Covered Document shall be true and
correct in all material respects on and as of such date as
if made on and as of such date, both before and after giving
effect to such Loan, and to all other
<PAGE>
3
extensions of credit to be made on such date and the use of
the proceeds thereof; and
(ii) no Default or Event of Default hereunder shall have
occurred and be continuing on such date or after giving
effect to the extensions of credit requested to be made on
such date.
3. Interest, Fees and Payments. (a) The Eurodollar Loans
shall bear interest on the unpaid principal amount thereof for each day during
each Interest Period with respect thereto at a rate per annum equal to the
Eurodollar Rate for such day plus 2-3/4%.
(a) The Alternate Base Rate Loans shall bear interest on the
unpaid principal amount thereof at a rate per annum equal to the Alternate
Base Rate plus 1-3/4%.
(b) If all or a portion of any amount owing hereunder or
under the Notes shall not be paid when due, then, for so long as such amount
remains unpaid, (i) if the overdue amount represents principal, such overdue
amount shall bear interest at a rate per annum which is 2% above the rate
which would otherwise be applicable pursuant to Paragraphs 3(a) or (b) hereof,
as the case may be, and (ii) if the overdue amount represents overdue
interest, fees or other amounts (other than the amounts described in clause
(i) of this Paragraph 3(c)) due under this Line of Credit or the Notes, such
overdue amount shall bear interest at a rate per annum equal to the Alternate
Base Rate plus 3-1/2%. During such time as any principal of or interest on any
Eurodollar Loans remains unpaid, such Eurodollar Loans shall be converted to
Alternate Base Rate Loans at the end of the respective Interest Periods
applicable thereto.
(c) Interest on each Loan accrued to but not including each
Interest Payment Date applicable thereto shall be payable in arrears on such
Interest Payment Date; provided, however, that interest accruing on the
principal of or (to the extent permitted by applicable law) interest or any
other amount payable in connection with any Loan not paid when due (whether at
stated maturity, by acceleration or otherwise), shall be payable from time to
time upon demand of the Agent.
(d) Fleer shall pay a commitment fee to the Agent, for the
ratable benefit of the Banks, from and including March 27, 1996 in the amount
for each day equal to (i) 3/8 of 1% per annum times (ii) (A) the amount equal
to the aggregate commitments hereunder on such day minus (B) the aggregate
outstanding principal amount of the Loans on such day. Such commitment fee
shall be payable, in arrears, on each of (I) September 30, 1996, (II) December
31, 1996 and (III) the date upon which the commitments hereunder are
terminated.
(e) Fleer may elect to convert Loans from Eurodollar Rate
Loans to Alternate Base Rate Loans or from Alternate Base Rate Loans to
Eurodollar Loans in the manner specified
<PAGE>
4
in subsection 4.5 (other than paragraph (d) of such subsection) of the Panini
Credit Agreement, the provisions of which are incorporated herein by reference,
mutatis mutandis.
(f) Interest and fees payable hereunder shall be calculated
in the manner specified in subsection 4.12 of the Panini Credit Agreement, the
provisions of which are incorporated herein by reference, mutatis mutandis.
(g) Fleer may prepay amounts owing hereunder, in whole or in
part, without premium or penalty (other than amounts payable hereunder
pursuant to the provisions of subsection 4.9 of the Panini Credit Agreement
which are incorporated herein by reference) at any time and from time to time
upon not less than one Business Day's notice to the Agent. Fleer may reduce
the commitments hereunder at any time and from time to time upon not less than
three Business Days' notice. Any such prepayment shall be in an amount which
is not less than the minimum borrowing amount specified in Paragraph 2 hereof
for such type of Loan and any such commitment reduction shall be in an amount
equal to not less than $1,000,000 or a whole multiple of $100,000 in excess
thereof.
(h) All borrowings hereunder shall be made ratably from the
Banks and all payments hereunder (other than those attributable to costs,
expenses and indemnities owing to the Agent or a single Bank in accordance
with the terms hereof) shall be made ratably to the Banks. All such payments
shall be made in accordance with the provisions of subsection 4.13(c) and (d)
of the Panini Credit Agreement, the provisions of which are incorporated
herein by reference, mutatis mutandis. The provisions of subsection 4.13(e) of
the Panini Credit Agreement also are incorporated herein by reference, mutatis
mutandis.
(i) The provisions of subsections 4.6, 4.7, 4.8, 4.9 and
4.10 of the Panini Credit Agreement are incorporated herein by reference,
mutatis mutandis.
4. Representations and Warranties. The provisions of Section
5 of the Panini Credit Agreement are incorporated herein by reference, mutatis
mutandis. Fleer hereby further represents and warrants that the amounts owing
hereunder shall at all times rank not less than pari passu with the amounts
owing under the Panini Credit Agreement and that any and all collateral
security and guarantees provided to the Administrative Agent and the Banks
under (and as defined in) the Panini Credit Agreement shall secure and support
amounts owing hereunder on an equal and ratable basis.
5. Affirmative Covenants. The provisions of Section 7 of the
Panini Credit Agreement are incorporated herein by reference, mutatis
mutandis.
6. Negative Covenants. The provisions of Section 8 of the
Panini Credit Agreement are incorporated herein by reference, mutatis
mutandis.
<PAGE>
5
7. Events of Default. The provisions of Section 10 of the
Panini Credit Agreement are incorporated herein by reference, mutatis
mutandis. For the avoidance of dispute, Fleer hereby acknowledges and agrees
that any Default or Event of Default under the Panini Credit Agreement shall
constitute a "Default" or "Event of Default," respectively, hereunder. In
addition, the failure by Fleer to pay any principal of or interest on any Loan
or Note executed and delivered by Fleer in connection with this Line of Credit
when due in accordance with the terms thereof or hereof, or failure by Fleer
to pay any fee or other amount payable in connection with any Covered Document
within five days after the date when due shall also constitute an "Event of
Default" hereunder. Upon the occurrence of any "Event of Default" hereunder,
the Agent may (with the consent of the holders of at least a majority of the
commitments hereunder) or shall (upon the direction of the holders of at least
a majority of the commitments hereunder) declare all amounts owing hereunder
to be immediately due and payable and the commitments hereunder to be
terminated; provided that the commitments hereunder shall be terminated and
all such amounts shall be immediately due and payable (in each such case)
automatically and without action on the part of any party hereto upon the
occurrence of any Event of Default specified in Section 10(g) of the Panini
Credit Agreement.
8. Agency Provisions. The provisions of Section 11 of the
Credit Agreement are incorporated herein by reference, mutatis mutandis. For
avoidance of doubt, Fleer and each Bank hereby agree that the Agent shall be
entitled to all protections and indemnities, and shall have all rights,
available to the Administrative Agent under (and as defined in) the Panini
Credit Agreement.
9. Effectiveness. This Line of Credit shall become effective
upon:
(a) receipt by the Agent, for the account of each Bank, a
Note in substantially the form of Exhibit A hereto (collectively, the
"Notes");
(b) receipt by the Agent of certified resolutions, in form
and substance reasonably satisfactory to the Agent; and
(c) receipt by the Agent of a legal opinion of Paul, Weiss,
Rifkind, Wharton & Garrison in form and substance reasonably
satisfactory to the Agent.
10. Miscellaneous. (a) The provisions hereof may not be
amended, supplemented or otherwise modified, except pursuant to a written
agreement which has been executed by Fleer, the Agent and Banks holding not
less than a majority of the commitments hereunder.
<PAGE>
6
All notices, consents, requests and demands to or upon the respective
parties hereto to be effective shall be in writing and, unless otherwise
expressly provided herein, shall be deemed to have been duly given or made
when delivered by hand, or three Business Days after being deposited in the
mail, certified mail, return receipt requested, postage prepaid, or, in the
case of telecopy notice, when sent, addressed as follows in the case of Fleer
and the Agent, and as set forth under its signature hereto in the case of each
of the other parties hereto, or to such address or other address as may be
hereafter notified by any of the respective parties hereto:
Fleer: Fleer Corp.
Executive Plaza, Suite 300
1120 Route 73
Mount Laurel, New Jersey 08054
Attention: William H. Hardie
Telecopy: (609) 727-9460
with a copy to:
Marvel Entertainment Group, Inc.
387 Park Avenue South
New York, New York 10016
Attention: Secretary
Telecopy: (212) 576-8588
The Agent: Chemical Bank
270 Park Avenue - 10th Floor
New York, New York 10017
Attention: Global Media and
Telecommunications Group
Telecopy: (212) 270-2056
with a copy to:
Chemical Bank Agency
Services Corporation
140 East 45th Street
New York, New York 10015
Attention: Janet Belden
Telecopy: (212) 270-0854
<PAGE>
7
provided that any notice, request or demand to or upon the Administrative
Agent pursuant to Paragraph 2 hereof shall not be effective until received.
(b) This Line of Credit may be executed by one or more of
the parties to this Line of Credit on any number of separate counterparts and
all of said counterparts taken together shall be deemed to constitute one and
the same instrument. A set of the copies of this Line of Credit signed by all
the parties shall be lodged with Fleer and the Agent.
(C) FLEER HEREBY IRREVOCABLY AND UNCONDITIONALLY:
(I) SUBMITS FOR ITSELF AND ITS PROPERTY IN ANY LEGAL
ACTION OR PROCEEDING RELATING TO THIS LINE OF CREDIT OR ANY OTHER
SECURITY DOCUMENT TO WHICH IT IS A PARTY, OR FOR RECOGNITION AND
ENFORCEMENT OF ANY JUDGMENT IN RESPECT THEREOF, TO THE NON-EXCLUSIVE
GENERAL JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK, THE
COURTS OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK,
AND APPELLATE COURTS FROM ANY THEREOF;
(II) CONSENTS THAT ANY SUCH ACTION OR PROCEEDING MAY BE
BROUGHT IN SUCH COURTS AND WAIVES TRIAL BY JURY AND ANY OBJECTION
THAT IT MAY NOW OR HEREAFTER HAVE TO THE VENUE OF ANY SUCH ACTION OR
PROCEEDING IN ANY SUCH COURT OR THAT SUCH ACTION OR PROCEEDING WAS
BROUGHT IN AN INCONVENIENT COURT AND AGREES NOT TO PLEAD OR CLAIM THE
SAME;
(III) AGREES THAT SERVICE OF PROCESS IN ANY SUCH ACTION OR
PROCEEDING MAY BE EFFECTED BY MAILING A COPY THEREOF BY REGISTERED OR
CERTIFIED MAIL (OR ANY SUBSTANTIALLY SIMILAR FORM OF MAIL), POSTAGE
PREPAID, TO IT AT ITS ADDRESS SET FORTH IN PARAGRAPH 10(B) HEREOF OR
AT SUCH OTHER ADDRESS OF WHICH THE AGENT SHALL HAVE BEEN NOTIFIED
PURSUANT HERETO; AND
(IV) AGREES THAT NOTHING HEREIN SHALL AFFECT
THE RIGHT TO EFFECT SERVICE OF PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR SHALL LIMIT THE RIGHT TO SUE IN ANY
OTHER JURISDICTION.
(D) EACH OF FLEER, THE AGENT AND THE BANKS HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY
<PAGE>
8
LEGAL ACTION OR PROCEEDING REFERRED TO IN PARAGRAPH 10(D)
HEREOF.
(E) THIS LINE OF CREDIT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK.
(f) The provisions of subsections 12.3 through (and
including) 12.8 of the Panini Credit Agreement are incorporated herein by
reference, mutatis mutandis.
If the foregoing is acceptable to you, please have the
enclosed copy of this Line of Credit signed by a duly authorized officer of
Fleer in the space provided below and returned to the Agent on or before July
13, 1996. This Line of Credit shall be of no force or effect and shall be
unenforceable against the Agent and the Banks unless signed and returned to
the Agent by such date.
Very truly yours,
CHEMICAL BANK, as Agent
and as a Bank
By: /s/ John J. Huber
---------------------------
Title: Managing Director
Commitment: $25,000,000
Address for Notices:
Chemical Bank
270 Park Avenue - 10th Floor
New York, New York 10017
Attention: Global Media and
Telecommunications Group
Telecopy: (212) 270-2056
Accepted and Agreed:
FLEER CORP.
<PAGE>
9
By: /s/ William Hardie
--------------------------------
Title: Executive Vice President
<PAGE>
EXHIBIT A
NOTE
$25,000,000.00 New York, New York
March 27, 1996
FOR VALUE RECEIVED, the undersigned, FLEER CORP., a Delaware
corporation (the "Borrower"), hereby unconditionally promises to pay to the
order of CHEMICAL BANK (the "Lender") at the office of Chemical Bank, located
at 270 Park Avenue, New York, New York 10017, in lawful money of the United
States of America and in immediately available funds, on December 31, 1996 the
principal amount of (a) TWENTY FIVE MILLION AND 00/100 DOLLARS
($25,000,000.00), or, if less, (b) the aggregate unpaid principal amount of
all Loans made by the Lender to the Borrower pursuant to the Line of Credit,
as hereinafter defined. The Borrower further agrees to pay interest in like
money at such office on the unpaid principal amount hereof from time to time
outstanding at the rates and on the dates specified in the Line of Credit.
The holder of this Note is authorized to endorse on the
schedules annexed hereto and made a part hereof or on a continuation thereof
which shall be attached hereto and made a part hereof the date, type and
amount of each Loan made pursuant to the Line of Credit and the date and
amount of each payment or prepayment of principal thereof, each continuation
thereof, each conversion of all or a portion thereof to another type and, in
the case of Eurodollar Loans, the length of each Interest Period with respect
thereto. Each such endorsement shall constitute prima facie evidence of the
accuracy of the information endorsed. The failure to make any such endorsement
shall not affect the obligations of the Borrower in respect of such Loan.
This Note (a) is one of the Notes referred to in the Line of
Credit, dated as of March 27, 1996 (as amended, supplemented or otherwise
modified from time to time, the "Line of Credit"), among the Borrower, the
Lender, the other financial institutions from time to time parties thereto and
Chemical Bank, as agent, (b) is subject to the provisions of the Line of
Credit and (c) is subject to optional and mandatory prepayment in whole or in
part as provided in the Line of Credit. This Note is secured and guaranteed as
provided in the Security Documents and the Marvel Guarantee. Reference is
hereby made to the Covered Documents, the Security Documents and the Marvel
Guarantee for a description of the properties and assets in which a security
interest has been granted, the nature and extent of the security and the
guarantees, the terms and conditions upon which the security interests and
each guarantee were granted and the rights of the holder of this Note in
respect thereof.
Upon the occurrence of any one or more of the Events of
Default under the Line of Credit, all amounts then remaining unpaid on this
Note shall become, or may be declared to be, immediately due and payable, all
as provided in the Line of Credit.
<PAGE>
2
All parties now and hereafter liable with respect to this
Note, whether maker, principal, surety, guarantor, endorser or otherwise,
hereby waive presentment, demand, protest and all other notices of any kind.
Unless otherwise defined herein, terms defined in the Line
of Credit and used herein shall have the meanings given to them in the Line of
Credit.
THIS NOTE SHALL BE GOVERNED BY, AND CONSTRUED AND
INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW
YORK.
FLEER CORP.
By:
-----------------------------------------
Name:
Title:
<PAGE>
Schedule A to
Note
LOANS, CONVERSIONS AND
PAYMENTS OF EURODOLLAR LOANS
<TABLE>
<CAPTION>
Amount
Amount of of
Alternate Eurodollar
Base Rate Interest Loans Unpaid
Amount Loans Period and Converted Principal
of Converted Eurodollar into Amount Balance
Eurodollar into Rate with Alternate of of
Loans Eurodollar Respect Base Rate Principal Eurodollar Notation
Date Made Loans Thereto Loans Repaid Loans Made by
- ---- ---------- ---------- ---------- ---------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
- -------- ---------- ---------- ---------- ---------- --------- ---------- ------------
- -------- ---------- ---------- ---------- ---------- --------- ---------- ------------
- -------- ---------- ---------- ---------- ---------- --------- ---------- ------------
- -------- ---------- ---------- ---------- ---------- --------- ---------- ------------
- -------- ---------- ---------- ---------- ---------- --------- ---------- ------------
- -------- ---------- ---------- ---------- ---------- --------- ---------- ------------
- -------- ---------- ---------- ---------- ---------- --------- ---------- ------------
- -------- ---------- ---------- ---------- ---------- --------- ---------- ------------
- -------- ---------- ---------- ---------- ---------- --------- ---------- ------------
- -------- ---------- ---------- ---------- ---------- --------- ---------- ------------
- -------- ---------- ---------- ---------- ---------- --------- ---------- ------------
- -------- ---------- ---------- ---------- ---------- --------- ---------- ------------
- -------- ---------- ---------- ---------- ---------- --------- ---------- ------------
- -------- ---------- ---------- ---------- ---------- --------- ---------- ------------
- -------- ---------- ---------- ---------- ---------- --------- ---------- ------------
- -------- ---------- ---------- ---------- ---------- --------- ---------- ------------
- -------- ---------- ---------- ---------- ---------- --------- ---------- ------------
- -------- ---------- ---------- ---------- ---------- --------- ---------- ------------
- -------- ---------- ---------- ---------- ---------- --------- ---------- ------------
</TABLE>
<PAGE>
Schedule B to
Note
LOANS, CONVERSIONS AND
PAYMENTS OF ALTERNATE BASE RATE LOANS
<TABLE>
<CAPTION>
Amount
Amount of of
Eurodollar Alternate
Loans Base Rate Unpaid
Converted Loans Principal
Amount of into Converted Amount Balance of
Alternate Alternate into of Alternate
Base Rate Base Rate Eurodollar Principal Base Rate Notation
Date Loan Made Loans Loans Repaid Loans Made by
- -------- ------------ ---------- ---------- --------- ---------- -------
<S> <C> <C> <C> <C> <C> <C>
- -------- ------------ ---------- ---------- --------- ---------- --------
- -------- ------------ ---------- ---------- --------- ---------- --------
- -------- ------------ ---------- ---------- --------- ---------- --------
- -------- ------------ ---------- ---------- --------- ---------- --------
- -------- ------------ ---------- ---------- --------- ---------- --------
- -------- ------------ ---------- ---------- --------- ---------- --------
- -------- ------------ ---------- ---------- --------- ---------- --------
- -------- ------------ ---------- ---------- --------- ---------- --------
- -------- ------------ ---------- ---------- --------- ---------- --------
- -------- ------------ ---------- ---------- --------- ---------- --------
- -------- ------------ ---------- ---------- --------- ---------- --------
- -------- ------------ ---------- ---------- --------- ---------- --------
- -------- ------------ ---------- ---------- --------- ---------- --------
- -------- ------------ ---------- ---------- --------- ---------- --------
- -------- ------------ ---------- ---------- --------- ---------- --------
- -------- ------------ ---------- ---------- --------- ---------- --------
- -------- ------------ ---------- ---------- --------- ---------- --------
- -------- ------------ ---------- ---------- --------- ---------- --------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the Marvel
Entertainment Group, Inc. Condensed Consolidated Balance Sheets and Statements
of Operations.
</LEGEND>
<CIK> 0000874808
<NAME> Marvel Entertainment Group, Inc.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 22,700,000
<SECURITIES> 0
<RECEIVABLES> 251,400,000
<ALLOWANCES> 36,200,000
<INVENTORY> 95,900,000
<CURRENT-ASSETS> 462,900,000
<PP&E> 112,500,000
<DEPRECIATION> 30,300,000
<TOTAL-ASSETS> 1,200,400,000
<CURRENT-LIABILITIES> 260,300,000
<BONDS> 0
0
0
<COMMON> 1,000,000
<OTHER-SE> 191,400,000
<TOTAL-LIABILITY-AND-EQUITY> 1,200,400,000
<SALES> 371,800,000
<TOTAL-REVENUES> 371,800,000
<CGS> 229,300,000
<TOTAL-COSTS> 229,300,000
<OTHER-EXPENSES> 117,200,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 27,500,000
<INCOME-PRETAX> (14,200,000)
<INCOME-TAX> (3,700,000)
<INCOME-CONTINUING> (15,400,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (15,400,000)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> 0
</TABLE>
