UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 1-10779
MARVEL ENTERTAINMENT GROUP, INC.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 94-3024816
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(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 November 8, 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 THIRD QUARTER 1996 FORM 10-Q
<TABLE>
<CAPTION>
Page
----
<S> <C>
Condensed Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995 ................ 3
Condensed Consolidated Statements of Operations for the quarters and nine months ended
September 30, 1996 and 1995 ....................................................................... 4
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1996 and 1995 5
Notes to Condensed Consolidated Financial Statements ................................................ 6
Management's Discussion and Analysis of Financial Condition and Results of Operations ............... 12
Other Information ................................................................................... 19
Signatures .......................................................................................... 20
</TABLE>
2
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in millions)
(unaudited)
September 30, December 31,
1996 1995
------------- ------------
ASSETS
Current assets:
Cash.............................................. $35.9 $53.6
Accounts receivable, net.......................... 257.2 236.7
Inventories, net.................................. 99.1 82.4
Deferred income taxes............................. 32.5 50.4
Income tax receivable............................. 18.2 24.6
Prepaid expenses and other........................ 58.2 42.9
-------- --------
Total current assets........................... 501.1 490.6
Property, plant and equipment, net................... 87.7 71.3
Goodwill and other intangibles, net.................. 595.7 604.0
Deferred charges and other........................... 75.9 60.4
-------- --------
Total Assets.................................. $1,260.4 $1,226.3
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $95.8 $104.8
Accrued expenses and other ....................... 170.1 194.8
Short term borrowings (See Note 3) ............. 28.7 13.3
Current portion of long-term debt (See Note 4).. 625.8 5.2
-------- --------
Total current liabilities....................... 920.4 318.1
Long-term debt (See Note 4)........................ 0 581.3
Other long-term liabilities.......................... 56.6 48.7
-------- --------
Total Liabilities............................... 977.0 948.1
-------- --------
Minority interest in Toy Biz......................... 102.9 70.5
Stockholders' equity:
Common Stock...................................... 1.0 1.0
Additional paid-in capital........................ 93.1 92.4
Retained earnings ................................ 86.1 114.0
Cumulative translation adjustment ................ 0.3 0.3
-------- --------
Total Stockholders' Equity...................... 180.5 207.7
-------- --------
Total Liabilities and Stockholders' Equity...... $1,260.4 $1,226.3
======== ========
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 Nine Months
Ended September 30, Ended September 30,
-------------------------- -----------------------
1996 1995 1996 1995
------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Net revenues................................................. $209.4 $ 269.0 $ 581.2 $ 596.1
------ -------- -------- --------
Operating Expenses:
Cost of sales................................................ 143.1 138.8 372.4 352.6
Selling, general & administrative expenses................... 60.5 62.4 168.1 156.0
Depreciation and amortization................................ 6.3 4.9 15.6 12.4
------ -------- -------- --------
Total Operating Expenses..... 209.9 206.1 556.1 521.0
Amortization of goodwill, intangibles and deferred charges... 5.8 5.3 16.8 12.6
Interest expense, net........................................ 15.2 11.9 42.7 30.2
Foreign exchange loss/(gain), net............................ 0.6 -- 2.1 (0.8)
Gain on sale of Toy Biz common stock (See Notes 6 and 8)... 22.0 -- 22.0 14.3
Equity in net (loss) income of unconsolidated subsidiaries... (0.8) 0.8 (0.6) 1.6
------ -------- -------- --------
(Loss) income before provision (benefit) for income taxes,
minority interest and extraordinary item................... (0.9) 46.5 (15.1) 49.0
Provision (benefit) for income taxes......................... 3.0 21.0 (0.7) 25.6
------ -------- -------- --------
(Loss) income before minority interest and extraordinary
item....................................................... (3.9) 25.5 (14.4) 23.4
Minority interest in earnings of Toy Biz..................... 8.6 5.9 13.5 10.0
------ -------- -------- --------
(Loss) income before extraordinary item...................... (12.5) 19.6 (27.9) 13.4
Extraordinary item, net of taxes............................. -- -- -- (3.3)
------ -------- -------- --------
Net (loss) income............................................ ($12.5) $19.6 ($27.9) $10.1
====== ======== ======== ========
(Loss) earnings per share:
(Loss) income before extraordinary item...................... ($ .12) $ .19 ($ .27) $ .13
Extraordinary item........................................... -- -- -- ($ .03)
------ -------- -------- --------
Net (loss) income ........................................... ($ .12) $ .19 ($ .27) $ .10
====== ======== ======== ========
Weighted average number of common and common equivalent shares
outstanding (in millions).................................. 101.8 104.2 101.8 104.0
====== ======== ======== ========
</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>
Nine Months Ended
September 30,
---------------------------
1996 1995
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income.............................................................. ($ 27.9) $ 10.1
------- ------
Adjustments to reconcile net (loss) income to net cash used in operating
activities:
Depreciation and amortization .............................................. 32.8 24.8
Provision for deferred income taxes ........................................ 8.5 19.6
Extraordinary item, net..................................................... -- 3.3
Undistributed earnings of unconsolidated subsidiaries....................... 0.6 (1.6)
Distributions from unconsolidated subsidiary................................ -- 3.0
Gain from sale of Toy Biz common stock...................................... (22.0) (14.3)
Minority interest in earnings of Toy Biz.................................... 13.5 10.0
Changes in assets and liabilities, net of effect in 1995 of previously
unconsolidated subsidiary and SkyBox Acquisition......................... (75.5) (73.6)
------- ------
Total adjustments.............................................................. (42.1) (28.8)
------- ------
Net cash used in operating activities..................................... (70.0) (18.7)
------- ------
Cash flows from investing activities:
Capital expenditures (including product development and package design costs) (33.0) (26.1)
Net proceeds from sale of investment in Toy Biz.............................. 35.7 --
Acquisition of SkyBox, net of cash and cash equivalents acquired............. -- (159.5)
Other acquisitions........................................................... -- (14.4)
Other investing activities................................................... (8.0) (5.6)
------- ------
Net cash used in investing activities..................................... (5.3) (205.6)
------- ------
Cash flows from financing activities:
Net (repayments) borrowings under term portion of credit agreements.......... (5.3) 184.9
Net borrowings (repayments) under revolving portion of credit agreement...... 17.0 (2.0)
Borrowings related to Adespan adhesives facility............................. 6.3 --
Net borrowings (repayments) of other debt.................................... 30.5 (5.8)
Net proceeds to Toy Biz from common stock offerings.......................... 9.7 44.2
Proceeds from exercise of stock options...................................... 0.5 8.3
Debt issuance costs.......................................................... (1.4) (8.1)
Other financing activities................................................... (1.0) --
------- ------
Net cash provided by financing activities................................. 56.3 221.5
------- ------
Effect of exchange rate changes on cash ....................................... 1.3 1.9
------- ------
Cash balance from previously unconsolidated subsidiary ........................ -- 7.5
------- ------
Net (decrease) increase in cash ............................................... (17.7) 6.6
Cash, at beginning of period................................................... 53.6 18.1
------- ------
Cash, at end of period......................................................... $ 35.9 $ 24.7
======= ======
Supplemental disclosures of cash flow information:
Interest paid during the period........................................... $ 45.9 $ 27.3
Income taxes paid, net of refunds, during the period...................... ($ 2.4) $ 7.9
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.
During the quarter ended September 30, 1996, the Company continued to
experience significant losses in its trading card and publishing businesses. As
a result, the Company has failed to satisfy certain financial covenants
contained in its Credit Agreements (as defined below) (see Note 4). The Company
has reclassified long-term debt to current liabilities as a result of the
Company's failure to satisfy certain financial covenants and the absence of
waivers as of this date relating thereto. Given the unfavorable market
conditions in trading cards and publishing, the Company is evaluating whether
there has been an impairment to goodwill and other intangible assets and is
considering restructuring and other actions, all of which could result in
substantial 1996 year end charges. See further discussion in Management's
Discussion and Analysis of Financial Condition and Results of Operations.
2. DETAIL OF CERTAIN BALANCE SHEET ACCOUNTS
ACCOUNTS RECEIVABLE, NET:
September 30, December 31,
1996 1995
------------- --------------
Accounts receivable................... $292.3 $314.5
Less: Allowances..................... (35.1) (77.8)
------ ------
$257.2 $236.7
====== ======
INVENTORIES, NET:
Finished goods ....................... $ 79.6 $ 58.8
Work in process....................... 19.3 22.3
Raw materials ........................ 23.7 23.7
Less: Reserve for obsolescence ...... (23.5) (22.4)
------ ------
$ 99.1 $ 82.4
====== ======
GOODWILL AND OTHER INTANGIBLES, NET:
Goodwill and other intangibles ....... $649.7 $645.7
Less: Accumulated amortization ...... (54.0) (41.7)
------ ------
$595.7 $604.0
====== ======
Goodwill and other intangibles, net related to the trading card operations of
the Company was approximately $365.0 and $375.0 as of September 30, 1996 and
December 31, 1995, respectively.
6
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
ACCRUED EXPENSES AND OTHER:
September 30, December 31,
1996 1995
------------- -------------
Royalties and incentives................... $ 29.1 $ 21.4
Reserve for returns ....................... 40.3 59.0
Income taxes payable ...................... 4.0 19.7
Other ..................................... 96.7 94.7
------ ------
$170.1 $194.8
====== ======
3. SHORT-TERM BORROWINGS
Under line of credit arrangements for short-term borrowings with a
group of banks, Panini may borrow up to Italian Lire 73.2 billion
(approximately $48.0 based on exchange rates at September 30, 1996) on such
terms as Panini and the banks may mutually agree upon. These arrangements do
not have termination dates but are reviewed annually for renewal. At September
30, 1996, the unused portion of the credit lines was Italian Lire 29.4 billion
(approximately $19.3 based on exchange rates at September 30, 1996). The
weighted average interest rate on short-term borrowings as of September 30,
1996 was 7.74%.
4. DEBT
Debt consists of the following:
September 30, December 31,
1996 1995
------------- ------------
U.S. Term Loan Agreement ........................... $350.0 $350.0
Term Loan Agreement ................................ 139.9 139.5
Amended and Restated Credit Agreement:
Revolving credit facility ..................... 104.5 87.5
Capital lease obligations and other long term debt . 31.4 9.5
------ ------
Less current maturities ............................ 625.8 586.5
Long-term debt ..................................... 625.8 5.2
------ ------
$ -- $581.3
====== ======
The Company has experienced greater than expected operating losses,
and as a result has failed to satisfy certain financial covenants contained in
the Credit Agreements (as defined below) and has commenced discussions with its
agent bank seeking waivers of these covenants and a restructuring of the Credit
Agreements to provide for its cash requirements. The Company believes that the
restructuring of the Credit Agreements will require an infusion of new equity
capital and has received a proposal from Andrews Group Incorporated ("Andrews
Group"), a parent corporation, regarding such equity infusion, which is subject
to a number of significant conditions, (see Note 8). As a result of the
Company's failure to satisfy certain financial covenants and in the absence of
waivers as of this date relating thereto, the balance of long-term debt has
been reclassified to current liabilities. In addition, as a result of the
Company's failure to satisfy the financial covenants contained in the Credit
Agreements, rollovers of existing Eurocurrency Rate Loans will be made as
Alternate Base Rate Loans or Negotiated Rate Loans thereby likely increasing
the Company's borrowing costs. There can be no assurance that the debt can be
restructured on favorable terms to the Company or that an additional capital
infusion will be received by the Company.
The Company's indebtedness is principally represented by 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
7
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
Agreement, as defined below. The Applicable Margin under the Amended and
Restated Credit Agreement for Alternate Base Rate loans range from 0% to 1% and
for Eurodollar Rate loans 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 September 30, 1996 was approximately 7 5/16% to 7 23/32% 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 purposes of the Company and
for investments within an aggregate limit.
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"). 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), or the Alternate Base Rate (as defined in the U.S. Term Loan
Agreement) plus, in each case, the Applicable Margin (as defined in this
paragraph). Eurodollar Rate Loans will, at the option of the Company, 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 September 30, 1996, was approximately 8 1/16% to 8 3/16%
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.
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"). Through September 30, 1996 the Company paid Italian Lire 31.2
billion (approximately $20.5) due under the Term Loan Facility.
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 September 30, 1996, was
approximately 10.46%. 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 change of control covenant. 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 the U.S. Term
Loan Agreement, the Amended and Restated Credit Agreement and the Term Loan
Agreement 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
8
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
of the Company's domestic assets, other than the Company's investment in common
stock of Toy Biz, 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 (collectively with the U.S.
Term Loan Agreement, the Amended and Restated Credit Agreement and the Term
Loan Agreement, the "Credit Agreements"). The additional revolving credit
facility bears interest at a rate per annum equal to the Eurodollar Rate (as
defined in the Term Loan Agreement), plus 2 3/4%, or the Alternate Base Rate
(as defined in the Term Loan Agreement) plus 1 3/4%. The interest rate on the
additional revolving credit facility at September 30, 1996 was 8 7/16%.
In conjunction with the Toy Biz IPO (as defined below), 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, in each case, 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
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.
5. 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 $6.5 has been paid as of September 30, 1996. Additionally,
approximately $6.7 of the restructuring charges relates to facility closure and
consolidation costs, of which $5.4 has been paid as of September 30, 1996, and
$7.6 of the restructuring charges relates to other costs, of which $4.6 has
been paid as of September 30, 1996. A substantial portion of the remaining
amount of $8.5 as of September 30, 1996, which is included in accrued expenses
and other, is scheduled to be paid in the fourth quarter of 1996 with the
remainder to be paid in accordance with the terms of various agreements.
6. TOY BIZ COMMON STOCK OFFERINGS
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. As part of the Toy Biz IPO, a
stockholder sold 700,000 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. In August, 1996, Toy Biz sold in an
offering 700,000 shares of its class A common stock at a price to the public of
$15 per share. As part of the Toy Biz offering, the Company sold 2.5 million
shares of its Toy Biz class A common stock. In the third quarter of 1996, the
Company recorded a gain on the sale of this common stock of approximately
$22.0. The net proceeds to Toy Biz and the Company were approximately $9.1 and
$35.7, respectively, after deducting amounts accrued for estimated fees and
expenses.
9
<PAGE>
MARVEL ENTERTAINMENT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
In conjunction with the Toy Biz IPO, the Company's equity ownership
percentage of Toy Biz decreased to 36.6% and its voting control increased to
85.3% and, as a result of the increase in voting control, 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. As a result
of the Company's sale of class A common stock of Toy Biz in August 1996, the
Company's ownership percentage of Toy Biz decreased to 26.7% and its voting
control decreased to 78.4% (See Note 8).
7. SKYBOX ACQUISITION
On April 27, 1995, the Company acquired all of the issued and
outstanding shares of SkyBox common stock for $165.0. The SkyBox Acquisition
was accounted for using the purchase method of accounting. The purchase price
has been allocated to the identified assets and liabilities based on their
respective fair values. 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
currently being amortized over forty years on the straight-line basis.
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 $117.0 for the
nine months ended September 30, 1995, of which $102.3 is included in the
Company's consolidated net revenues.
For the Nine Months Ended
September 30, 1995
------------------
Net revenues ..................................... $ 621.1
Income before extraordinary item ................. $ 8.8
Net income ....................................... $ 5.5
Earnings per share:
Income before extraordinary item ................. $ .09
Extraordinary item ............................... $ (.03)
-------
Net income ....................................... $ .06
=======
8. SUBSEQUENT EVENT
The Company has experienced greater than expected operating losses in
the third quarter of 1996, and as a result has failed to satisfy certain
financial covenants contained in the Credit Agreements. The Company has
commenced discussions with The Chase Manhattan Bank, the agent bank under the
Credit Agreements, seeking waivers of these covenants and a restructuring of
the Credit Agreements to provide for the Company's cash requirements. The
Company believes that such a restructuring will require an infusion of new
equity capital and has received a proposal from Andrews Group regarding such
equity infusion, which is subject to a number of significant conditions. As a
result of the Company's failure to satisfy certain financial covenants and in
the absence of waivers as of this date relating thereto, the balance of
long-term debt has been reclassified to current liabilities.
On October 17, 1996, Andrews Group announced that it had reached
agreement with each of Isaac Perlmutter and Avi Arad to purchase approximately
67% of the class A common stock of Toy Biz for cash and debt of Andrews Group.
On November 12, 1996, the Company received a proposal from Andrews Group to
acquire from the Company a number of shares of Marvel common stock (or its
equivalent) that would represent 80.1% of the shares of Marvel common stock
after giving effect to such acquisition. Based on the approximately 101.8
million shares of Marvel common stock outstanding, this would require the
issuance of approximately 410 million
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MARVEL ENTERTAINMENT GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
shares of Marvel common stock (or its equivalent). The purchase price for the
acquisition would be $350 in cash or, at the option of Andrews Group, an equal
value of the shares of class A common stock of Toy Biz or a combination of the
foregoing (the "Andrews Investment"). The Andrews Group proposal states that
the shares of Toy Biz class A common stock so transferred would be valued on
the basis of the cost to Andrews Group of acquiring such stock. The Andrews
Group proposal states that any contribution by Andrews Group to the Company of
shares of Toy Biz class A common stock would be made in the context of Toy Biz
becoming a wholly owned subsidiary of the Company.
The Andrews Group proposal states that the consummation of the Andrews
Group Investment would be subject to a number of significant conditions,
including the satisfaction of the conditions set forth in the agreements
between Andrews Group and Messrs. Perlmutter and Arad, an agreement for the
acquisition of Toy Biz having been executed and all condition to that agreement
having been satisfied, receipt of certain consents and amendments under the
Credit Agreements, including to provide for the additional borrowing capacity
that the Company requires, the satisfactory resolution by Andrews Group of a
number of issues under the Marvel parent holding company indentures, including
that any Marvel common stock (or its equivalent) purchased by Andrews Group not
be subject to the liens thereunder, and the execution of a definitive agreement
for the Andrews Group Investment which contains appropriate representations,
warranties, covenants and conditions customary for transactions of the nature
of the Andrews Group Investment. There can be no assurance that agreement will
be reached on the terms of any of the foregoing transactions or that any of the
foregoing transactions will be consummated. See Management Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources.
A copy of the Andrews Group proposal has been forwarded to a special
committee of the Company's board of directors comprised of outside directors,
who are not affiliated with Andrews Group, for consideration. In addition, in
anticipation of receiving a proposal, the board of directors of Toy Biz formed
a special committee of outside directors who are not affiliated with Andrews
Group or the Company to consider, on behalf of the minority stockholders of Toy
Biz, any proposal that may be made.
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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. 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.
In recent years there has been an overall decline in the comic book
specialty store industry, and more specifically, a significant reduction in
speculative purchases of comic books, which has adversely affected the
Company's publishing revenues. In response, the Company has undertaken several
strategic actions including: eliminating unprofitable and marginally profitable
titles to create a strong line-up comprising Marvel's most popular and most
profitable titles; focusing its comic books more on editorial content and less
on physical product features and enhancements; and streamlining operations
through introduction of new technology and consolidation of facilities.
However, to date these actions have not been sufficient to overcome the overall
decline in the comic book specialty store industry.
Similarly, there has been a significant contraction in the sports
trading card market related in part to lower speculative purchases. This
contraction was compounded by the baseball, hockey and basketball labor
situations in 1994 and 1995, which adversely affected sports trading card sales
and increased returns for those periods. Although Major League Baseball resumed
in April 1995, there still is no collective bargaining agreement in effect
between the owners and players as the owners rejected in early November 1996 a
proposed collective bargaining agreement. The level of fan interest, although
showing some signs of improvement during 1996, has not returned to the levels
experienced prior to the 1994 strike and the failure to enter into a new
collective bargaining agreement could result in a disruption of play in 1997.
Along with decreased fan interest, 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. The Company believes that all of these factors
have negatively affected the overall trading card industry, causing the Company
to experience lower sales, higher returns and higher inventory obsolescence.
The level of demand for entertainment trading cards is dependent on
the commercial success and media exposure of the Company's characters and third
party licensed products, as well as the market conditions in the comic book
specialty stores. In 1994, the sale of entertainment cards based on Marvel's
characters and third party licensed characters offset and in 1995 such sales
substantially offset the decline in sports trading cards. However, in 1996, the
Company's sales of entertainment trading cards has been adversely affected by
lower sales of cards based on properties licensed from third parties as well as
significantly lower sales of cards based on comic book characters.
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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 combination of the contraction
in the overall trading card industry, the lack of commercial success of certain
of the third party and Marvel licensed products, in part driven by the softness
in market conditions in the comic book specialty store market, and the
Company's change in distribution mentioned above have resulted in substantially
lower trading card sales by the Company in 1996.
In response to the significant contraction in the sports trading card
market, the adverse conditions related to the sale of entertainment trading
cards and the overall decline in the comic book specialty store industry and
their negative effect on the Company's operating results, the Company is
considering further actions to mitigate these declines and their effect on
future operating results. Given the unfavorable market conditions in trading
cards and publishing, the Company is evaluating whether there has been an
impairment to goodwill and other intangible assets and is considering
restructuring and other actions, all of which could result in substantial 1996
year end charges.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 30, 1995
The Company's net revenues were $209.4 million and $269.0 million in
the 1996 and 1995 periods, respectively, an decrease of $59.6 million or 22.2%.
This reflects a decrease of $59.0 million in net trading card and sticker
revenues, $16.6 million in licensing revenues, and $13.5 million in net
publishing revenues. This decrease was partially offset by a $26.2 million
increase in toy revenues and a $3.3 million increase in other revenues. The
decrease in trading card net revenues was primarily due to the continued
general decline in the demand for trading cards as well as the change in the
Company's distribution of its trading cards to concentrate in trading card
specialty stores and select mass market accounts which generally resulted in
lower gross sales in 1996. In addition, entertainment card sales decreased due
to lower sales of cards based on comic book characters due in part to market
conditions in the comic book specialty store market, as well as lower sales of
cards based on properties licensed from third parties resulting from lower
commercial success of such properties in 1996 as compared to 1995. However, as
compared to 1995, provisions for trading card sales returns were significantly
lower, reflecting the change in distribution. These decreases in trading card
net revenues were partially offset by a slight increase in net revenues of
stickers. This increase was due to the 1996 European Cup soccer tournament and
expansion into new markets such as Brazil and Russia, and was partially offset
by higher provisions for returns for stickers in 1996. In addition, the Company
experienced lower net revenues in certain European markets principally due to
lower net revenues from entertainment stickers based on properties licensed
from third parties as a result of lower commercial success of such properties
in 1996 as compared to 1995. Licensing revenues, which vary from period to
period, decreased primarily as a result of an insufficient amount of new media
exposure of the Company's characters. The Company and Fox Kid's Worldwide
("FKW") entered into an arrangement under which the Company expects to have a
new animation series on the Fox Children's Network in the 1997-1998 broadcast
seasons. Licensing revenues will vary depending on the volume and extent of
licensing agreements entered into during any particular financial period, as
well as the level and commercial success of the media exposure of the Company's
characters. The decrease in net publishing revenues was due to the impact on
the Company of the decline in the comic book specialty store industry and the
reduction of titles resulting from implementation of the Company's business
strategy. The increase in toy revenues was principally due to Toy Biz's
expanded product offerings and an increased international distribution of
products. The improvement in other revenues was due to increased sales of
adhesive paper by Panini.
Gross profit was $66.3 million and $130.2 million in the 1996 and 1995
periods, respectively, an decrease of $63.9 million. As a percentage of net
revenues, gross profit was 31.7% in the 1996 period as compared to 48.4% in the
1995 period. The decrease in gross profit as a percentage of net revenues was
due primarily to the effect of higher return provisions for stickers, the
effect of lower licensing revenues, an unfavorable product mix for trading
cards and toys as compared to 1995 and the effect of lower net revenues without
a corresponding decrease in royalty expense and advertising and promotion
expense given minimum payment obligations for trading cards in 1996.
Selling and general administrative expenses ("SG&A") were $61.3
million and $62.4 million in the 1996 and 1995 periods, respectively. The
decrease of $1.1 million was mainly attributable to a general reduction in
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overhead expenses associated with the restructuring of the trading card,
publishing and confectionery operations partially offset by the increase in Toy
Biz's and Panini's advertising, promotion and selling costs. As a percentage of
net revenues, SG&A was 29.3% in the 1996 period as compared to 23.2% in the
1995 period. The increase in SG&A as a percentage of net revenues was due
primarily to lower publishing and licensing net revenues without a
corresponding reduction in SG&A.
Depreciation and amortization was $6.3 million and $4.9 million in the
1996 and 1995 periods, respectively. The increase of $1.4 million was due to
higher depreciation primarily resulting from an increased investment in product
tooling to support Toy Biz's expanded product line.
Interest expense, net was $15.2 million and $11.9 million in the 1996
and 1995 periods, respectively. The increase in interest expense of $3.3
million primarily reflects increased borrowings under the Credit Agreements
including the $25.0 million revolving credit facility, borrowings for the
expansion of Panini's Adespan adhesives facility, and higher average borrowing
rates.
The gain on the sale of Toy Biz common stock was $22.0 million in the
1996 period (see Note 6).
Provision for income taxes was $3.0 million and $21.0 million in the
1996 and 1995 periods, respectively. The provision for income taxes in 1996
primarily represents a provision for income taxes related to the sale of common
stock of Toy Biz and the operations of Toy Biz partially offset by a benefit
for the Company's operating losses. The provision for income taxes in 1995
represents foreign, federal, state and local income taxes.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
The Company's net revenues were $581.2 million and $596.1 million in
the 1996 and 1995 periods, respectively, an decrease of $14.9 million or 2.5%.
This reflects a decrease of $37.4 million in net publishing revenues, $31.0
million in net trading card and sticker revenues, and $20.4 million in
licensing revenues, partially offset by a $66.6 million increase in toy
revenues and a $7.3 million increase in other revenues. The decrease in net
publishing revenues was due to the impact on the Company of the decline in the
comic book specialty store industry, the reduction of titles resulting from
implementation of 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. The decrease in trading card net
revenues was primarily due to the continued general decline in the demand for
trading cards as well as the change in the Company's distribution of its
trading cards to concentrate in trading card specialty stores and select mass
market accounts which generally resulted in lower gross sales in 1996. In
addition, entertainment card sales decreased due to lower sales of cards based
on comic book characters due in part to market conditions in the comic book
specialty store market, as well as lower sales of cards based on properties
licensed from third parties resulting from lower commercial success of such
properties in 1996 as compared to 1995. However, as compared to 1995,
provisions for trading card sales returns were significantly lower, reflecting
the change in distribution and the inclusion in the second quarter of 1995 of a
significant increase in sales returns reserves. Such lower sales return
provisions, combined with the inclusion of net revenues from SkyBox for nine
months in 1996 versus only five months in 1995 (the SkyBox Acquisition was
consummated on April 27, 1995), partially offset the lower sales discussed
above. These decreases in trading card net revenues were partially offset by an
increase in net revenues of stickers. This increase was due to the 1996
European Cup soccer tournament and expansion into new markets such as Brazil
and Russia, and was partially offset by higher provisions for returns for
stickers in 1996. In addition, the Company experienced lower net revenues in
certain European markets principally due to lower net revenues from
entertainment stickers based on properties licensed from third parties as a
result of lower commercial success of such properties in 1996 as compared to
1995. Licensing revenues, which vary from period to period, decreased primarily
as a result of an insufficient amount of new media exposure of the Company's
characters. The Company and FKW entered into an arrangement under which the
Company expects to have a new animation series on the Fox Children's Network in
the 1997-1998 broadcast seasons. Licensing revenues will vary depending on the
volume and extent of licensing agreements entered into during any particular
financial period, as well as the level and commercial success of the media
exposure of the Company's characters. The increase in toy revenues was
principally due to Toy Biz's expanded product offerings, increased
international distribution of products and the consolidation of Toy Biz for
nine months in 1996 as
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compared to seven months in 1995. The improvement in other revenues was due to
increased sales of adhesive paper by Panini.
Gross profit was $208.8 million and $243.5 million in the 1996 and
1995 periods, respectively, a decrease of $34.7 million. As a percentage of net
revenues, gross profit was 35.9% in the 1996 period as compared to 40.8% in the
1995 period. The decrease in gross profit as a percentage of net revenues was
due primarily to the effect of higher return provisions for stickers, the
effect of lower licensing revenues, an unfavorable product mix for trading
cards and toys as compared to 1995 and the effect of lower net revenues without
a corresponding decrease in royalty expense and advertising and promotion
expense given minimum payment obligations for trading cards in 1996.
SG&A were $169.2 million and $156.0 million in the 1996 and 1995
periods, respectively. The increase of $13.2 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 nine months in 1996 as compared
to seven months in 1995, and the inclusion of Sky Box for nine months in 1996
as compared to five months in 1995. This increase was partially offset by a
general reduction in overhead expenses associated with the restructuring of the
trading card, publishing and confectionery operations. As a percentage of net
revenues, SG&A was 29.1% in the 1996 period as compared to 26.2% in the 1995
period. The increase in SG&A as a percentage of net revenues was due primarily
to lower publishing and licensing net revenues without a corresponding
reduction in SG&A.
Depreciation and amortization was $15.6 million and $12.4 million in
the 1996 and 1995 periods, respectively. The increase of $3.2 million was
primarily due to the consolidation of Toy Biz for nine months in 1996 as
compared to only seven months in 1995 and higher depreciation primarily
resulting from an increased investment in product tooling to support Toy Biz's
expanded product line.
Amortization of goodwill, intangibles and deferred charges was $16.8
million and $12.6 million in the 1996 and 1995 periods, respectively. The
increase of $4.2 million mainly reflects the amortization related to the SkyBox
Acquisition in April 1995.
Interest expense, net was $42.7 million and $30.2 million in the 1996
and 1995 periods, respectively. The increase in interest expense of $12.5
million primarily reflects increased borrowings under the U.S. Term Loan
Facility in connection with the SkyBox Acquisition, increased borrowings under
the Credit Agreements including the $25.0 million revolving credit facility,
borrowings for the expansion of Panini's Adespan adhesives facility, and higher
average borrowing rates.
The gain on sale of Toy Biz common stock was $22.0 million in 1996
compared with $14.3 million from the Toy Biz IPO in 1995 (see Note 6).
(Benefit) provision for income taxes was ($0.7) million and $25.6
million in the 1996 and 1995 periods, respectively. The net tax benefit in 1996
primarily represents a benefit for the Company's operating losses partially
offset by a provision for income taxes related to the sale of common stock of
Toy Biz and the operations of Toy Biz. The provision for income taxes in 1995
represents foreign, federal, state and local income 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company has experienced greater than expected operating losses in
the third quarter of 1996, and as a result has failed to satisfy certain
financial covenants contained in the Credit Agreements. The Company has
commenced discussions with The Chase Manhattan Bank, the agent bank for the
Credit Agreements, seeking waivers of these covenants and a restructuring of
the Credit Agreements to provide for the Company's cash requirements. The
Company believes that such a restructuring will require an infusion of new
equity capital and has received a proposal from Andrews Group regarding such
equity infusion, which is subject to a number of significant conditions. As a
result
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of the Company's failure to satisfy certain financial covenants and in the
absence of waivers as of this date relating thereto, the balance of long-term
debt has been reclassified to current liabilities.
At November 8, 1996, the Company's outstanding bank indebtedness was
approximately $665 million, of which $16.5 million relates to the borrowings
for Panini's Adespan adhesives facility. Until the Company receives waivers of
the failure to satisfy financial covenants contained in the Credit Agreements,
it will not be able to borrow additional amounts under its domestic credit
facilities. Panini S.p.A. had approximately $11 million available under its
foreign credit facilities at November 8, 1996. In addition, there was $30.0
million available under the Toy Biz line of credit at November 8, 1996.
If the Transactions (as defined below) are not consummated or if
consummated, are not consummated on satisfactory terms, then the Company
anticipates that it will be required to adopt one or more extraordinary
transactions in order to meet its consolidated cash requirements, including
debt service and repayment, for the foreseeable future. However, there can be
no assurance that such extraordinary transactions could be consummated or if
consummated, would be sufficient to allow the Company to meet its consolidated
cash requirements.
On October 17, 1996, Andrews Group announced that it had reached
agreement with each of Isaac Perlmutter and Avi Arad to purchase approximately
67% of the class A common stock of Toy Biz for cash and debt of Andrews Group.
On November 12, 1996, the Company received a proposal from Andrews Group for
the Andrews Investment whereby Andrews Group would acquire from the Company a
number of shares of Marvel common stock (or its equivalent) that would
represent 80.1% of the shares of Marvel common stock after giving effect to
such acquisition. Based on the approximately 101.8 million shares of Marvel
common stock outstanding, this would require the issuance of approximately 410
million shares of Marvel common stock (or its equivalent). The purchase price
for the Andrews Investment would be $350 million in cash or, at the option of
Andrews Group, an equal value of the shares of class A common stock of Toy Biz
or a combination of the foregoing. The Andrews Group proposal states that the
shares of Toy Biz class A common stock so transferred would be valued on the
basis of the cost to Andrews Group of acquiring such stock. The Andrews Group
proposal states that any contribution by Andrews Group to the Company of shares
of Toy Biz class A common stock would be made in the context of Toy Biz
becoming a wholly owned subsidiary of the Company.
The Andrews Group proposal states that the consummation of the Andrews
Group Investment would be subject to a number of significant conditions,
including the satisfaction of the conditions set forth in the agreements
between Andrews Group and Messrs. Perlmutter and Arad, an agreement for the
acquisition of Toy Biz having been executed and all conditions to that
agreement having been satisfied, receipt of certain consents and amendments
under the Credit Agreements, including to provide for the additional borrowing
capacity that the Company requires, the satisfactory resolution by Andrews
Group of a number of issues under the Marvel parent holding company indentures,
including that any Marvel common stock (or its equivalent) purchased by Andrews
Group not be subject to the liens thereunder, and the execution of a definitive
agreement for the Andrews Group Investment which contains appropriate
representations, warranties, covenants and conditions customary for
transactions of the nature of the Andrews Group Investment. There can be no
assurance that agreement will be reached on the terms of any of the foregoing
transactions or that any of the foregoing transactions will be consummated.
A copy of the Andrews Group proposal has been forwarded to a special
committee of the Company's board of directors comprised of outside directors,
who are not affiliated with Andrews Group, for consideration. In addition, in
anticipation of receiving a proposal, the board of directors of Toy Biz formed
a special committee of outside directors who are not affiliated with Andrews
Group or the Company to consider, on behalf of the minority stockholders of Toy
Biz, any proposal that may be made. (The restructuring of the Credit
Agreements, the proposed purchase of the Company's equity capital by Andrews
Group (or an affiliate) and the proposed Toy Biz acquisition are collectively
referred to as the "Transactions".)
As of November 8, 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
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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 if
the Transactions are consummated on satisfactory terms, internally generated
funds, borrowings under the various credit facilities of the Company and Toy
Biz, other borrowings and refinancings of existing indebtedness should be
sufficient to enable the Company to meet its consolidated cash requirements,
including debt service and repayment, for the foreseeable future.
For the nine months ended September 30, 1996, the Company used $73.0
million of cash as a result of its operating activities. The use of funds was
principally due to an increase in accounts receivable, a reduction in accrued
expenses, a reduction in accounts payable and increased investments in
inventory and prepaid expenses. Cash shown on the Consolidated Balance Sheets
at September 30, 1996 of $35.9 million and December 31, 1995 of $53.6 million,
includes $7.3 million and $22.5 million, respectively, of Toy Biz cash.
Cash used for investing activities for the nine months ended September
30, 1996, was $5.3 million. The primary use of these funds was for capital
expenditures for Panini's Adespan adhesives facility and tooling and molds and
capitalized product development costs primarily related to Toy Biz partially
offset by net proceeds from the Company's sale of a portion of its investment
in Toy Biz.
Cash provided by financing activities for the nine months ended
September 30, 1996, was $59.3 million, primarily consisting of increased
borrowings under the Company's credit facilities for working capital and
investment requirements, including the expansion of Panini's Adespan adhesives
facility and the net proceeds from Toy Biz's sale of shares of its class A
common stock in an offering.
In August 1996, Toy Biz sold in an offering 700,000 shares of its
Class A common stock at a price to the public of $15 per share. As part of Toy
Biz's offering, the Company sold 2.5 million shares of Toy Biz Class A common
stock. The net proceeds to Toy Biz and the Company were approximately $9.1
million and $35.7 million, respectively, after deducting amounts accrued for
estimated fees and expenses. As a result of the offering by Toy Biz and the
sale of Class A common stock of Toy Biz by the Company, the Company's ownership
percentage of Toy Biz decreased to 26.7% and its voting control decreased to
78.4%.
The Company expects to incur approximately $4 million in net
production costs for The Hulk animated series (which costs would be partially
offset by any sales of video cassettes and international distribution rights to
the series). In addition, with respect to the Company's agreement with FKW, the
Company will be required to reimburse FKW a portion of its production costs.
The Hulk animated series, which began broadcasting on United Paramount Network
in September 1996 and the Company's projects with 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), are expected to be
projects of Marvel Studios.
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.
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FORWARD-LOOKING STATEMENTS
Statements in this quarterly report on Form 10-Q for the quarter ended
September 30, 1996 such as "intend", "estimated", "believe", "expect",
"anticipate" and similar expressions which are not historical are
forward-looking statements that involve risks and uncertainties. Such
statements include, without limitation, the Company's expectation as to
financial performance for the remainder of 1996 and for 1997. In addition to
factors that may be described in the Company's Securities and Exchange
Commission filings, including this filing, the following factors, among others,
could cause the Company's financial performance to differ materially from that
expressed in any forward-looking statements made by, or on behalf of, the
Company: (i) continued weakness in the comic book market which cannot be
overcome by the Company's new editorial and production initiatives in comic
publishing; (ii) continued general weakness in the trading card market; (iii)
the failure of fan interest in baseball to return to traditional levels that
existed prior to the 1994 baseball strike and the potential for decreased fan
interest due to a possible disruption of play in 1997 as a result of the
failure of the owners and players to agree on a collective bargaining
agreement, thereby negatively impacting the Company's baseball card business;
(iv) the effectiveness of the Company's changes to its trading card and
publishing distribution; (v) a decrease in the level of media exposure or
popularity of the Company's characters resulting in declining revenues based on
such characters; (vi) the lack of continued commercial success of properties
owned by major licensors which have granted the Company licenses for its sports
and entertainment trading card and sticker businesses; (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; (viii) consumer acceptance of new product introductions, including
those for toys; (ix) imposition of tariffs or import quotas on toys
manufactured in China as a result of a deterioration in trade relations between
the U.S. and China; and (x) the outcome of the Company's discussions for the
restructuring of the Company's Credit Agreements and related anticipated
transactions.
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PART II.
OTHER INFORMATION.
ITEM 1. LEGAL PROCEEDINGS.
The Company is a defendant in a purported class action filed on July
26, 1996 in the United States District Court for the Eastern District of New
York entitled Fishman, et al v. Marvel Entertainment Group, Inc., CV-96-3757
(SJ), by four persons who allegedly purchased sports and entertainment cards
manufactured by Fleer and SkyBox. The action is directed against standard
business practices in the trading card industry, including the practice of
randomly placing insert cards in packages of sports and entertainment trading
cards, and alleges that these practices constitute illegal gambling activity in
violation of state and federal law. Each of Fleer and SkyBox's principal
competitors in the trading card industry has been separately sued for employing
the same or similar practices. In addition, certain of the various sports
organizations and entertainment companies that issue licenses to Fleer and
SkyBox (as well as the other major trading card companies) in connection with
the manufacture of sports and entertainment trading cards have also been
separately sued and are alleged to be engaged in aspects of the purportedly
illegal gambling operations. Plaintiffs seek certification of a class of
persons who within four years prior to the filing of the complaint purchased
packages of trading cards that might contain randomly inserted cards, and
recovery of treble damages. On September 30, 1996, the Company filed a motion
to dismiss the complaint. No discovery has commenced. Plaintiffs have not
specified the amount of damages sought, but generally allege that members of
the purported class have been damaged as a result of their purchases of trading
cards during the four years preceding the commencement of the action. It is not
possible at this early stage of the case to predict the outcome with certainty.
In the opinion of the Company, the action lacks merit and the Company intends
to defend it vigorously.
In addition, the Company is a party to various legal proceedings
described in previous filings. During the quarter ended September 30, 1996
there were no material developments in any of such proceedings. Other than the
item described above there were no new reportable legal proceedings. Although
it is impossible to predict the outcome of any outstanding legal proceeding,
the Company believes that all legal proceedings and claims, individually and in
the aggregate, are not likely to have a material effect on its financial
condition or results of operations.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The information required by Part II, Item 3, of Form 10-Q is
incorporated by reference from Notes 4 and 8 of the Condensed Consolidated
Financial Statements and Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources, set
forth herein.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(A) Exhibits
3.2 Amended and Restated By-Laws.
10.1 Consent, dated as of September 24, 1996 to the (a)
Participation Agreement, dated as of August 30,1994,
among Instituto Bancario San Paolo Di Torino, S. p. A.,
New York Limited Branch ("San Paolo"), the financial
institutions party thereto and The Chase Manhattan Bank
(formerly named Chemical Bank), as administrative agent
and (b) the Term Loan and Guarantee Agreement among
Panini S. p. A. (formerly named Marvel Comics Italia
S. r. L.), the Registrant and San Paolo.
10.2 Employment Agreement dated as of August 13, 1996,
between the Registrant and David J. Schreff.
10.3 Amendment dated February 7, 1996, to License Agreement
dated December 22, 1994, between Major League Baseball
Players Association and Fleer Corp. Confidential
treatment has been granted for portions of this
document.
19
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10.4 Retail Product License Agreement dated July 21, 1995,
between NBA Properties, Inc. and the Registrant.
Confidential treatment has been granted for portions of
this document.
10.5 License Agreement dated June 30, 1995, between SkyBox
International Inc. and National Football League Players
Incorporated, as amended June 30, 1995. Confidential
treatment has been granted for portions of this
document.
(B) Reports on Form 8-K
None.
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: November 14, 1996 August J. Liguori
Vice President, Finance
Principal Accounting Officer
20
</TABLE>
EXHIBIT 3.2
AMENDED AND RESTATED BY-LAWS
OF
MARVEL ENTERTAINMENT GROUP, INC.
September 11, 1996
<PAGE>
TABLE OF CONTENTS
Section Page
ARTICLE I OFFICES ....................................... 1
SECTION 1.1 Offices.................................. 1
ARTICLE II MEETINGS OF STOCKHOLDERS........................ 1
SECTION 2.2 Annual Meetings.......................... 1
SECTION 2.2 Special Meetings......................... 1
SECTION 2.3 Notice of Meeting........................ 1
SECTION 2.4 Adjournments............................. 2
SECTION 2.5 Quorum and Manner of Acting.............. 2
SECTION 2.6 Organization of Meetings................. 2
SECTION 2.7 Order of Business........................ 3
SECTION 2.8 Voting................................... 3
SECTION 2.9 Consent in Lieu of Meeting............... 4
SECTION 2.10 List of Stockholders.................... 4
SECTION 2.11 Inspectors.............................. 5
ARTICLE III BOARD OF DIRECTORS............................. 5
SECTION 3.1 General Powers........................... 5
SECTION 3.2 Number and Term of Office................ 5
SECTION 3.3 Election................................. 5
SECTION 3.4 Meetings................................. 5
SECTION 3.5 Compensation............................. 7
SECTION 3.6 Resignation, Removal and Vacancies....... 7
ARTICLE IV COMMITTEES...................................... 8
SECTION 4.1 Number, Appointment, Term of Office...... 8
SECTION 4.2 Functions and Powers..................... 8
SECTION 4.3 Rules.................................... 9
ARTICLE V OFFICERS......................................... 9
SECTION 5.1 Election and Appointment and Term of
Office........................................... 9
SECTION 5.2 Resignation, Removal and Vacancies....... 9
SECTION 5.3 Duties and Functions..................... 10
ARTICLE VI WAIVER OF NOTICES; PLACE OF MEETINGS............ 12
i
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Section Page
SECTION 6.1 Waiver of Notices........................ 12
SECTION 6.2 Place of Meetings........................ 12
ARTICLE VII EXECUTION AND DELIVERY OF DOCUMENTS;
DEPOSITS; PROXIES; BOOKS AND RECORDS.................. 12
SECTION 7.1 Execution and Delivery of Documents;
Delegation....................................... 12
SECTION 7.2 Deposits................................. 12
SECTION 7.3 Proxies in Respect of Stock or Other
Securities of Other Corporations................. 13
SECTION 7.4 Books and Records........................ 13
ARTICLE VIII CERTIFICATES; STOCK RECORD; TRANSFR AND
REGISTRATION; NEW CERTIFICATES; RECORD DATE, ETC...... 13
SECTION 8.1 Certificates for Stock................... 13
SECTION 8.2 Stock Record............................. 14
SECTION 8.3 Transfer and Registration of Stock....... 14
SECTION 8.4 New Certificates......................... 14
SECTION 8.5 Regulations.............................. 14
SECTION 8.6 Fixing Date for Determination of
Stockholders of Record........................... 15
ARTICLE IX SEAL............................................ 15
SECTION 9.1 Seal..................................... 15
ARTICLE X FISCAL YEAR...................................... 15
SECTION 10.1 Fiscal Year............................. 15
ARTICLE XI AMENDMENTS...................................... 15
SECTION 11.1 Amendments.............................. 15
ARTICLE XII SUBJECT TO LAW................................. 16
SECTION 12.1 Subject to Law.......................... 16
ARTICLE XIII INDEMNIFICATION .............................. 16
ii
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Section Page
SECTION 13.1 Power to Indemnify in Actions, Suits
or Proceedings Other Than Those by or in the
Right of the Corporation......................... 16
SECTION 13.2 Power to Indemnify in Actions, Suits
or Proceedings by or in the Right of the
Corporation...................................... 16
SECTION 13.3 Authorization of Indemnification........ 17
SECTION 13.4 Good Faith Defined...................... 17
SECTION 13.5 Indemnification by a Court.............. 18
SECTION 13.6 Expenses Payable in Advance............. 18
SECTION 13.7 Nonexclusivity of Indemnification and
Advancement of Expenses.......................... 19
SECTION 13.8 Insurance ...............................19
SECTION 13.9 Certain Definitions .....................19
SECTION 13.10 Survival of Indemnification and
Advancement of Expenses.......................... 20
SECTION 13.11 Limitation on Indemnification.......... 20
SECTION 13.12 Indemnification of Employees and
Agents........................................... 20
ARTICLE XIV INTERESTED DIRECTORS........................... 20
SECTION 14.1 Interested Directors; Quorum............ 20
iii
<PAGE>
AMENDED BY-LAWS
of
MARVEL ENTERTAINMENT GROUP, INC.
ARTICLE I
Offices
SECTION 1.1 Offices. Marvel Entertainment Group, Inc. (the
"Corporation") may have offices either within or without the State of
Delaware. The registered office of the Corporation and the name of the
registered agent of the Corporation are as is set forth in the Certificate of
Incorporation of the Corporation, or as may subsequently be or have been
changed by resolution of the Board of Directors (the "Board").
ARTICLE II
Meetings of Stockholders
SECTION 2.2 Annual Meetings. An annual meeting of the stockholders
of the Corporation for the election of directors and for the transaction of
such other business as may properly come before the meeting shall be held on
such date as the Board may from time to time determine, and at such place and
hour as shall be designated by the Board in the notice thereof.
SECTION 2.2 Special Meetings. A special meeting of the stockholders
for any purpose or purposes may be called at any time by the Board, or by any
committee of the Board which has been duly designated by the Board and whose
powers and authority, as expressly provided in a resolution of the Board,
include the power to call such meetings, and such meeting shall he held on
such date and at such place and hour as shall be designated in the notice
thereof.
SECTION 2.3 Notice of Meeting. Notice of each meeting of the
stockholders shall be given not less than 10 nor more than 60 days before the
date of the meeting to each stockholder of record entitled to notice of, or to
vote at, such meeting by delivering a typewritten or printed notice thereof to
such stockholder personally or by depositing such notice in the United States
mail, postage prepaid, directed to such stockholder at his address as it
appears on the stock record of the Corporation. Every such notice shall state
the
1
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place, date and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called.
SECTION 2.4 Adjournments. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business
which might have been transacted at the original meeting. If the adjournment
is for more than thirty days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
SECTION 2.5 Quorum and Manner of Acting. The presence in person or
by proxy of stockholders holding of record a majority of the shares of stock
of the Corporation entitled to be voted shall constitute a quorum for the
transaction of business at any meeting of the stockholders. In the absence of
a quorum at any such meeting or any adjournment or adjournments thereof, a
majority in voting interest of those present in person or by proxy and
entitled to vote thereof, or, in the absence therefrom of all the
stockholders, any officer entitled to preside at, or to act as secretary of,
such meeting, may adjourn such meeting from time to time in the manner
provided in Section 2.4 until stockholders holding the amount of stock
requisite for a quorum shall be present in person or by proxy. The absence
from any meeting in person or by proxy of stockholders holding the number of
shares of stock of the Corporation required for action upon any given matter,
shall not prevent action at such meeting upon any other matter which may
properly come before the meeting if there shall be present thereof, in person
or by proxy, stockholders holding the number of shares of stock of the
Corporation required in respect of such other matter.
SECTION 2.6 Organization of Meetings. At each meeting of the
stockholders, one of the following shall act as chairman of the meeting and
preside thereat, in the following order of precedence:
(a) the Chairman of the Board, or, if he is
not present or if no person holds such office, any officer of
the Corporation designated by the Board; or
(b) any officer of the Corporation designated by a majority in
voting interest of the stockholders present in person or by proxy and entitled
to vote thereat.
2
<PAGE>
The person whom the chairman of the meeting shall appoint, shall act as
secretary of the meeting and keep the minutes thereof.
SECTION 2.7 Order of Business. The order of business at each
meeting of the stockholders shall be determined by the chairman of the
meeting, but such order of business may be changed by a majority in voting
interest of those present in person or by proxy at such meeting and entitled
to vote thereat.
SECTION 2.8 Voting. Each stockholder shall, at each meeting of the
stockholders, be entitled to one vote in person or by proxy for each share of
stock of the Corporation which has voting power on the matter in question held
by him and registered in his name on the stock record of the Corporation:
(a) on the date fixed pursuant to the provisions of Section
8.6 of Article VIII of these By-Laws as the record date for the determination
of stockholders who shall be entitled to receive notice of and to vote at such
meeting; or
(b) if no record date shall have been so fixed, then at the
close of business on the day next preceding the day on which notice of the
meeting shall be given or, if notice of the meeting shall be waived, at the
close of business on the day next preceding the day on which the meeting shall
be held, or if no record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting shall have been
fixed, the day on which the first written consent is expressed.
Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors of such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Any vote of stock of the Corporation may be given at any meeting of
the stockholders by the person entitled to vote the same in person or by proxy
appointed by an instrument in writing delivered to the secretary of the
meeting; provided, however, that no proxy shall be voted or acted upon after
three years from its date unless such proxy provides for a longer period. The
attendance at any meeting of a stockholder who may theretofore have given a
proxy shall not have the effect of revoking the same unless he shall in
writing so notify the secretary of the meeting prior to voting of the proxy.
At all meetings of stockholders for the election of directors a plurality of
the votes cast shall be sufficient to elect. All other elections and questions
3
<PAGE>
shall, unless otherwise provided by law, the certificate of incorporation or
these bylaws, be decided by the vote of the holders of shares of stock having
a majority of the votes which could be cast by the holders of all shares of
stock entitled to vote thereon which are present in person or represented by
proxy at the meeting. Unless otherwise directed by the chairman of the
meeting, the vote at any meeting of the stockholders on any question need not
be by ballot. On a vote by ballot, each ballot shall be signed by the
stockholder voting, or by his proxy if there be such proxy, and shall state
the number of shares voted.
SECTION 2.9 Consent in Lieu of Meeting. Anything herein to the
contrary notwithstanding, any action required to be taken at any annual or
special meeting of stockholders of the Corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken at
any annual or special meeting of such stockholders or may be taken without a
meeting, without prior notice and without a vote if a consent in writing,
setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking
of the corporate action without a meeting by less than unanimous written
consent shall be given to those stockholders who have not consented in writing
and any certificate filed with respect to such matter shall state that such
written notice has been given.
SECTION 2.10 List of Stockholders. It shall be the duty of the
officer of the Corporation who shall have charge of the stock ledger of
record, either directly or through another officer of the Corporation or agent
thereof, to prepare and make, at least 10 days before every meeting of the
stockholders, a complete list of the stockholders entitled to vote thereat,
arranged in alphabetical order, and showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane
to the meeting, during ordinary business hours for a period of at least 10
days prior to the meeting, either at the place where the meeting is to be held
or at such other place within the city where the meeting is to be held, which
place shall be specified in the notice of the meeting. Such list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present. The stock
record shall be the only evidence as to who are the stockholders entitled to
examine the stock record, such list or the books of the Corporation or to vote
in person or by proxy at any meeting of the stockholders.
4
<PAGE>
SECTION 2.11 Inspectors. Either the Board or, in the absence of a
designation of inspectors by the Board, the chairman of the meeting may, in
its or his discretion, appoint two or more inspectors, who need not be
stockholders, who shall receive and take charge of ballots and proxies and
decide all questions relating to the qualification of those asserting the
right to vote and the validity of ballots and proxies. In the event of the
failure or refusal to serve of any inspector designated by the Board, the
chairman of the meeting shall appoint an inspector to act in place of each
such inspector designated by the Board. In the absence of a designation of
inspectors by the Board and the chairman of the meeting, the secretary of the
meeting shall perform the duties which would otherwise have been performed by
the inspectors.
ARTICLE III
Board of Directors
SECTION 3.1 General Powers. The property, business, affairs and
policies of the Corporation shall be managed by or under the direction of the
Board.
SECTION 3.2 Number and Term of Office. The number of directors
which shall constitute the Board shall be one or more persons as such number
shall be fixed from time to time by a vote of a majority of the Board. Each of
the directors of the Corporation shall hold office until the annual meeting
after his election and until his successor shall be elected and shall qualify
or until his earlier death or resignation or removal in the manner hereinafter
provided.
SECTION 3.3 Election. Except as provided in Section 3.6 of this
Article III, directors shall be elected by a plurality of the votes cast at
annual meetings of stockholders, and each director so elected shall hold
office until the next annual meeting and until his successor is duly elected
and qualified, or until his earlier resignation or removal. Directors need not
be stockholders of the corporation or residents of the State of Delaware.
SECTION 3.4 Meetings. (a) Regular Meetings. Regular meetings of the
Board or any committee thereof shall be held as the Board or such committee
thereof shall from time to time determine. If any day fixed for a regular
meeting shall be a legal holiday at the place where the meeting is to be held,
then the meeting which would otherwise be held on that day, shall be postponed
until the next succeeding business day.
5
<PAGE>
(b) Special Meetings. Special meetings of
the Board, at which any and all business may be transacted,
shall be held whenever called by President, Chairman or any
two directors.
(c) Notice of Meetings. No notice of regular meetings of the
Board or of any committee thereof or of any adjourned meeting thereof need be
given. Notice shall be given to each director of each special meeting of the
Board or adjournment thereof, including the time and place thereof. Notice of
each such meeting shall be mailed to each director, addressed to him at his
residence or usual place of business, at least two days before the day on
which such meeting is to be held, or shall be sent to him at such place by
facsimile, telegraph, cable, wireless or other form of recorded communication,
or be delivered personally or by telephone not later than the day before the
day on which such meeting is to be held, but notice need not be given to any
director who shall attend such meeting. A written waiver of notice, signed by
the person entitled thereto, whether before or after the time of the meeting
stated therein, shall be deemed equivalent to notice. The purposes of a
meeting of the Board or any committee thereof need not be specified in the
notice thereof.
(d) Time and Place of Meetings. Regular meetings of the Board
or any committee thereof shall be held at such time or times and place or
places as the Board or such committee may from time to time determine. Each
special meeting of the Board or any committee thereof shall be held at such
time and place as the caller or callers thereof may determine. In the absence
of such a determination, each regular meeting or special meeting of the Board
or any committee thereof shall be held at such time and place as shall be
designated in the notices or waiver of notices thereof.
(e) Quorum and Manner of Acting. A majority of the directors
then in office and a majority of the members of any committee shall be present
in person at any meeting thereof in order to constitute a quorum for the
transaction of business at such meeting and the vote of a majority of the
directors present at any such meeting at which a quorum is present shall be
necessary for the passage of any resolution or for an act to be the act of the
Board or such committee. In the absence of a quorum, a majority of the
directors present thereat may adjourn such meeting from time to time until a
quorum shall be present thereat. Notice of any adjourned meeting need not be
given.
(f) Organization of Meetings. At each
meeting of the Board, the Chairman of the Board or, if he is
6
<PAGE>
not present or if no person holds such office, any director chosen by a
majority of the directors present thereat shall act as chairman of the meeting
and preside thereat. The person whom the chairman of the meeting shall appoint
shall act as secretary of such meeting and keep the minutes thereof. The order
of business at each meeting of the Board shall be determined by the chairman
of such meeting.
(g) Consent in Lieu of Meetings. Anything herein to the
contrary notwithstanding, any action required or permitted to be taken at any
meeting of the Board or any committee thereof, may be taken without a meeting
if all members of the Board or such committee, as the case may be, consent
thereto in a writing or writings and such writing or writings are filed with
the minutes of the proceedings of the Board or such committee.
(h) Action by Communications Equipment. The directors may
participate in a meeting of the Board or any committee thereof by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other and such
participation shall constitute presence in person at such meeting.
SECTION 3.5 Compensation. Each director, in consideration of his
serving as such, shall be entitled to receive from the Corporation such amount
per annum and such fees for attendance at meetings of the Board or of any
committee, or both, as the Board shall from to time determine. The Board may
likewise provide that the Corporation shall reimburse each director or member
of a committee for any expenses incurred by him on account of his attendance
at any such meeting. Nothing contained in this Section shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
SECTION 3.6 Resignation, Removal and Vacancies. Any director may
resign at any time by giving written notice of his resignation to the Board.
Any such resignation shall take effect at the time specified therein or, if
the time when it shall become effective shall not be specified therein, when
accepted by the Board. Except as aforesaid, the acceptance of such resignation
shall not be necessary to make it effective.
Any director may be removed at any time for cause or without cause
by vote of the holders of a majority in voting interest of shares then
entitled to vote at an election of directors. The vacancy in the Board caused
by any such removal may be filled by the stockholders at such
7
<PAGE>
meeting or as provided in the next paragraph of these ByLaws. Any director may
also be removed at any time for cause by vote of a majority of the Board.
In the case of any vacancy on the Board or in the case of any newly
created directorship, a director to fill the vacancy or the newly created
directorship for the unexpired portion of the term being filled may be elected
by a majority of the directors of the Corporation then in office, though less
than a quorum, or by a sole remaining director. The director elected to fill
such vacancy shall hold office for the unexpired term in respect of which such
vacancy occurred and until his successor shall be elected and shall qualify or
until his earlier death or resignation or removal in the manner herein
provided.
ARTICLE IV
Committees
SECTION 4.1 Number, Appointment, Term of Office. The Board may
designate one or more committees, each committee to consist of one or more
directors then in office. Each member of any committee shall continue as such
only so long as he remains a director and may be removed at any time, with or
without cause, by the Board. The Board may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee.
In the absence or in case of the disqualification of a member or
members of any such committee, the member or members of such committee present
and not disqualified from voting at a meeting of such committee, whether or
not he or they constitute a quorum, may unanimously appoint another member of
the Board to act at the meeting in place of any such absent or disqualified
member.
SECTION 4.2 Functions and Powers. Subject to applicable law and the
By-Laws, each committee shall have such functions and powers as the Board
shall deem advisable and, subject to any limitations or restrictions which may
be prescribed by resolution of the Board, any such committee, including an
Executive Committee, if one is designated, shall have and may exercise all the
powers and authority of the Board in the management of the business and
affairs of the Corporation, including the power and authority to declare
dividends and to authorize the issuance of stock of the Corporation, and may
authorize the seal of the Corporation to be affixed to all papers which may
require it; provided, however, that no committee shall have the power or
authority
8
<PAGE>
to approve, adopt or recommend to the stockholders any action or matter
expressly required by the Delaware General Corporation Law to be submitted to
stockholders for approval or to adopt, amend or repeal any By-Law of the
Corporation.
SECTION 4.3 Rules. Subject to the provisions of these By-Laws, each
committee by resolution adopted by a majority of all the members thereof shall
fix its rules of procedure.
ARTICLE V
Officers
SECTION 5.1 Election and Appointment and Term of Office. The
Corporation shall have such officers with such titles as shall be stated in a
resolution of the Board, and with such duties as shall be given them as
hereinafter provided or as may otherwise be specifically given them by the
Board, but such officers shall include at least (a) a Chairman of the Board or
one or more Vice-Chairmen of the Board or a President or one or more Vice
Presidents, or any or all the foregoing, and (b) a Secretary or one or more
Assistant Secretaries or a Treasurer or one or more Assistant Treasurers, or
any or all of the foregoing. One of such officers shall have the duty to
record the proceedings of the meetings of stockholders and directors in a book
to be kept for that purpose. Any number of offices may be held by the same
person except that at least one person who holds an office referred to in
clause (a) of the second preceding sentence shall not be the same as at least
one person who holds any office referred to in clause (b) of the second
preceding sentence.
SECTION 5.2 Resignation, Removal and Vacancies. Any officer may
resign at any time by giving written notice of his resignation to the Board.
Any such resignation shall take effect at the time specified therein or, if
the time when it shall become effective shall not be specified therein, when
accepted by the Board. Except as aforesaid, the acceptance of such resignation
shall not be necessary to make it effective.
Any officer, agent or employee elected or appointed by the Board
may be removed, with or without cause, at any time by the Board. Any agent or
employee appointed by an officer may be removed, with or without cause, at any
time by such officer.
9
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A vacancy in any office may be filled for the unexpired portion of
the term in the same manner as provided in these By-Laws for election or
appointment to such office.
SECTION 5.3 Duties and Functions. If any of the following offices
is created and a person appointed or elected thereto, and unless the Board
otherwise provides, such offices and persons shall have the following duties
and functions:
(a) Chairman. If a Chairman of the Board is appointed or
elected, he shall be a member of the Board; shall preside at meetings of the
Board and of the stockholders at which he shall be present; shall perform such
duties as are incident to the office of the Chairman of the Board; and shall
perform such other duties as may from time to time be prescribed by the Board.
(b) Vice-Chairman. If any Vice-Chairman or Vice-Chairmen of
the Board are appointed or elected, they shall be members of the Board; shall
preside at meetings of the Board and of the stockholders, unless a Chairman of
the Board is appointed or elected and is present; shall perform such duties as
are incident to the office of the Vice Chairman of the Board; and shall
perform such other duties as may from time to time be prescribed by the Board.
(c) Chairman of the Executive Committee. If a Chairman of the
Executive Committee is appointed or elected, he shall preside at meetings of
the Executive Committee; shall when requested consult with and advise the
other officers of the Corporation; and shall perform such other duties as may
be agreed upon with them or as the Board or the Executive Committee may from
time to time determine.
(d) President. If a President is appointed or elected, he
shall, subject to the control of the Board, have general charge and management
of the property, business and affairs of the Corporation and shall have the
direction of and may assign duties to all other officers (other than the
Chairman and any Vice-Chairman, if either or both is appointed or elected),
agents and employees. He shall preside at meetings of the Board and the
stockholders unless a Chairman or a Vice-Chairman of the Board is appointed or
elected and is present.
(e) Vice Presidents. If any Vice President or Vice Presidents
are appointed or elected, they shall have such powers and duties as shall be
prescribed by the President, if one is appointed or elected, or the Board.
Vice Presidents for this purpose shall include Senior, Executive, Assistant
and all other categories or types of Vice
10
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Presidents.
(f) Secretary. If a Secretary is appointed or elected, he
shall attend and keep the records of all meetings of the stockholders and the
Board in one or more books kept for that purpose; shall give or cause to be
given due notice of all meetings in accordance with these By-Laws and as
required by law; shall notify the several officers of the Corporation of all
action taken by the Board concerning matters relating to their duties; shall
transmit to the proper officers copies of all contracts and resolutions
approved by the Board or any committees of the Board; shall be custodian of
the seal of the Corporation and of all contracts, deeds, documents and other
corporate papers, records (except accounting records) and indicia of title to
properties owned by the Corporation as shall not be committed to the custody
of another officer by the President, if one is appointed or elected, or the
Board; shall affix or cause to be affixed the seal of the Corporation to
instruments requiring the same when the same have been signed on behalf of the
Corporation by a duly authorized officer; shall perform all duties and have
all powers incident to the office of Secretary; and shall perform such other
duties as shall be assigned to him by the President, if one is appointed or
elected, or the Board. One or more Assistant Secretaries may be appointed or
elected, who shall perform all the duties and have all the powers of the
Secretary in the absence of or in case of a failure to appoint or elect or
when so delegated by the Secretary, and as the President, if one is appointed
or elected, or the Board may direct.
(g) Treasurer. If a Treasurer is appointed or elected, he
shall perform all duties incident to the office of Treasurer and such other
duties as shall be assigned to him by the President, if one is appointed or
elected, or the Board. One or more Assistant Treasurers may be appointed or
elected who shall perform all the duties and have all the powers of the
Treasurer in the absence of or in the case of a failure to appoint or elect or
when so delegated by the Treasurer, and as the President, if one is appointed
or elected, or the Board may direct.
(h) Controller. If a Controller is appointed or elected, he
shall perform all the duties incident to the office of Controller and such
other duties as may be assigned to him by the President, if one is appointed
or elected, or the Board. One or more Assistant Controllers may be appointed
or elected who shall perform all the duties and have all the powers of the
Controller in the absence of or in the case of a failure to appoint or elect
or when so delegated by the Controller, and as the President, if one is
appointed or elected, or the Board may direct.
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ARTICLE VI
Waiver of Notices; Place of Meetings
SECTION 6.1 Waiver of Notices. Anything herein to the contrary
notwithstanding, whenever notice is required to be given to any director or
member of a committee or stockholder, a waiver thereof in writing, signed by
the person entitled to such notice shall be deemed equivalent to notice,
whether given before or after the time specified therein and, in the case of a
waiver of notice of a meeting, whether or not such waiver specifies the
purpose of or business to be transacted at such meeting. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting,
except where the person attends the meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened, and does so object.
SECTION 6.2 Place of Meetings. Any meeting of the stockholders, the
Board or any committee may be held within or without the State of Delaware.
ARTICLE VII
Execution and Delivery of Documents; Deposits;
Proxies; Books and Records
SECTION 7.1 Execution and Delivery of Documents; Delegation. The
Board shall designate the officers, employees and agents of the Corporation
who shall have power to execute and deliver deeds, contracts, mortgages,
bonds, debentures, checks, drafts and other orders for the payment of money
and other documents for and in the name of the Corporation and may authorize
such officers, employees and agents to delegate such power (including
authority to redelegate) by written instrument to other officers, employees or
agents of the Corporation. Such delegation may be by resolution or otherwise
and the authority granted shall be general or confirmed to specific matters,
all as the Board may determine. In the absence of such designation referred to
in the first sentence of this Section, the officers of the Corporation shall
have such power so referred to, to the extent incident to the normal
performance of their duties.
SECTION 7.2 Deposits. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
or otherwise as the Board or any officer of the Corporation to whom power in
that respect shall have been delegated by the Board shall select.
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SECTION 7.3 Proxies in Respect of Stock or Other Securities of
Other Corporations. Unless otherwise provided by the Board, any officer of the
Corporation shall have the authority from time to time to appoint an agent or
agents of the Corporation to exercise in the name and on behalf of the
Corporation the powers and rights which the Corporation may have as the holder
of stock or other securities in any other corporation, to vote or consent in
respect of such stock or securities and to execute or cause to be executed in
the name and on behalf of the Corporation and under its corporate seal or
otherwise, such written proxies, powers of attorney or other instruments as he
may deem necessary or proper in order that the Corporation may exercise such
powers and rights. Such officer may instruct any person or persons appointed
as aforesaid as to the manner of exercising such powers and rights.
SECTION 7.4 Books and Records. The books and records of the
Corporation may be kept at such places within or without the State of Delaware
as the proper officers of the Corporation may from time to time determine.
ARTICLE VIII
Certificates; Stock Record; Transfer and Registration;
New Certificates; Record Date, etc.
SECTION 8.1 Certificates for Stock. Every holder of stock of the
Corporation shall be entitled to have a certificate certifying the number of
shares owned by him in the Corporation and designating the class of stock to
which such shares belong, which shall otherwise be in such form as the Board
shall prescribe. Each such certificate shall be signed by, or in the name of
the Corporation by, the Chairman, a Vice-Chairman, the President or a Vice
President of the Corporation and by the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary of the Corporation. Any of or all such
signatures may be facsimiles. In case any officer or authorized agent who has
signed or whose facsimile signature has been placed upon a certificate shall
have ceased to be such officer or authorized agent before such certificate is
issued, it may nevertheless be issued by the Corporation with the same effect
as if he were such officer or authorized agent at the date of issue. Every
certificate surrendered to the Corporation for exchange or transfer shall be
cancelled and a new certificate or certificates shall not be issued in
exchange for any existing certificate until such existing certificate shall
have been so canceled, except in cases provided for in Section 8.4 of this
Article.
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SECTION 8.2 Stock Record. A stock record in one or more
counterparts shall be kept of the name of the person, firm or corporation
owning the stock represented by each certificate for stock of the Corporation
issued, the number of shares represented by each such certificate, the date
thereof and, in the case of cancellation, the date of cancellation. The person
in whose name shares of stock stand on the stock record of the Corporation
shall be deemed the owner thereof for all purposes as regards the Corporation.
SECTION 8.3 Transfer and Registration of Stock. (a) Transfer. The
transfer of stock and certificates of stock which represent the stock of the
Corporation shall be governed by Article 8 of Subtitle I of Title 6 of the
Delaware Code (as amended from time to time, the "Uniform Commercial Code").
(b) Registration. Registration or transfers of shares of the
Corporation shall be made only on the books of the Corporation by the
registered holder thereof, or by his attorney thereunto authorized by power of
attorney duly executed and filed with an officer of the Corporation, and on
the surrender of the certificate or certificates for such shares properly
endorsed or accompanied by a stock power duly executed.
SECTION 8.4 New Certificates. (a) Lost, Stolen or Destroyed
Certificates. Where a stock certificate has been lost, apparently destroyed or
wrongfully taken, the issuance of a new stock certificate or the claims based
on such certificate shall be governed by the Uniform Commercial Code.
(b) Mutilated Certificates. Where the holder of any
certificate for stock of the Corporation notifies the Corporation of the
mutilation of such certificate within a reasonable time after he has notice of
it, the Corporation will issue a new certificate for stock in exchange for
such mutilated certificate theretofore issued by it.
(c) Bond. The Board may, in its discretion, require the owner
of the lost, stolen, destroyed,or mutilated certificate to give the
Corporation a bond in such sum, limited or unlimited, in such form and with
such surety or sureties sufficient to indemnify the Corporation against any
claim that may be made against it on account of the loss, theft, destruction
or mutilation of any such certificate or the issuance of any such new
certificate.
SECTION 8.5 Regulations. The Board may make such rules and
regulations as it may deem expedient, concerning the issue, transfer and
registration of certificates for
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stock of the Corporation.
SECTION 8.6 Fixing Date for Determination of Stockholders of
Record. In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock or for the purpose of any other
lawful action, the Board may fix, in advance, a record date, which shall not
be more than 60 nor less than 10 days before the date of such meeting, nor
more than 60 days prior to any other action. A determination of stockholders
entitled to notice of or to vote at a meeting of the stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board may fix a
new record date for the adjourned meeting.
ARTICLE IX
Seal
SECTION 9.1 Seal. The Board shall provide a corporate seal which
shall be in the form of a circle and shall bear the full name of the
Corporation and the word "Delaware".
ARTICLE X
Fiscal Year
SECTION 10.1 Fiscal Year. The fiscal year of the Corporation shall
end on the last day of December in each year, or such other date as the Board
may determine.
ARTICLE XI
Amendments
SECTION 11.1 Amendments. These By-Laws may be amended, altered or
repealed by the vote of a majority of the Board, subject to the power of the
holders of a majority of the outstanding stock of the Corporation entitled to
vote in respect thereof, by their vote given at an annual meeting or at any
special meeting, to amend, alter or repeal any By-Law made by the Board.
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ARTICLE XII
Subject to Law
SECTION 12.1 Subject to Law. All provisions of these By-Laws are
subject to requirements of applicable law and the Certificate of Incorporation
of the Corporation.
ARTICLE XIII
Indemnification
SECTION 13.1 Power to Indemnify in Actions, Suits or Proceedings
Other Than Those by or in the Right of the Corporation. Subject to Section
13.3 of this Article XIII, the Corporation shall indemnify and hold harmless,
to the fullest extent permitted by applicable law, any person who is or was a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of the Corporation)
by reason of the fact that he is or was a director, officer, employee or agent
of the Corporation, or is or was serving at the request of the Corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise, against
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
SECTION 13.2 Power to Indemnify in Actions, Suits or Proceedings by
or in the Right of the Corporation. Subject to Section 13.3 of this Article
XIII, the Corporation shall indemnify and hold harmless, to the fullest extent
permitted by applicable law, any person who is or was a party or is threatened
to be made a party to any threatened, pending or completed action or suit by
or in the right of the Corporation to procure a judgment in its favor by
reason of
16
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the fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was a director or officer of the Corporation serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Corporation;
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability, in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which the Court of Chancery or such other court
shall deem proper.
SECTION 13.3 Authorization of Indemnification. Any indemnification
under this Article XIII (unless ordered by a court) shall be made by the
Corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances because he has met the applicable standard of conduct set forth
in Section 13.1 or Section 13.2 of this Article XIII, as the case may be. Such
determination shall be made (i) by the Board of Directors by a majority vote
of a quorum consisting of directors who were not parties to such action, suit
or proceeding, or (ii) if such a quorum is not obtainable, or, even if
obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (iii) by the stockholders. To the
extent, however, that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding described above, or in defense of any claim, issue
or matter therein, he shall be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith, without the necessity of authorization in the specific case.
SECTION 13.4 Good Faith Defined. For purposes of any determination
under Section 13.3 of this Article XIII, a person shall be deemed to have
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Corporation, or, with respect to any
criminal action or proceeding, to have had no reasonable cause to believe his
conduct was unlawful, if his action is based on the records or books of
account of the Corporation
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or another enterprise, or on information supplied to him by the officers of
the Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in this Section 13.4 shall
mean any other corporation or any partnership, joint venture, trust, employee
benefit plan or other enterprise of which such person is or was serving at the
request of the Corporation as a director, officer, employee or agent. The
provisions of this Section 13.4 shall not be deemed to be exclusive or to
limit in any way the circumstances in which a person may be deemed to have met
the applicable standard of conduct set forth in Sections 13.1 or 13.2 of this
Article XIII, as the case may be.
SECTION 13.5 Indemnification by a Court. Notwithstanding any
contrary determination in the specific case under Section 13.3 of this Article
XIII, and notwithstanding the absence of any determination thereunder, any
director, officer, employee or agent may apply to any court of competent
jurisdiction in the State of Delaware for indemnification to the extent
otherwise permissible under Sections 13.1 and 13.2 of this Article XIII. The
basis of such indemnification by a court shall be a determination by such
court that indemnification of the director, officer, employee or agent is
proper in the circumstances because he has met the applicable standards of
conduct set forth in Sections 13.1 or 13.2 of this Article XIII, as the case
may be. Neither a contrary determination in the specific case under Section
13.3 of this Article XIII nor the absence of any determination thereunder
shall be a defense to such application or create a presumption that the
director, officer, employee or agent seeking indemnification has not met any
applicable standard of conduct. Notice of any application for indemnification
pursuant to this Section 13.5 shall be given to the Corporation promptly upon
the filing of such application. If successful, in whole or in part, the
director, officer, employee or agent seeking indemnification shall also be
entitled to be paid the expense of prosecuting such application.
SECTION 13.6 Expenses Payable in Advance. Expenses incurred by a
director or officer in defending or investigating a threatened or pending
action, suit or proceeding may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director, officer, employee or agent to
repay such amount if it shall
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ultimately be determined that he is not entitled to be indemnified by the
Corporation as authorized in this Article XIII.
SECTION 13.7 Nonexclusivity of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by or
granted pursuant to this Article XIII shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any By-Law, agreement, contract, vote of stockholders or
disinterested directors or pursuant to the direction (howsoever embodied) of
any court of competent jurisdiction or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office, it being the policy of the Corporation that indemnification of the
persons specified in Section 13.1 and 13.2 of this Article XIII shall be made
to the fullest extent permitted by law. The provisions of this Article XIII
shall not be deemed to preclude the indemnification of any person who is not
specified in Section 13.1 or 13.2 of this Article XIII but whom the
Corporation has the power or obligation to indemnify under the provisions of
the DGCL, or otherwise.
SECTION 13.8 Insurance. The Corporation may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the Corporation, or is or was a director or officer of the
Corporation serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise against any liability asserted
against him and incurred by him in any such capacity, or arising out of his
status as such, whether or not the Corporation would have the power or the
obligation to indemnify him against such liability under the provisions of
this Article XIII.
SECTION 13.9 Certain Definitions. For purposes of this Article XIII
references to "the Corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was a director or officer of such constituent corporation serving at the
request of such constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise, shall stand in the same position under the
provisions of this Article XIII with respect to the resulting or surviving
corporation as he would
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have with respect to such constituent corporation if its separate existence
had continued. For purposes of this Article XIII, references to "fines" shall
include any excise taxes assessed on a person with respect to an employee
benefit plan; and references to "serving at the request of the Corporation"
shall include any service as a director, officer, employee or agent of the
Corporation which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to
in this Article XIII.
SECTION 13.10 Survival of Indemnification and Advancement of
Expenses. The indemnification and advancement of expenses provided by, or
granted pursuant to, this Article XIII shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a
director, officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
SECTION 13.11 Limitation on Indemnification. Notwithstanding
anything contained in this Article XIII to the contrary, except for
proceedings to enforce rights to indemnification (which shall be governed by
Section 13.5 hereof), the Corporation shall not be obligated to indemnify any
director, officer, employee or agent in connection with a proceeding (or part
thereof) initiated by such person unless such proceeding (or part thereof) was
authorized or consented to by the Board of Directors.
SECTION 13.12 Indemnification of Employees and Agents. The
Corporation may, to the extent authorized from time to time by the Board of
Directors, provide rights to indemnification and to the advancement of
expenses to employees and agents of the Corporation similar to those conferred
in this Article XIII to directors and officers of the Corporation.
ARTICLE XIV
Interested Directors
SECTION 14.1 Interested Directors; Quorum. No
contract or transaction between the corporation and one or
more of its directors or officers, or between the corporation
and any other corporation, partnership, association, or other
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organization in which one or more of its directors or officers are directors
or officers, or have a financial interest, shall be void or voidable solely
for this reason, or solely because the director or officer is present at or
participates in the meeting of the Board of Directors or committee thereof
which authorizes the contract or transaction, or solely because his or their
votes are counted for such purpose, if: (1) the material facts as to his
relationship or interest and as to the contract or transaction are disclosed
or are known to the Board of Directors or the committee, and the Board of
Directors or committee in good faith authorizes the contract or transaction by
the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or (2) the material
facts as to his relationship or interest and as to the contract or transaction
are disclosed or are known to the stockholders entitled to vote thereon, and
the contract or transaction is specifically approved in good faith by vote of
the stockholders; or (3) the contract or transaction is fair as to the
corporation as of the time it is authorized, approved or ratified, by the
Board of Directors, a committee thereof, or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at
a meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
21
EXHIBIT 10.1
CONSENT
CONSENT, dated as of September 24, 1996 (this "Consent"), to (a)
the Participation Agreement, dated as of August 30, 1994 (as amended,
supplemented, or otherwise modified from time to time, the "Participation
Agreement"), among Istituto Bancario San Paolo di Torino S.p.A., New York
Limited Branch (the "Italian Lender"), the financial institutions party
thereto (the "Participants") and The Chase Manhattan Bank (f/k/a/ Chemical
Bank), as administrative agent (in such capacity, the "Administrative Agent")
for the Italian Lender, and (b) the Term Loan and Guarantee Agreement, dated
as of August 30, 1994 (as amended, supplemented or otherwise modified from
time to time, the "Term Loan Agreement"), among Marvel Comics Italia, S.r.l.,
an Italian corporation (the "Company"), Marvel Entertainment Group, Inc., a
Delaware corporation (the "Guarantor"), and the Italian Lender.
W I T N E S S E T H:
WHEREAS, the Participants have purchased participating interests in
each Term Loan made by the Italian Lender pursuant to the Term Loan Agreement;
WHEREAS, the Company has requested that the Italian Lender, the
Administrative Agent, the Participants and the Majority Banks (as defined in
the US Credit Agreement) consent to the Company deferring the payment of
interest on the Term Loans until November 30, 1996; and
WHEREAS, the Italian Lender, the Administrative Agent, the
Participants and the Majority Banks (as defined in the US Credit Agreement)
are willing to consent to the Company deferring the payment of interest on the
Term Loans only upon the terms and 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, the Guarantor,
the Italian Lender, the Administrative Agent, the Participants and the
Majority Banks (as defined in the US Credit Agreement) hereby agree as
follows:
1. Defined Terms. Unless otherwise defined herein, terms defined
in (or by reference in) the Participation Agreement shall have such meanings
when used herein.
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2. Consent. Subject to the limitation set forth in the following
sentence, the Italian Lender, the Administrative Agent, the Participants and
the Majority Banks (as defined in the US Credit Agreement) hereby consent to
the Company deferring until November 30, 1996 each payment of interest in
respect of the Term Loan that would otherwise be payable prior to November 30,
1996 in accordance with Section 3.3 of the Term Loan Agreement; provided that
the amount of such deferred interest shall bear interest at the rate then
applicable to the Term Loans and such deferred interest, together with the
accrued interest on such deferred interest shall be payable by the Company to
the Italian Lender on November 30, 1996. Notwithstanding the deferral provided
for in the foregoing sentence, interest shall be payable by the Company on the
dates when such interest is stated to be due under the Term Loan Agreement, in
accordance with the terms of the Term Loan Agreement, in an amount equal to
(a) the aggregate Participating Percentages of all Participants that have not
executed and delivered this Consent on or prior to September 30, 1996
multiplied by (b) the amount of interest that would otherwise be payable on
such due dates, and, upon receipt of such amounts, the Administrative Agent
will pay such amounts to such non-consenting Participants.
3. Representations and Warranties. Each of the Company and the
Guarantor hereby confirms, reaffirms and restates the representations and
warranties made by it in Section 4 of the Term Loan Agreement, provided that
each reference to the Term Loan Agreement therein shall be deemed to be a
reference to the Term Loan Agreement after giving effect to this Consent. The
Company represents and warrants that no Default or Event of Default has
occurred and is continuing.
4. Continuing Effect of Term Loan Agreement. This Consent shall not
constitute a waiver, amendment or modification of any other provision of the
Participation Agreement or the Term Loan 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 the Guarantor that would require a
waiver or consent of the Italian Lender, the Administrative Agent, the
Participants or the Majority Banks (as defined in the US Credit Agreement).
Except as expressly amended or modified herein, the provisions of the
Participation Agreement and the Term Loan 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:
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(a) counterparts hereof, duly executed and delivered by the Company, the
Guarantor, the Italian Lender, the Majority Participants and the
Majority Banks (as defined in the US Credit Agreement); and
(b) a fee, for the account of each Participant executing and delivering this
Consent on or prior to September 30, 1996, in the amount equal to 2.0%
of the amount of deferred interest on the Term Loans that otherwise
would have been paid to such Participant.
7. Consent of Guarantor. The Guarantor, as guarantor under the Term
Loan Agreement, hereby (a) consents to the transactions contemplated hereby
and (b) acknowledges and agrees that the guarantees contained in Section 7 of
the Term Loan Agreement (and all collateral security therefor) are, and shall
remain, in full force and effect after giving effect to this Consent.
8. 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.
PANINI SPA (formerly known as
MARVEL COMICS ITALIA, S.r.L.)
By: /s/ Aldo H. Sallustro
----------------------------
Title: Managing Director
MARVEL ENTERTAINMENT GROUP,
INC.
By: /s/ August J. Liquori
----------------------------
Title: Vice President, Finance
ISTITUTO BANCARIO SAN PAOLO DI
TORINO, S.p.A., NEW YORK LIMITED
BRANCH, as Italian Lender and as a
3
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Bank
By: /s/ Wendell Jones /s/ Robert Weinstein
------------------ ---------------------
Title: Vice President 1st Vice President
THE CHASE MANHATTAN BANK, as
Administrative Agent, as a Participant
and as a Bank
By: /s/ Mary E. Cameron
----------------------------
Title: Vice President
THE BANK OF NEW YORK, as a
Participant
and as a Bank
By: /s/ Catherine G. Goff
----------------------------
Title: Assistant Vice President
CIBC, INC., as a Participant and as a Bank
By:
----------------------------
Title:
CORESTATES BANK, N.A., as a
Participant
and as a Bank
By: /s/ Edward Kittrell
----------------------------
Title: Vice President
4
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CREDIT LYONNAIS, NEW YORK
BRANCH,
as a Participant and as a Bank
By:
----------------------------
Title:
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH, as a Bank
By:
----------------------------
Title:
NATIONSBANK, N.A., as a Participant
and as a Bank
By: /s/ Margaret Flanagan
----------------------------
Title: Corporate Banking Officer
THE TORONTO-DOMINION BANK,
as a Participant and as a Bank
By: /s/ Neva Nesbitt
----------------------------
Title: Mgr. Cr. Admin.
THE FIRST NATIONAL BANK OF
BOSTON,
as a Participant and as a Bank
By: /s/ Richard D. Hill, Jr.
----------------------------
Title: Director
5
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CITIBANK, N.A., as a Participant and as a
Bank
By: /s/ James Buchanan
----------------------------
Title: Attorney-in-Fact
BANK OF AMERICAN ILLINOIS,
as a Participant and as a Bank
By: /s/ A. McLennon
----------------------------
Title: Vice President
THE SUMITOMO BANK, LIMITED,
NEW YORK BRANCH,
as a Participant and as a Bank
By: /s/ [illegible]
----------------------------
Title: Senior Vice President
UNION BANK, as a Participant and as a
Bank
By:
----------------------------
Title:
THE FUJI BANK, LTD. - NEW YORK
BRANCH, as a Participant and as a Bank
By: /s/ Teij Teramoto
----------------------------
6
<PAGE>
Title: Vice President and Manager
THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., LOS ANGELES AGENCY, as a
Bank
By: /s/ Paul B. Clifford
----------------------------
Title: Deputy General Manager
THE NIPPON CREDIT BANK, LTD., as a
Bank
By: /s/ Yoshihide Watanabe
----------------------------
Title: Vice President & Manager
BANK OF HAWAII, as a Bank
By: /s/ J. Bryan Scearce
----------------------------
Title: Vice President
FIRST HAWAIIAN BANK, as a Bank
By: /s/ Donald C. Young
----------------------------
Title: Assistant Vice President
IBJ SCHRODER BANK & TRUST
COMPANY, as a Bank
By: /s/ Michael Graham
----------------------------
7
<PAGE>
Title: Vice President
RESTRUCTURED OBLIGATIONS
BACKED BY SENIOR ASSETS B.V., as a
Bank
By: Chancellor Senior Secured
Management, Inc., as Portfolio
Advisor
By: /s/ [illegible]
----------------------------
Title: Vice President
FLEET BANK, as a Bank
By: /s/ George S. Sims
----------------------------
Title: Assistant Vice President
8
EXHIBIT 10.2
Employment Agreement
EMPLOYMENT AGREEMENT, dated as of August 13, 1996, between Marvel
Entertainment Group, Inc., a Delaware corporation (the "Company") and David J.
Schreff (the "Executive").
The Company wishes to employ the Executive, and the Executive
wishes to accept such employment, on the terms and conditions set forth in
this Agreement.
Accordingly, the Company and the Executive hereby agree as follows:
Employment, Duties and Acceptance.
1.1 Employment, Duties. The Company hereby employs the
Executive for the Term (as defined in Section 2.1), to render exclusive and
full-time services to the Company as President and Chief Operating Officer or
in such other executive position as may be mutually agreed upon by the Company
and the Executive, and to perform such other duties consistent with such
position as may be assigned to the Executive by the Chairman of the Board, the
Chief Executive Officer and the Board of Directors.
1.2 Acceptance. The Executive hereby accepts such employment
and agrees to render the services described above. During the Term, the
Executive agrees to serve the Company faithfully and to the best of the
Executive's ability, to devote the Executive's entire business time, energy
and skill to such employment, and to use the Executive's best efforts, skill
and ability to promote the Company's interests. The Executive further agrees
to accept election, and to serve during all or any part of the Term, as an
officer or director of the Company and of any subsidiary or affiliate of the
Company, without any compensation therefor other than that specified in this
Agreement, if elected to any such position by the shareholders or by the Board
of Directors of the Company or of any subsidiary or affiliate, as the case may
be.
1.3 Location. The duties to be performed by the Executive
hereunder shall be performed primarily at the office of the Company in New
York City, subject to reasonable travel requirements on behalf of the Company.
2. Term of Employment; Certain Post-Term Bene-
fits.
<PAGE>
2.1 The Term. The term of the Executive's employment under
this Agreement (the "Term") shall commence on September 4, 1996 and shall end
on December 31, 1999, or such later date to which the Term is extended
pursuant to Section 2.2.
2.2 End-of-Term Provisions. At any time on or after December
31, 1998 the Company shall have the right to give written notice of
non-renewal of the Term. In the event the Company gives such notice of
non-renewal, the Term automatically shall be extended so that it ends twelve
months after the last day of the month in which the Company gives such notice.
From and after January 1, 2000, unless and until the Company gives written
notice of non-renewal as provided in this Section 2.2, the Term automatically
shall be extended day-by-day; upon the giving of such notice by the Company,
the Term automatically shall be extended so that it ends twelve months after
the last day of the month in which the Company gives such notice.
2.3 Special Curtailment. The Term shall end earlier than the
original December 31, 1999 termination date provided in Section 2.1 or any
extended termination date provided in Section 2.2, in either case if sooner
terminated pursuant to Section 4. Non-extension of the Term shall not be
deemed to be a wrongful termination of the Term or this Agreement by the
Company pursuant to Section 4.4.
3. Compensation; Benefits.
3.1 Salary. As compensation for all services to be rendered
pursuant to this Agreement, the Company agrees to pay the Executive during the
Term a base salary, payable semi-monthly in arrears, at the annual rate of not
less than $900,000 commencing September 4, 1996; $950,000 commencing September
4, 1997; and $1,000,000 commencing September 4, 1998, in each case less such
deductions or amounts to be withheld as required by applicable law and
regulations (the "Base Salary"). In the event that the Company, in its sole
discretion, from time to time determines to increase the Base Salary, such
increased amount shall, from and after the effective date of the increase,
constitute "Base Salary" for purposes of this Agreement.
3.2 Discretionary Bonus. In addition to the amounts to be paid
to the Executive pursuant to Section 3.1, the Executive will be eligible to
participate in a performance bonus plan to be adopted by the Company which
will permit the Executive to receive, upon achievement of operating goals to
be agreed upon with respect to each year of the Term, a bonus of up to 100% of
Base Salary. Any bonus
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payable pursuant to such bonus plan shall be reduced (i) during the first year
of the Term by $166,667, (ii) during the second year of the Term by $333,333
less the amount of the reduction (pursuant to clause (i)) in the first year of
the Term; and (iii) during the third year of the Term by $500,000 less the
amount of the reduction (pursuant to clauses (i) and (ii)) in the first and
second years of the Term.
3.3 Business Expenses. The Company shall pay or reimburse the
Executive for all reasonable expenses actually incurred or paid by the
Executive during the Term in the performance of the Executive's services under
this Agreement, upon presentation of expense statements or vouchers or such
other supporting information as the Company customarily may require of its
officers provided, however, that the maximum amount available for such
expenses during any period may be fixed in advance by the Chairman or Vice
Chairman of the Board of Directors or the Board of Directors.
3.4 Vacation. During the Term, the Executive shall be entitled
to a vacation period or periods of four weeks taken in accordance with the
vacation policy of the Company during each year of the Term. Vacation time not
used by the end of a year shall be forfeited.
3.5 Fringe Benefits. During the Term, the Executive shall be
entitled to all benefits for which the Executive shall be eligible under any
qualified pension plan, 401(k) plan, group insurance or other so-called
"fringe" benefit plan which the Company provides to its senior executive
officers generally, together with executive medical benefits for the
Executive, the Executive's spouse and the Executive's children as from time to
time in effect for senior officers of the Company generally.
3.6 Additional Benefits. During the Term,
the Executive shall be entitled to such other benefits as are
specified in Appendix I to this Agreement.
4. Termination.
4.1 Death. If the Executive shall die during the Term, the
Term shall terminate and no further amounts or benefits shall be payable
hereunder, except that the Executive's legal representatives shall be entitled
to receive continued payments in an amount equal to 60% of the Base Salary, in
the manner specified in Section 3.1, until the end of the Term (as in effect
immediately prior to the Executive's death) or, if the Company has not then
given written notice of non-renewal pursuant to Section 2.2, for a
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<PAGE>
period of twelve months after the last day of the month in which termination
described in this Section 4.1 occurred, whichever is longer.
4.2 Disability. If during the Term the Executive shall become
physically or mentally disabled, whether totally or partially, such that the
Executive is unable to perform the Executive's services hereunder for (i) a
period of six consecutive months or (ii) for shorter periods aggregating six
months during any twelve month period, the Company may at any time after the
last day of the six consecutive months of disability or the day on which the
shorter periods of disability shall have equalled an aggregate of six months,
by written notice to the Executive (but before the Executive has recovered
from such disability), terminate the Term and no further amounts or benefits
shall be payable hereunder, except that the Executive shall be entitled to
receive (i) continued payments in an amount equal to 60% of the Base Salary,
in the manner specified in Section 3.1, until the end of the Term (as in
effect immediately prior to such termination) or, if the Company has not then
given notice of non-renewal pursuant to Section 2.2, for a period of twelve
months after the last day of the month in which termination described in this
Section 4.2 occurred, whichever is longer and (ii) such amounts and benefits,
if any, specified in Paragraph 9 of Appendix I. If the Executive shall die
before receiving all payments to be made by the Company in accordance with the
foregoing, such payments shall be made to a beneficiary designated by the
Executive on a form prescribed for such purpose by the Company, or in the
absence of such designation to the Executive's legal representative.
4.3 Cause. In the event of gross neglect by the Executive of
the Executive's duties hereunder, conviction of the Executive of any felony,
conviction of the Executive of any lesser crime or offense involving the
property of the Company or any of its subsidiaries or affiliates, willful
misconduct by the Executive in connection with the performance of any material
portion of the Executive's duties hereunder, breach by the Executive of any
material provision of this Agreement or any other conduct on the part of the
Executive which would make the Executive's continued employment by the Company
materially prejudicial to the best interests of the Company, the Company may
at any time by written notice (which, in the case of conduct which would make
the Executive's continued employment by the Company materially prejudicial to
the best interests of the Company, shall describe the particular conduct by
the Executive which is the basis for such cause) to the Executive terminate
the Term and, upon such termination, this Agreement shall term-
4
<PAGE>
inate and the Executive shall be entitled to receive no further amounts or
benefits hereunder, except any as shall have been earned to the date of such
termination.
4.4 Company Breach. In the event of the breach of any material
provision of this Agreement by the Company, the Executive shall be entitled to
terminate the Term upon 60 days' prior written notice to the Company. Upon
such termination, or in the event the Company terminates the Term or this
Agreement other than pursuant to the provisions of Section 4.2 or 4.3, the
Company shall continue to provide the Executive (i) payments of Base Salary,
in the manner and amount specified in Section 3.1 and (ii) fringe benefits and
additional benefits in the manner and amounts specified in Sections 3.5 and
3.6 until the end of the Term (as in effect immediately prior to such
termination) or, if the Company has not then given written notice of
non-renewal pursuant to Section 2.2, for a period of twelve months after the
last day of the month in which termination described in this Section 4.4
occurred, whichever is longer (the "Damage Period"). The Company's obligations
pursuant to this Section 4.4 are subject to the Executive's duty to mitigate
damages by seeking other employment provided, however, that the Executive
shall not be required to accept a position of lesser importance or of
substantially different character than the position held with the Company
immediately prior to the effective date of termination or in a location
outside of the New York City metropolitan area. To the extent that the
Executive shall earn compensation during the Damage Period (without regard to
when such compensation is paid), the Base Salary payments to be made by the
Company pursuant to this Section 4.4 shall be correspondingly reduced.
4.5 Litigation Expenses. Except as provided for in Section
5.7, if the Company and the Executive become involved in any action, suit or
proceeding relating to the alleged breach of this Agreement by the Company or
the Executive, and if a judgment in such action, suit or proceeding is
rendered in favor of the Executive, the Company shall reimburse the Executive
for all expenses (including reasonable attorneys' fees) incurred by the
Executive in connection with such action, suit or proceeding. Such costs shall
be paid to the Executive promptly upon presentation of expense statements or
other supporting information evidencing the incurrence of such expenses.
5. Protection of Confidential Information;
Non-Competition.
5.1 In view of the fact that the Executive's
work for the Company will bring the Executive into close
5
<PAGE>
contact with many confidential affairs of the Company not readily available to
the public, and plans for future developments, the Executive agrees:
5.1.1 To keep and retain in the strictest confidence all
confidential matters of the Company, including, without limitation, "know
how", trade secrets, customer lists, pricing policies, operational methods,
technical processes, formulae, inventions and research projects, and other
business affairs of the Company, learned by the Executive heretofore or
hereafter, and not to disclose them to anyone outside of the Company, either
during or after the Executive's employment with the Company, except in the
course of performing the Executive's duties hereunder or with the Company's
express written consent. The foregoing prohibitions shall include, without
limitation, directly or indirectly publishing (or causing, participating in,
assisting or providing any statement, opinion or information in connection
with the publication of) any diary, memoir, letter, story, photograph,
interview, article, essay, account or description (whether fictionalized or
not) concerning any of the foregoing, publication being deemed to include any
presentation or reproduction of any written, verbal or visual material in any
communication medium, including any book, magazine, newspaper, theatrical
production or movie, or television or radio programming or commercial; and
5.1.2 To deliver promptly to the Company on termination of the
Executive's employment by the Company, or at any time the Company may so
request, all memoranda, notes, records, reports, manuals, drawings, blueprints
and other documents (and all copies thereof) relating to the Company's
business and all property associated therewith, which the Executive may then
possess or have under the Executive's control.
5.2 During the Term, the Executive shall not, directly or
indirectly, enter the employ of, or render any services to, any person, firm
or corporation engaged in any business competitive with the business of the
Company or of any of its subsidiaries or affiliates; the Executive shall not
engage in such business on the Executive's own account; and the Executive
shall not become interested in any such business, directly or indirectly, as
an individual, partner, shareholder, director, officer, principal, agent,
employee, trustee, consultant, or in any other relationship or capacity
provided, however, that nothing contained in this Section 5.2 shall be deemed
to prohibit the Executive from acquiring, solely as an investment, up to five
percent (5%) of the outstanding shares of capital stock of any public
corporation.
6
<PAGE>
5.3 If the Executive commits a breach, or threatens to commit
a breach, of any of the provisions of Sections 5.1 or 5.2 hereof, the Company
shall have the following rights and remedies:
5.3.1 The right and remedy to have the provisions of this
Agreement specifically enforced by any court having equity jurisdiction, it
being acknowledged and agreed that any such breach or threatened breach will
cause irreparable injury to the Company and that money damages will not
provide an adequate remedy to the Company; and
5.3.2 The right and remedy to require the Executive to account
for and pay over to the Company all compensation, profits, monies, accruals,
increments or other benefits (collectively "Benefits") derived or received by
the Executive as the result of any transactions constituting a breach of any
of the provisions of the preceding paragraph, and the Executive hereby agrees
to account for and pay over such Benefits to the Company.
Each of the rights and remedies enumerated above shall be independent of the
other, and shall be severally enforceable, and all of such rights and remedies
shall be in addition to, and not in lieu of, any other rights and remedies
available to the Company under law or in equity.
5.4 If any of the covenants contained in Sections 5.1 or 5.2,
or any part thereof, hereafter are construed to be invalid or unenforceable,
the same shall not affect the remainder of the covenant or covenants, which
shall be given full effect, without regard to the invalid portions.
5.5 If any of the covenants contained in Sections 5.1 or 5.2,
or any part thereof, are held to be unenforceable because of the duration of
such provision or the area covered thereby, the parties agree that the court
making such determination shall have the power to reduce the duration and/or
area of such provision and, in its reduced form, said provision shall then be
enforceable.
5.6 The parties hereto intend to and hereby confer
jurisdiction to enforce the covenants contained in Sections 5.1 and 5.2 upon
the courts of any state within the geographical scope of such covenants. In
the event that the courts of any one or more of such states shall hold such
covenants wholly unenforceable by reason of the breadth of such covenants or
otherwise, it is the intention of the parties hereto that such determination
not bar or in any way affect the Company's right to the relief provided above
in
7
<PAGE>
the courts of any other states within the geographical scope of such covenants
as to breaches of such covenants in such other respective jurisdictions, the
above covenants as they relate to each state being for this purpose severable
into diverse and independent covenants.
5.7 In the event that any action, suit or other proceeding in
law or in equity is brought to enforce the covenants contained in Sections 5.1
and 5.2 or to obtain money damages for the breach thereof, and such action
results in the award of a judgment for money damages or in the granting of any
injunction in favor of the Company, all expenses (including reasonable
attorneys' fees) of the Company in such action, suit or other proceeding shall
(on demand of the Company) be paid by the Executive. In the event the Company
fails to obtain a judgment for money damages or an injunction in favor of the
Company, all expenses (including reasonable attorneys' fees) of the Executive
in such action, suit or other proceeding shall (on demand of the Executive) be
paid by the Company.
6. Inventions and Patents.
6.1 The Executive agrees that all processes, technologies and
inventions (collectively, "Inventions"), including new contributions,
improvements, ideas and discoveries, whether patentable or not, conceived,
developed, invented or made by him during the Term shall belong to the
Company, provided that such Inventions grew out of the Executive's work with
the Company or any of its subsidiaries or affiliates, are related in any
manner to the business (commercial or experimental) of the Company or any of
its subsidiaries or affiliates or are conceived or made on the Company's time
or with the use of the Company's facilities or materials. The Executive shall
further: (a) promptly disclose such Inventions to the Company; (b) assign to
the Company, without additional compensation, all patent and other rights to
such Inventions for the United States and foreign countries; (c) sign all
papers necessary to carry out the foregoing; and (d) give testimony in support
of the Executive's inventorship.
6.2 If any Invention is described in a patent application or
is disclosed to third parties, directly or indirectly, by the Executive within
two years after the termination of the Executive's employment by the Company,
it is to be presumed that the Invention was conceived or made during the Term.
6.3 The Executive agrees that the Executive
will not assert any rights to any Invention as having been
8
<PAGE>
made or acquired by the Executive prior to the date of this Agreement, except
for Inventions, if any, disclosed to the Company in writing prior to the date
hereof.
7. Intellectual Property.
The Company shall be the sole owner of all the products and
proceeds of the Executive's services hereunder, including, but not limited to,
all materials, ideas, concepts, formats, suggestions, developments,
arrangements, packages, programs and other intellectual properties that the
Executive may acquire, obtain, develop or create in connection with and during
the Term, free and clear of any claims by the Executive (or anyone claiming
under the Executive) of any kind or character whatsoever (other than the
Executive's right to receive payments hereunder). The Executive shall, at the
request of the Company, execute such assignments, certificates or other
instruments as the Company may from time to time deem necessary or desirable
to evidence, establish, maintain, perfect, protect, enforce or defend its
right, title or interest in or to any such properties.
8. Indemnification.
The Company will indemnify the Executive, to the maximum extent
permitted by applicable law, against all costs, charges and expenses incurred
or sustained by the Executive in connection with any action, suit or
proceeding to which the Executive may be made a party by reason of the
Executive being an officer, director or employee of the Company or of any
subsidiary or affiliate of the Company.
9. Notices.
All notices, requests, consents and other communications required
or permitted to be given hereunder shall be in writing and shall be deemed to
have been duly given if delivered personally, sent by overnight courier or
mailed first class, postage prepaid, by registered or certified mail (notices
mailed shall be deemed to have been given on the date mailed), as follows (or
to such other address as either party shall designate by notice in writing to
the other in accordance herewith):
If to the Company, to:
Marvel Entertainment Group, Inc.
387 Park Avenue South
New York, New York 10016
Attention: Paul E. Shapiro
9
<PAGE>
Executive Vice President,
Chief Administrative Officer
and General Counsel
If to the Executive, to:
David J. Schreff
9 Frontier Road
Greenwich, Connecticut 06807
10. General.
10.1 This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York applicable to
agreements made and to be performed entirely in New York.
10.2 The section headings contained herein are for reference
purposes only and shall not in any way affect the meaning or interpretation of
this Agreement.
10.3 This Agreement sets forth the entire agreement and
understanding of the parties relating to the subject matter hereof, and
supersedes all prior agreements, arrangements and understandings, written or
oral, relating to the subject matter hereof. No representation, promise or
inducement has been made by either party that is not embodied in this
Agreement, and neither party shall be bound by or liable for any alleged
representation, promise or inducement not so set forth.
10.4 This Agreement, and the Executive's rights and
obligations hereunder, may not be assigned by the Executive. The Company may
assign its rights, together with its obligations, hereunder (i) to any
affiliate or (ii) to third parties in connection with any sale, transfer or
other disposition of all or substantially all of its business or assets; in
any event the obligations of the Company hereunder shall be binding on its
successors or assigns, whether by merger, consolidation or acquisition of all
or substantially all of its business or assets.
10.5 This Agreement may be amended, modified, superseded,
canceled, renewed or extended and the terms or covenants hereof may be waived,
only by a written instrument executed by both of the parties hereto, or in the
case of a waiver, by the party waiving compliance. The failure of either party
at any time or times to require performance of any provision hereof shall in
no manner affect the right at a later time to enforce the same. No waiver by
either party of
10
<PAGE>
the breach of any term or covenant contained in this Agreement, whether by
conduct or otherwise, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such breach, or a waiver
of the breach of any other term or covenant contained in this Agreement.
10.6 The Executive represents to the Company that execution,
delivery and performance of this Agreement by the Executive will not conflict
with or violate any agreement binding upon the Executive.
11. Subsidiaries and Affiliates.
11.1 As used herein, the term "subsidiary" shall mean any
corporation or other business entity controlled directly or indirectly by the
corporation or other business entity in question, and the term "affiliate"
shall mean and include any corporation or other business entity directly or
indirectly controlling, controlled by or under common control with the
corporation or other business entity in question.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
MARVEL ENTERTAINMENT GROUP, INC.
By: /s/ William C. Bevins
-------------------------------
William C. Bevins
President and Chief Executive
Officer
/s/ David J. Schreff
----------------------------------
DAVID J. SCHREFF
11
<PAGE>
APPENDIX I
Additional Benefits:
1. Medical Examination. The Executive shall be reimbursed by the
Company for the reasonable cost of one annual medical examination upon
presentation of an expense statement.
2. Automobile. The Company shall afford the Executive the right to
use an automobile on a continuing basis and shall provide garaging near the
Executive's residence, on the same basis as other senior executive officers of
the Company. Upon the expiration of the Term, the Executive promptly shall
return the automobile to the Company.
3. Stock Options. The Executive shall be eligible to participate in
the Marvel Entertainment Group, Inc. Stock Option Plan (the "Stock Option
Plan") and to receive options to purchase shares of the common stock, par
value $.01 per share ("Common Stock"), of Marvel Entertainment Group, Inc.
("Marvel"), pursuant to the terms of the Stock Option Plan and related Stock
Option Agreement in the amounts set forth below:
250,000 upon commencement of the Term
250,000 on or about January 5, 1997
250,000 on or about January 5, 1998
subject to the terms and conditions approved by the committee of the Board of
Directors of Marvel which administers the Stock Option Plan.
4. Signing Bonus. The Company shall pay the Executive, upon
execution of this Agreement, an amount equal to $500,000.
5. Insurance. The Company agrees to provide the Executive with
additional term life insurance coverage with a face amount of $5,000,000
subject to the insurer's satisfaction with the results of any required medical
examination to which the Executive hereby agrees to submit, on the following
basis. The Executive may select a plan of his choice and may designate the
beneficiary of such plan. The Company shall pay, upon presentation of an
expense statement, the periodic premiums relating to such additional term life
insurance payable during the Term.
6. Tax Advisor. The Executive shall be reimbursed by the Company,
upon presentation of an expense
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<PAGE>
statement, for the reasonable fees and disbursements of a personal tax advisor
to be selected by the Executive.
7. Club Membership. The Company shall reimburse the Executive, upon
presentation of an expense statement, for all reasonable initiation fees and
periodic dues for membership in a club of the Executive's choice. The Company
shall pay on behalf of the Executive the annual, national chapter, local
chapter and local forum dues of the Young President's Organization.
8. Estate Planning. The Executive shall be reim-
bursed by the Company, upon presentation of an expense state-
ment, for the reasonable fees and disbursements of an estate
planning advisor to be selected by the Executive.
9. Disability. If the Company elects to terminate the Term pursuant
to Section 4.2 of the Agreement, in addition to the amounts payable under such
Section, for the shorter of the period the Executive remains disabled or until
the Executive has attained the age of 65, the Company shall continue to
provide benefits for the Executive under the corporate group life insurance
plan and for the Executive, his spouse and children under the corporate group
medical (including the executive medical plan) insurance plan, to the extent
permitted by such plans and to the extent such benefits continue to be
provided to the Company's employees or officers, as applicable, generally.
13
[Major League Baseball Players Association Letterhead]
February 7, 1996
Mr. Daun Kauffman
Director of Sports Marketing
Fleer/Skybox International
Executive Plaza
1120 Route 73
Mt Laurel, NJ 08054
Dear Daun:
This letter will confirm our agreement to amend Schedule B of the
License Agreement with the Major League Baseball Players Association, dated
December 22, 1994, as follows:
Effective immediately, the Licensed Territory will include China and
Taiwan.
All other terms and conditions of the License Agreement including all
Schedules and Addenda shall remain in full force and effect.
Sales of Licensed Product in this additional territory shall not
commence until this amendment is fully executed.
Please sign in the appropriate space below indicating your agreement
with the foregoing.
Sincerely,
/s/ Jennifer Cooney
----------------------
Jennifer Cooney
MAJOR LEAGUE BASEBALL FLEER CORP.
PLAYERS ASSOCIATION
/s/ Donald Fehr /s/ Daun Kauffman
- ------------------------------ ----------------------------
Donald M. Fehr Daun Kauffman
Executive Director Director of Sports Marketing
FORM: NBAP
Trading Cards/Stickers
LICENSEE: MARVEL ENTERTAINMENT GROUP, INC. RETAIL PRODUCT LICENSE AGREEMENT
ADDRESS: Executive Plaza, Suite 300
1120 Route 73
Mt. Laurel, NJ 08054
THIS RETAIL PRODUCT LICENSE AGREEMENT is entered into by NBA Properties, Inc.
("NBAP"), with its principal office at 645 Fifth Avenue, New York, New York
10022, and Marvel Entertainment Group, Inc. ("Marvel") on behalf of its
wholly-owned subsidiaries Fleer Corporation ("Fleer"), SkyBox International,
Inc. ("SkyBox") and Panini S.r.l. ("Panini") (collectively and individually,
"LICENSEE"), with regard to the commercial use by each LICENSEE of the names,
logos, symbols, emblems, designs and uniforms and all identifications, labels,
insignia or indicia thereof (the "Marks") of the National Basketball
Association (the "NBA") and its Member Teams (collectively, the "NBA Marks") in
combination with the names, nicknames, photographs, portraits, likenesses,
signatures or other identifiable features of all current NBA players ("Player
Attributes"). On the terms of this Agreement and subject to the attached NBAP
Standard Terms and Conditions, NBAP hereby grants to LICENSEE, and LICENSEE
hereby accepts, the non-exclusive (except as otherwise expressly provided in
this Agreement) right and license to use under the Fleer, SkyBox and Panini
brands the Marks of the Member Teams, the silhouetted dribbler logo (the "NBA
Logo"), the Marks of the NBA, NBA AllStar Weekend and NBA Playoffs and Finals
(collectively, the "Licensed Marks") in combination with the names, nicknames,
photographs, portraits, likenesses, signatures, NBA statistics and biographical
information (and such additional Player Attributes as NBAP may specifically
approve on a case-by-case basis from time-to-time) of all current (at the time
of such use) NBA players (the "Licensed Attributes"), solely in connection with
the manufacture, distribution, advertisement, promotion and sale of the trading
card and sticker products described in Paragraph A below ("Licensed Products").
No license or right is granted for the use of the Licensed Marks for any
purpose other than on the Licensed Products and in the distribution,
advertisement, promotion and sale of the Licensed Products in accordance with
this Agreement
A. LICENSED PRODUCTS:
(1)(i) For the 1st "Contract Year" (as defined in Paragraph 1 of the
attached NBAP Standard Terms and Conditions), Fleer and SkyBox may
each produce up to four (4) product lines of "standard size" (as
defined in Paragraph 1 of the attached NBAP Standard Terms and
Conditions) ink-on-paper trading cards in mutually determined
quantities and to be marketed by each company respectively under the
Fleer brand names "Fleer," "Ultra," and two other Fleer brand names
"TBD" by mutual agreement, and under the SkyBox brand names "SkyBox,"
"NBA HOOPS," and two other SkyBox brand names "TBD" by mutual
agreement. (ii) For the 2nd, 3rd and 4th Contract Years respectively
such number and types of lines as LICENSEE and NBAP shall mutually
determine for each brand based on prevailing market conditions taking
into account LICENSEE's minimum guarantees hereunder, but in no event
shall the number of lines in the 2nd, 3rd and 4th Contract Years be
fewer than in the 1st Contract Year.
The Licensed Products may only be packaged and sold in the following
configurations: wax/foil packs; poly-wrapped; stringer packs; blister
packs; and complete boxed sets, or such other configurations as are
consistent with the type of Licensed Products sold by LICENSEE.
LICENSEE may make up to two (2) "releases" (as defined in Paragraph 1
of the attached NBAP Standard Terms and Conditions) of each product
line each Contract Year, except that it shall only make one release,
per Contract Year, of the line designated by LICENSEE (and approved by
NBAP) as its "niche" or "specialty" product line. For each Contract
Year, at least one line under each of the Fleer and SkyBox brands
shall be a nonpremium brand consisting of a basic card pack of at
least six (6) cards.
(2) 3-ring card collector's albums.
<PAGE>
(3) Approximately 3-1/2" x 2-1/2" paper/holographic foil player
photo and team logo sticker collectibles to be marketed under
the brand name Panini.
(4) 8-1/2" x 10-1/2" sticker album containing all NBA Member
Teams and selected individual and season statistics.
B. TERM: August 1, 1995 to July 31, 1999 (the "Term").
C. TERRITORY: Licensed Products may only be distributed in the countries
within the geographical regions as defined below (collectively, the
"Territory"). Notwithstanding the foregoing, Fleer, SkyBox and Panini
shall only be authorized to sell product in regions for which NBAP has
specifically assigned the brand a minimum payment guarantee under
Paragraph E below.
o The "North America" region shall mean the United States, Puerto Rico
and Canada.
o The "Europe" region shall mean Armenia, Austria, Azerbaijan, Belgium,
Bulgaria, Croatia, Czech Republic, Denmark, Estonia, Finland, France,
Georgia, Germany, Greece, Holland, Hungary, Iceland, Italy,
Kazakhastan, Kirghizia, Lettonia, Lithuania, Republic of Moldova,
Norway, Poland, Portugal, Romania, Russia, Slovak Republic, Slovenia,
Spain, Sweden, Switzerland, Tajikstan, Turkmenistan, Ukraine, United
Kingdom and Uzbekistan.
o The "Latin America" region shall mean Argentina, Brazil, Chile,
Colombia, Costa Rica, Mexico, Peru, Uruguay and Venezuela.
o The "Asia" region shall mean China, Hong Kong, India, Indonesia,
Japan, Korea, the Philippines, Taiwan and Thailand.
o The "Australia/NZ" region shall mean Australia and New Zealand.
o The "Africa" region shall mean Egypt, Israel, Lebanon, Morocco, Saudi
Arabia, South Africa, Tunisia, and Turkey.
D. ROYALTY RATES: LICENSEE shall pay monthly to NBAP a royalty equal to the
percentage of "Net Sales" (as defined in Paragraph 1 of the attached NBAP
Standard Terms and Conditions) with respect to sales made in each of the
regions set forth above as follows:
(1) Trading card royalty rates shall be as follows:
<TABLE>
<CAPTION>
lst Contract Year 2nd Contract Year 3rd Contract Year 4th Contract Year
- ----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C>
NORTH AMERICA
Fleer Brands [CONFIDENTIAL TREATMENT REQUESTED]
HOOPS
SkyBox Brands
Collector Albums
ALL OTHER REGIONS
Fleer Brands [CONFIDENTIAL TREATMENT REQUESTED]
SkyBox Brands
Collector Albums
</TABLE>
(2) Stickers and sticker album royalty rates shall be as follows:
3
<PAGE>
<TABLE>
<CAPTION>
lst Contract Year 2nd Contract Year 3rd Contract Year 4th Contract Year
- ----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C>
NORTH AMERICA [CONFIDENTIAL TREATMENT REQUESTED]
ALL OTHER REGIONS
</TABLE>
E. MINIMUM GUARANTEES: LICENSEE guarantees that its aggregate annual
royalty payments to NBAP with respect to sales made in each of the regions or
individual countries set forth above as follows:
(1) Trading card minimum royalties shall be as follows:
<TABLE>
<CAPTION>
lst Contract Year 2nd Contract Year 3rd Contract Year 4th Contract Year
- ----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C>
NORTH AMERICA
Fleer Brands [CONFIDENTIAL TREATMENT REQUESTED]
SkyBox Brands
EUROPE
Fleer
ASIA
Fleer
AUSTRALIA/NZ
Fleer Brands
SkyBox Brands
LATIN AMERICA
Fleer
AFRICA
Fleer
</TABLE>
(2) Sticker minimum royalties shall be as follows:
<TABLE>
<CAPTION>
lst Contract Year 2nd Contract Year 3rd Contract Year 4th Contract Year
- ----------------- ----------------- ----------------- ------------------
<S> <C> <C> <C>
NORTH AMERICA [CONFIDENTIAL TREATMENT REQUESTED]
LATIN AMERICA
EUROPE
ASIA
AUSTRALIA/NZ
AFRICA
</TABLE>
F. MEDIA & EVENT SUPPORT ("MEDIA SUPPORT"): Each Contract Year during the
Term, Fleer, SkyBox and Panini respectively shall spend the amounts
indicated below on NBA media and events:
(1) On Media Support in North America, (y) Fleer shall expend on
NBA-controlled media and events, as are set forth on Schedule A
hereto, an amount equal to [CONFIDENTIAL TREATMENT REQUESTED], which
amount shall not be less than the following per Contract Year:
[CONFIDENTIAL TREATMENT REQUESTED] the 3rd Contract Year, and
[CONFIDENTIAL TREATMENT REQUESTED] the 4th Contract Year (however,
once LICENSEE has expended the foregoing minimum amount, or firmly
committed to spend such amount, for the applicable Contract Year, for
the balance of the Contract Year the rate shall be reduced to
[CONFIDENTIAL TREATMENT REQUESTED] and (z) SkyBox shall expend an
amount equal to [CONFIDENTIAL TREATMENT REQUESTED], which amount
shall not be less than the
4
<PAGE>
following per Contract Year: [CONFIDENTIAL TREATMENT REQUESTED] the
1st Contract Year, [CONFIDENTIAL TREATMENT REQUESTED] the 2nd
Contract Year, [CONFIDENTIAL TREATMENT REQUESTED] the 3rd Contract
Year, and [CONFIDENTIAL TREATMENT REQUESTED] the 4th Contract Year.
(2) On Media Support outside of North America, (y) Fleer shall expend on
NBA-controlled media and events (by way of example, but not limited
to, McDonald's Championship, Jam Session, preseason games, etc.), as
mutually determined, an amount equal to [CONFIDENTIAL TREATMENT
REQUESTED] which amount shall not be less than [CONFIDENTIAL
TREATMENT REQUESTED], and (z) Panini shall expend an amount equal to
[seven percent (7%) of its Net Sales (attributable to international
sales)]* which amount shall not be less than [CONFIDENTIAL TREATMENT
REQUESTED] per Contract Year, in addition, for each Contract Year
Fleer and SkyBox shall each allocate [CONFIDENTIAL TREATMENT
REQUESTED] to a NBAP- controlled advertising and promotion ("A&P")
fund to be used by NBAP for promotional activities in Australia/NZ.
G. A&P GROUP FUND PAYMENTS: In addition to all other amounts payable to NBAP
under this Agreement, (x) Fleer shall contribute monthly into NBAP's
consumer products advertising and promotion fund (the "Group Fund"),
together with its monthly payments of royalties under Paragraph 3 of the
attached NBAP Standard Terms and Conditions, an amount equal to
[CONFIDENTIAL TREATMENT REQUESTED] which amount shall not be less than the
following per Contract Year: [CONFIDENTIAL TREATMENT REQUESTED] the lst
Contract Year, [CONFIDENTIAL TREATMENT REQUESTED] the 2nd Contract Year,
[CONFIDENTIAL TREATMENT REQUESTED] the 3rd Contract Year, and
[CONFIDENTIAL TREATMENT REQUESTED] the 4th Contract Year, (y) SkyBox shall
contribute monthly into the Group Fund, together with its monthly payments
of royalties under Paragraph 3, an amount equal to [CONFIDENTIAL TREATMENT
REQUESTED], which amount shall not be less than the following per Contract
Year, [CONFIDENTIAL TREATMENT REQUESTED] the 1st Contract Year,
[CONFIDENTIAL TREATMENT REQUESTED] the 2nd Contract Year; [CONFIDENTIAL
TREATMENT REQUESTED] the 3rd Contract Year; and [CONFIDENTIAL TREATMENT
REQUESTED] for the 4th Contract Year and (z) Panini shall contribute
monthly into the Group Fund, together with its monthly payments of
royalties under Paragraph 3, an amount equal to [CONFIDENTIAL TREATMENT
REQUESTED] which amount shall not be less than [CONFIDENTIAL TREATMENT
REQUESTED] per Contract Year. Such amount shall be spent by NBAP in its
sole discretion on NBAP advertising and promotion activities for NBAP
licensed products sold at retail. NBAP shall give LICENSEE a written
report within sixty (60) days after each Contract Year setting forth how
funds collected from LICENSEE, and other NBAP licensees under similar
provisions in other license agreements, were spent by NBAP. In addition to
the foregoing A&P obligations, Fleer, SkyBox and Panini shall each
exhibit, at its sole cost and expense, a fair and representative selection
of Licensed Products at the National Sports Collectors Convention and
every other trade show where each company exhibits licensed products.
H. SELLING PRACTICES: LICENSEE acknowledges NBAP's legitimate and reasonable
interest in protecting the value of the NBA Marks and maximizing the
effectiveness of its advertising, promotion and distribution efforts by
segmenting the classes of trade into which its licensees sell
NBAP-licensed products. Therefore, LICENSEE shall only sell Licensed
Products to a buyer that, to its best knowledge, (i) purchases Licensed
Products from LICENSEE solely for sale directly to the consumer and
operates a retail establishment that supports the high quality and image
of NBA officially licensed products with appropriate merchandising
displays, promotion and/or customer service, or (ii) distributes to
retailers that support the high quality and image of NBA officially
licensed products with appropriate merchandising displays, promotion
and/or customer service. LICENSEE acknowledges that a failure to comply
with the selling practices set forth in this Paragraph shall cause
significant harm to NBAP's efforts to effectively and efficiently
distribute NBAP-licensed products.
5
<PAGE>
AGREED TO AND ACCEPTED, subject AGREED TO AND ACCEPTED:
to and incorporating the attached NBAP NBA PROPERTIES, INC.
Standard Terms and Conditions which
the undersigned has read: By: /s/ Harvey Benjamin
MARVEL ENTERTAINMENT GROUP, INC. -----------------------
Harvey E. Benjamin
Sr. Vice President,
Business Affairs
By:
---------------------------------
Title: Dated:
------------------------------ ----------------------
6
<PAGE>
NBAP STANDARD TERMS AND CONDITIONS
1. ADDITIONAL DEFINITIONS
For the purposes of this Agreement:
(a) "Contract Year" shall mean a twelve (12) month accounting period
commencing August 1 and concluding July 31. The first Contract Year
shall commence August 1, 1995.
(b) "Counterfeit Goods" shall mean and include: (i) goods that bear any
NBA Mark that has been reproduced and/or affixed without
authorization from NBAP; (ii) goods that bear any NBA Mark produced
by any source in excess of an amount ordered by an NBAP licensee; and
(iii) goods that bear any NBA Mark that have been rejected by NBAP or
an NBAP licensee and nevertheless enter the stream of commerce.
(c) "Diverted Goods" shall mean and include any goods produced by someone
acting on behalf of an NBAP licensee, which goods are not delivered
by the producer to such licensee or to a person designated by such
licensee to receive such goods.
(d) "NBA Photo" means any photograph of a current NBA player taken by any
party during an NBA game, competition, event or NBA-coordinated
activity (e.g., Pre-Draft Camps, Rookie Orientation, player
appearances etc.), or in which such a player is pictured in his NBA
team or League-issued uniform or practice wear, or NBA-identified
merchandise or setting.
(e) "Net Sales" shall mean the amount of the [CONFIDENTIAL TREATMENT
REQUESTED] under this Agreement, after [CONFIDENTIAL TREATMENT
REQUESTED]. In computing Net Sales, [CONFIDENTIAL TREATMENT
REQUESTED] Net Sales resulting from sales to any party directly or
indirectly related to or affiliated with LICENSEE (a "Related
Transaction") shall be computed based on regular selling prices to
unaffiliated parties in the same class of trade as the affiliated
party. If a purchaser from LICENSEE purchases FOB the manufacturing
source or participates in other arrangements which result in such
purchaser paying less for the Licensed Products than LICENSEE's
regular selling prices to the trade, Net Sales with respect to any
such transaction shall be computed based on the regular selling
prices to the trade.
(f) "Parallel Goods" shall mean and include Licensed Products transferred
outside of the Territory or brought into the Territory in violation
of this Agreement.
(g) "Premium" shall mean anything given free or sold at substantially
less than its usual selling price (but does not include sales made
pursuant to periodic price reductions resulting from "specials,"
"sales," or volume pricing discounts) for the purpose of increasing
the sale of, or publicizing, any product or service, or other
giveaway or promotional purpose. Other giveaway or promotional
purposes include, but are not limited to, self-liquidating offers,
uses of Licensed Products as sales force or trade incentives and
sales of Licensed Products through distribution schemes involving
earned discounts or "bonus" points based on the consumer's use of the
offeror's product or service.
(h) "Release" means the shipment of a series.
(i) "Set" means all the cards issued in a series of a particular product
line.
(j) "Standard Size" means a card size of 2-1/2" x 3-1/2" except that the
standard size "Jam Session" card shall be 2-1/2" x 4-11/16".
2. TEAM REPRESENTATION; LIMITATIONS ON LICENSE
(a) Unless otherwise approved in writing by NBAP, each NBA Set must
include individual cards of a minimum of six (6) players from each
Member Team and utilize the respective team's full logo on a mutually
agreeable location on the card. All designs of the Licensed Products
using the Licensed Marks, including any packages, containers or tags,
shall be subject to NBAP's prior written approval and shall be used
solely in furtherance of this Agreement, and such designs will not be
used in any other respect by LICENSEE nor will LICENSEE authorize any
third party to use such designs. Notwithstanding the foregoing, NBAP
acknowledges that LICENSEE may hold
7
<PAGE>
other licenses pursuant to which LICENSEE manufactures, distributes
or sells products similar in design to the Licensed Products and
nothing in this Agreement is intended to prohibit LICENSEE's
manufacture, distribution or sale of such products not bearing or
relating to the Licensed Marks.
(b) LICENSEE acknowledges that nothing contained herein shall be
construed as granting to any photographer engaged by LICENSEE the
right to enter any NBA arena for the purpose of photographing game
action, it being understood that NBAP does not control arena access.
Upon LICENSEE's request, NBAP shall provide LICENSEE with reasonable
amounts of NBA Photos for use by LICENSEE in the production of the
Licensed Products; such NBA Photos to be provided to LICENSEE at
NBAP's prevailing search and edit charges for NBAP licensees.
3. STATEMENTS AND PAYMENTS; REPORTING
(a) Statement and Payments: By the fifteenth (15th) day following the end
of each month, LICENSEE shall wire transfer to NBAP the "Monthly
Minimum Payment" (as defined below), and within fifteen (15) days
(i.e., by the 30th day following the end of each month) of each such
payment, Fleer, SkyBox and Panini shall each furnish (on forms
provided by or approved by NBAP) full and accurate statements (on a
country-by-country and brand basis), certified by an officer of each
respective company, showing all information relating to the
calculation of Net Sales for the preceding month. Simultaneously with
the submission of such statement, each company shall wire transfer to
NBAP the overage, if any, with respect to the Monthly Minimum Payment
made and the actual earned royalty and A&P contribution required
under Paragraphs F and G for the preceding month. The minimum amount
of each monthly royalty payment with respect to each region shall be
the amount which, when added to payments of royalties previously made
for the Contract Year with respect to such region, shall be equal to
one-twelfth (8.34%) of the Minimum Guarantee for such region for such
Contract Year required under Paragraph E above, multiplied by the
number of calendar months then elapsed. The minimum amount of each
monthly advertising and promotion payment shall be the amount which,
when added to the advertising and promotion payments previously made
for the Contract Year, shall be equal to one-twelfth (8.34%) of the
A&P contribution for such Contract Year required under Paragraphs F
and G above, multiplied by the number of calendar months then elapsed
(the minimum payments under this sentence and the preceding sentence
collectively referred to as the "Monthly Minimum Payment"). Aggregate
royalties and any advertising and promotion payments paid each
Contract Year may exceed the Minimum Guarantee and the A&P
contribution for such Contract Year. Such monthly statements shall be
furnished and the required payments made by LICENSEE whether or not
there are any Net Sales for that month. LICENSEE shall not deduct or
withhold any amounts by reason of any tax (including any taxes
imposed on NBAP); any applicable tax on the distribution and sale of
the Licensed Products shall be borne, and paid directly, by LICENSEE.
In order to avoid the imposition of foreign withholding taxes on
NBAP, all payments shall be in U.S. dollars, from a U.S. source
approved by NBAP. All computations and payments shall be in U.S
dollars, at the spot rate for the local currency as published in the
Wall Street Journal for the last business day of the preceding month.
If LICENSEE shall fail to timely pay any amount due under this
Paragraph, LICENSEE shall pay interest on such amount at a rate equal
to the lesser of (i) three percent (3%) per annum over the highest
prime rate (announced by Chemical Bank, New York branch) prevailing
during the period between the date the payment first became due and
the date such payment is actually paid or (ii) the highest rate
permitted by law during the period between the date the payment first
became due and the date such payment is actually paid. The receipt or
acceptance by NBAP of any of the statements furnished or royalties
paid by LICENSEE (including the cashing of any royalty checks) shall
not preclude NBAP from questioning their accuracy, auditing
LICENSEE's books and records pursuant to Paragraph 12 or claiming any
shortfall in royalty payments, or advertising and promotion payments
all during the Term and for a period of two (2) years after the
expiration or termination thereof. In order to assist with NBAP's
annual budget process, by April 15 of each Contract Year, each
LICENSEE company shall deliver a
8
<PAGE>
statement detailing its projections for sales of each Licensed
Product for the following Contract Year, broken down on a quarterly
basis. If LICENSEE fails to comply with the reporting and payment
requirements contained in this Paragraph, subject to notice and
opportunity to cure as provided under Paragraph 13(a) below, NBAP may
charge LICENSEE, as liquidated damages, two thousand U.S. dollars
(USD 2,000) for each instance of non-compliance with this Paragraph.
(b) Cross Collateralization: Royalty payments and Media Support may be
cross collateralized between companies and territories and across
product lines under this Agreement except that, (i) any royalty
payment for Licensed Product sold shall only be applied against the
Minimum Guarantee for the Contract Year in which such Licensed
Product was sold (i.e., any shortfall in, or payment in excess of,
the Minimum Guarantee for a Contract Year may not be offset or
credited against the Minimum Guarantees for any other Contract Year),
(ii) annual royalty payments attributable to North American sales
cannot be cross collateralized against any shortfall in the Minimum
Guarantee(s) for another region (however, payment in excess of
aggregate international Minimum Guarantees may be applied against any
shortfall in Minimum Guarantees for North America for that same
Contract Year), (iii) Media Support cannot be cross collateralized
between Contract Years (or against royalty payments), or between
Fleer and SkyBox with regard to the Youth Educational Programs,
All-Star Jam Session or Jam Session U.S. Tour, and (iv) international
Media Support cannot be cross collateralized against North America
Media Support. Notwithstanding the foregoing, however, in no event
shall aggregate royalties paid by LICENSEE with respect to any
Contract Year be less than the aggregate annual minimum royalties for
trading cards and stickers combined in the entire Territory as set
forth in Paragraph E above.
4. NON-RESTRICTIVE GRANT; RIGHTS RESERVED Nothing in this Agreement shall
prevent NBAP from granting any other licenses and rights. All rights not
specifically granted in this Agreement are expressly reserved by NBAP. No
right of renewal or option to extend is granted or implied and LICENSEE
shall have no right to continue manufacturing or selling Licensed Products
or to continue holding itself out as a licensee of NBAP after the
expiration or termination of this Agreement except as provided in
Paragraph 14.
5. PREMIUMS Licensed Products shall not be used as a Premium without the
prior written approval of NBAP in each instance and unless specifically
authorized pursuant to a separate agreement with NBAP. Nothing in this
Agreement shall prohibit LICENSEE from marketing Licensed Products using
creative techniques consistent with industry practice, including, but not
limited to, periodic "specials," "sales," or volume discount prices, so
long as all receipts are accounted for in Net Sales and in accordance with
this Agreement.
6. GOODWILL LICENSEE recognizes that (i) a portion of the value of the NBA
Marks is attributable to goodwill, (ii) the goodwill attached to the NBA
Marks belongs exclusively to NBAP, the NBA and its Member Teams and (iii)
that such NBA Marks have secondary meanings in the minds of the public.
LICENSEE shall not, during the Term or thereafter, challenge (y) the
property rights of the Member Teams, whether severally owned or held in
association as the NBA, or NBAP's property rights, in and to NBA Marks, or
(z) the validity, legality or enforceability of this Agreement.
7. PROTECTION OF RIGHTS
(a) Unauthorized Activities: LICENSEE shall promptly notify NBAP in
writing of any infringements of the Licensed Marks or the Licensed
Products or the sale of any Licensed Products outside the Territory
(e.g., unauthorized importation/exportation of goods) which may come
to LICENSEE's attention. NBAP shall have the sole right to determine
whether or not any action shall be taken on account of any such
infringement or unauthorized importation/exportation. LICENSEE agrees
9
<PAGE>
not to contact any third party engaging in the aforementioned
activities, not to make any demands for claims and not to institute
any suit or action on account of such infringement or unauthorized
importation/exportation without obtaining the express prior written
permission of NBAP in each instance. In the event NBAP grants such
permission and LICENSEE institutes such a suit or takes other action,
LICENSEE shall bear all direct out-of-pocket costs and expenses of
such action and NBAP shall reasonably cooperate with LICENSEE at
LICENSEE's expense.
(b) Assistance in Protecting Marks: LICENSEE shall cooperate to the
fullest extent reasonably necessary to assist NBAP in the protection
of the rights of NBAP, the NBA and the Member Teams in and to the
Licensed Marks. NBAP shall reimburse LICENSEE for any reasonable out-
of-pocket costs actually incurred by LICENSEE in providing such
cooperation and assistance. LICENSEE shall reasonably cooperate with
NBAP in its enforcement efforts, including being named by NBAP as a
complainant in any action against an infringer and NBAP shall bear
all LICENSEE's direct out-of-pocket costs and expenses of being named
a complainant and otherwise cooperating with NBAP in any such action.
LICENSEE shall pay to NBAP, and waives all claims to, all damages or
other monetary relief recovered in any such NBAP-initiated action by
reason of a judgment or settlement (other than for reasonable
attorneys' fees and expenses incurred at NBAP's request) whether or
not such damages or any part of such damages represent or are
intended to represent injury sustained by LICENSEE.
(c) Ownership of Marks: LICENSEE acknowledges that NBAP and/or the Member
Teams are the exclusive owners of the Licensed Marks. Any
intellectual property rights in the Licensed Marks that may accrue to
LICENSEE shall inure to the benefit of NBAP and shall be assigned to
NBAP upon its request. Any copyright, trademark or service mark used
or procured by LICENSEE with respect to or involving the Licensed
Marks, derivations or adaptations of the Licensed Marks, or any word,
symbol or design which is similar to the Licensed Marks so as to
suggest association with or sponsorship by the NBA, one of its Member
Teams or any of their affiliates, shall be procured for the benefit
of and in NBAP's name, at NBAP's expense, notwithstanding their
creation by LICENSEE. LICENSEE shall take all necessary steps to
secure an assignment to NBAP of the copyright from a creator of work
that is not work-for-hire. Any copyright, trademark or service mark
affecting or relating to the Licensed Marks already procured or
applied for shall be assigned to NBAP. LICENSEE shall supply NBAP
with any necessary supporting materials required to obtain copyright
or trademark registrations of any copyrights or trademarks required
to be assigned to NBAP under this Agreement at NBAP's expense.
(d) Notices. Labeling and Records. In every instance in which any
Licensed Mark is used free- standing in any Licensed Product or
promotional materials design (i.e., not appearing as embodied in or
on a uniform, equipment, etc.), LICENSEE shall include the notice
"TM," "(R)", "(C)", or such other copyright, trademark or service
mark notices (including the form, location and content of such
notices) as NBAP may from time-to-time designate. In addition, the
following general notice (in the English language, and in the
language of any foreign country where the Licensed Products will be
sold subject to space limitations and the requirements of local law)
must be included on the packaging of the Licensed Product:
"The NBA and individual NBA member team identifications
reproduced on this product are trademarks and copyrighted
designs, and/or other forms of intellectual property, that are
the exclusive property of NBA Properties, Inc. and the
respective NBA member teams and may not be used, in whole or in
part, without the written consent of NBA Properties, Inc."
LICENSEE shall: (i) cause all Licensed Products to bear the NBA Logo
together with the NBAP(C) notice in such place, and in such
prominence, as NBAP may designate from time-to-time, (ii) include on
the product box and wrapper the "Official Licensed Product" logo and
the NBAP(C) notice in such place, and in prominence, as NBAP may
designate from time-to-time, (iii) faithfully comply with and adhere
to NBAP's mandatory hologram "Official Licensed Product"
identification
10
<PAGE>
system or such system(s) as NBAP may from time-to-time require
including, but not limited to, identification devices on individual
cards, shipment tracking, identification and anticounterfeiting
systems, stickers, and labels that NBAP may establish from
time-to-time, (iv) unless approved in writing by NBAP, and with the
exception of those Marks of LICENSEE set forth in Paragraph A (1)(i)
hereof, not cross-license or otherwise use other licensed properties
or other Marks with the Licensed Products or Licensed Marks, and (v)
keep appropriate records, and advise NBAP upon its request, of the
date when each of the Licensed Products is first placed on sale or
sold in each country of the Territory and the date of first use in
each country of each different Licensed Mark on the Licensed Products
and any promotional or packaging materials.
(e) Recordation and Registered User Applications: With respect to those
countries in which one or more LICENSEEs may distribute and which
require applications to register the distributing LICENSEE as a
permitted or registered user of the Licensed Marks, or which require
the recordation of this Agreement, such LICENSEE shall execute and
deliver to NBAP such applications, agreements or other documents as
may be necessary. In such event, this Agreement rather than such
agreements will govern any disputes between LICENSEE and NBAP, and
when this Agreement expires or is terminated, any such other
agreement shall also be deemed expired or terminated.
(f) Licensee Trade Names and Trademarks: Fleer, SkyBox and Panini shall
each permanently affix labeling on its respective Licensed Product or
its packaging, indicating its name, trade name and address so that
the public can identify the supplier of the Licensed Product. Prior
to any distribution or sale of any Licensed Products, each company
shall advise NBAP in writing of its trade names or trademarks used on
Licensed Products and the proposed placement of such trade names and
trademarks on the Licensed Products. NBAP has preapproved the
trademarks and trade names of LICENSEE set forth in Paragraph A
hereof. Each company shall only sell Licensed Products under mutually
agreed upon trade names or trademarks and with approved copyrighted
designs, shall not incorporate the Licensed Marks into its corporate
or business name or trademark in any manner whatsoever and shall
place its trade names and trademarks on Licensed Products only as
approved by NBAP. NBAP acknowledges that it shall acquire no rights
in any LICENSEE trade names or trademarks used hereunder. If
requested by NBAP, each company shall supply NBAP, in advance of
shipping any Licensed Products, with at least twelve (12) copies of
each type of its stickers, product labels and other markings of
origin for use in identifying and authenticating Licensed Products in
the marketplace. LICENSEE shall not use, whether during or after the
Term, any Marks: (i) in connection with the Licensed Marks without
NBAP's authorization, (ii) confusingly-similar to the Licensed Marks,
or (iii) intended to relate or refer to the Licensed Marks, the
Member Teams or events involving Member Teams.
8. INDEMNIFICATIONS
(a) LICENSEE shall be solely responsible for, and shall defend, hold
harmless and indemnify NBAP, NBA Entertainment, Inc. ("NBAE"), the
NBA and its Member Teams and their respective affiliates, owners,
directors, governors, officers, employees and agents (collectively
"NBA Parties") against, any claims, demands, causes of action or
damages, including attorneys' fees (collectively, "Claims"), arising
out of: (i) any act or omission of LICENSEE, (ii) any breach of this
Agreement by LICENSEE, (iii) any defect (whether obvious or hidden
and whether or not present in any sample approved by NBAP) in a
Licensed Product or any packaging or other materials (including
advertising materials), or arising from personal injury or any
infringement of any rights of any other person or entity by the
manufacture, sale, possession or use of Licensed Products or their
failure to comply with applicable laws, regulations and standards or
(iv) any claim that the use of any design or other graphic component
of any Licensed Product (other than the Licensed Marks, Licensed
Attributes, NBA Photos or other material supplied to LICENSEE by
NBAP) violates or infringes upon the trademark, copyright or other
intellectual property rights (including trade dress) of a third
party, provided LICENSEE is given prompt written notice of and shall
have the option to undertake and conduct the defense of any such
Claim. In any instance
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to which the foregoing indemnities pertain, NBAP shall cooperate
fully with and assist LICENSEE in all respects in connection with any
such defense. LICENSEE shall reimburse NBAP for all reasonable
out-of-pocket costs actually incurred by NBAP in connection with such
cooperation and assistance. In any instance to which such indemnities
pertain, LICENSEE shall not enter into a settlement of such Claim or
admit liability or fault without NBAP's prior written approval.
LICENSEE shall obtain and maintain product liability insurance
providing protection for the NBA Parties against any Claims arising
out of any alleged defects in the Licensed Products or any use of the
Licensed Products, in the amount of one million dollars ($1,000,000)
(including the amount of the deductible). Such insurance shall be
carried by an insurer with a rating by A.M. Best & Co. of A-7 or
other rating satisfactory to NBAP. Such insurance policy shall also
provide that NBAP receive written notice within thirty (30) days
prior to the effective date of the cancellation, non-renewal or any
material change in coverage. In the event that LICENSEE fails to
deliver to NBAP a certificate of such insurance evidencing
satisfactory coverage prior to NBAP's execution of this Agreement,
NBAP shall have the right to terminate this Agreement at any time.
Such insurance obligations shall not limit LICENSEE's indemnity
obligations, except to the extent that LICENSEE's insurance company
actually pays NBAP amounts which LICENSEE would otherwise be
obligated to pay NBAP.
(b) NBAP shall be solely responsible for, and shall defend, hold harmless
and indemnify LICENSEE, its directors, officers, employees and agents
against any Claims arising out of: (i) a claim that the use, as
authorized by this Agreement, of the Licensed Marks, Licensed
Attributes, NBA Photos or other material supplied to LICENSEE by NBAP
(collectively, "Licensed Materials") violates or infringes upon the
trademark, copyright or other intellectual property rights (including
trade dress) of a third party in or to the Licensed Marks, (ii) a
claim that the use, as authorized by this Agreement, of the Licensed
Attributes, NBA Photos or other material supplied to LICENSEE by NBAP
on Licensed Products, or in advertising or promotional materials, as
specifically approved by NBAP violates or infringes upon the right of
privacy or right of publicity of, or libels or defames, any NBA
player or (iii) any breach of this Agreement by NBAP, provided NBAP
is given prompt written notice of and shall have the option to
undertake and conduct the defense of any such Claim. In any instance
to which the foregoing indemnities pertain, LICENSEE shall cooperate
fully with and assist NBAP in all respects in connection with any
such defense. NBAP shall reimburse LICENSEE for all reasonable
out-of-pocket expenses actually incurred by LICENSEE in connection
with such cooperation and assistance. In any instance to which such
indemnities pertain, NBAP shall not enter into a settlement of such
Claim or admit liability or fault without LICENSEE's prior written
approval. NBAP shall have the right, within seventy (70) days of
LICENSEE's commencement of production of Licensed Products bearing
such marks, to advise LICENSEE that one or more Marks of a Member
Team (other than the team's name or logo) are not covered by this
Paragraph 8(b), whereupon any continued use of said Mark by LICENSEE
shall be at LICENSEE's sole risk. If as a consequence of NBAP's
breach of this Agreement or a Claim (for which it is entitled to
indemnification by NBAP under this Paragraph) LICENSEE is restrained
from use of any Licensed Materials and such restraint has had a
material adverse effect on LICENSEE's Licensed Product sales, NBAP
and LICENSEE shall in good faith confer with respect to an equitable
adjustment to LICENSEE's obligations under this Agreement. If NBAP
and LICENSEE are unable to agree on the equitable adjustment, then
the parties shall proceed in accordance with the process set forth in
sub-paragraph 23(a) below.
9. QUALITY; APPROVALS; SAMPLES
LICENSEE shall cause the Licensed Products to meet and conform to high
standards of style, quality and appearance, consistent with their price
point. In order to assure NBAP that it is meeting such standards and other
provisions of this Agreement, LICENSEE shall comply with the following:
(a) Pre-Production: Before commercial production and distribution of any
Licensed Product, each LICENSEE shall submit to NBAP all its proposed
set/subset themes, composition, package configurations, card designs,
card copy, statistical information, photographs, composite
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matchprints, packaging and displays. LICENSEE acknowledges that NBA
Photos not obtained directly through NBAP's photo services shall not
be approved for use on Licensed Product or in NBA-identified
promotional materials. All submissions under this Paragraph shall be
accompanied by forms supplied by NBAP, using one (1) form for each
submission and filling in all necessary information, and all NBA
Photos submitted for approval must include the photograph
identification number (e.g., 95 NSBB 12345) assigned to each
photograph by NBAP's photo services. NBAP shall approve or disapprove
in writing all submissions, in its good faith exercise of sole
discretion, before the LICENSEE shall be entitled to distribute,
advertise, use, produce commercial quantities of or sell any item
relating to any such submission. Any article actually submitted and
not disapproved in writing within thirty (30) days after receipt by
NBAP shall be deemed approved. In the event of a disapproval, NBAP
shall set forth its reasons with enough specificity that LICENSEE
shall be able to remedy the defect, if curable. Approval of an
article by one company which uses particular artwork does not imply
approval of such artwork with a different article, by another company
or of such article with different artwork. LICENSEE acknowledges that
NBAP's approval of an article does not imply approval of any non-NBA
controlled elements contained in any article. After a sample of an
article has been approved, it shall not be materially changed without
resubmission of the modified article for NBAP's written approval.
(b) Production Samples: Before selling or distributing any Licensed
Product, each company shall furnish NBAP with, at no charge, for its
files two (2) sample complete sets from the first production run of
each product line. If such samples do not conform in all material
respects to the Licensed Product as approved or if the quality of
such sample does not meet the requirements of this Paragraph 9, NBAP
shall notify the LICENSEE and such article shall not be considered a
Licensed Product, be deemed unapproved and all such articles shall be
promptly destroyed unless such articles may be remedied to NBAP's
satisfaction. Each card LICENSEE shall also furnish NBAP, free of
charge and with no right of resale, with: (i) five (5) "base cases"
(i.e., a 20-box case with 36 packs of cards per box and 12 cards per
pack) of each product line within thirty (30) days of production;
twenty (20) complete sets in binders; and (iii) any additional pieces
of Licensed Product as may reasonably be required by NBAP to promote
the sale of Official Licensed Products (e.g., for NBAP's display
room, advertisements, catalogs, mailers, product placement and trade
shows) or for comparison with earlier samples. In addition, each
LICENSEE shall provide NBAP with any additional pieces of Licensed
Product as may be required for the permanent use of the Member Teams;
for each card LICENSEE not to exceed two (2) base cases per product
line per Member Team. If NBAP wishes to purchase further quantities
of any Licensed Products for resale, LICENSEE shall sell such
Licensed Products to NBAP at the lowest price LICENSEE charges for
similar quantities sold to its preferred customers and LICENSEE shall
pay royalties on such sales. If NBAP wishes to purchase mutually
acceptable quantities of Licensed Products for give-away purposes and
not for resale, LICENSEE shall sell the Licensed Products to NBAP at
LICENSEE's direct manufacturing cost for such Licensed Products and
LICENSEE shall not be required to pay royalties on such sales to
NBAP.
(c) Rejections and Non-Compliance: All submissions or samples not
approved by NBAP shall promptly be destroyed by the LICENSEE except
as otherwise provided by NBAP. The LICENSEE shall advise NBAP
regarding the time and place of such destruction (in sufficient time
to arrange for an NBAP representative to witness such destruction, if
NBAP so desires) and such destruction shall be attested to in a
certificate signed by one of LICENSEE's officers and submitted to
NBAP within fifteen (15) days of the date on which the sample was not
approved. In the event of a LICENSEE's unapproved or unauthorized
manufacture, distribution, use or sale of any products or materials
bearing the Licensed Marks, including promotional materials, or the
failure of a LICENSEE to comply with the material provisions of
Paragraphs 7(d), 7(f), 9 (after receiving notice and opportunity to
cure, if curable, as provided under Paragraph 13(d) below), or 11(c),
NBAP shall have the right to: (i) immediately revoke that LICENSEE's
rights with respect to any Licensed Product licensed under this
Agreement, and/or (ii) at that LICENSEE's expense, confiscate or
order the destruction of such unapproved, unauthorized or
non-complying
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products. In the event NBAP exercises its rights under (i) above,
LICENSEE shall pay all royalties, Minimum Guarantees and advertising
and promotion amounts due NBAP with respect to the Licensed Product
for which rights have been revoked. Such right(s) shall be without
prejudice to any other rights NBAP may have under this Agreement or
otherwise.
(d) Testing: Both before and after Licensed Products are put on the
market, each LICENSEE shall follow reasonable and proper procedures
for testing the Licensed Products for compliance with laws,
regulations, standards and procedures, and shall permit NBAP (upon
reasonable notice during reasonable business hours and no more than
once a year) to inspect its and its authorized manufacturers testing,
manufacturing and quality control records, procedures and facilities
and to test or sample Licensed Products for compliance with this
Paragraph and the other terms and conditions of this Agreement.
Licensed Products found by NBAP at any time not to comply with
applicable laws, regulations, standards and procedures shall be
deemed unapproved, even if previously approved by NBAP, and shall not
be shipped unless and until the LICENSEE can demonstrate to NBAP's
satisfaction that such Licensed Products have been brought into full
compliance.
(e) Revocation of Approval: In the event that: (i) the quality,
appearance or style of any Licensed Product previously approved by
NBAP ceases to be acceptable to NBAP, or (ii) there is an event or
occurrence relating to any player depicted in a Licensed Product
which, in the good faith opinion of NBAP, defames or brings into
disrepute, or reflects unfavorably upon NBAP, the NBA or any of its
Member Teams, then, in any such event, NBAP shall have the right, in
its sole discretion, to withdraw its approval of such Licensed
Product. In the event of such a withdrawal pursuant to (i), LICENSEE
shall as soon as practicable cease the printing of such Licensed
Product and shall have a six (6) month sell-off period and an
equitable adjustment to the minimum guarantee for such Licensed
Product. In the event of such a withdrawal pursuant to (ii), LICENSEE
shall cease the advertising of the Licensed Product and, as soon as
practicable, shall cease the printing of such Licensed Product and
the parties shall negotiate in good faith for a reasonable sell-off
period for such Licensed Product. If, in the good faith judgment of
NBAP, the sell-off of such Licensed Product is likely to defame,
bring into disrepute, or reflect unfavorably upon NBAP, the NBA, or
any of its Member Teams, then LICENSEE shall destroy its remaining
inventory of such Licensed Product. In either case, the parties shall
also negotiate an equitable adjustment to the minimum guarantee for
such Licensed Product. If there are other Licensed Products for which
approval has not been withdrawn under this subparagraph, then this
Agreement shall remain in full force and effect as to such other
Licensed Products. LICENSEE shall notify NBAP in writing of any
Licensed Products deleted from its product lines.
10. PROMOTIONAL MATERIAL; LIST GENERATION LICENSEE shall not use the Licensed
Marks or Licensed Attributes, or any reproduction of the Licensed Marks or
Licensed Attributes in any advertising, promotion or display material or
in any other manner whatsoever without prior written approval from NBAP.
Each LICENSEE shall furnish to NBAP, free of charge, in a computer
readable form or such other format reasonably acceptable to NBAP, the
names, addresses, telephone numbers and any other consumer information
furnished to, and maintained by, it resulting from participation in any
sweepstakes, promotion or direct mail solicitation conducted by it and
featuring the Licensed Products or NBA Marks (and which information NBAP
shall have the right to use for its marketing and research efforts as it
deems appropriate). Under no circumstance will "lotteries," "games of
chance" or any other type of promotion which NBAP believes reflects
unfavorably upon the NBA or its Member Teams be approved. All copy and
material depicting or using the Licensed Marks or Licensed Attributes
(including display and promotional material, catalogs and press releases)
shall be submitted for approval well in advance of production (but in no
event less than ten (10) business days prior to the start of commercial
production) to allow adequate time for NBAP, in its sole discretion, to
approve, disapprove or comment upon such materials and for any required
changes to be made. By way of example, no television or cinema advertising
containing any Licensed Mark or Licensed Attribute may be used unless it
has been approved in all stages (i.e., creative concept, script,
storyboard, production "roughcut" and final
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version). Unless otherwise approved by NBAP, any NBA Photo or NBA
game action footage that LICENSEE uses in connection with the
Licensed Products must be obtained from NBAE and shall be subject to
NBAE's prevailing search and edit charges for NBAP licensees and
NBAE's cost of providing such footage. Any promotional material
submitted that is not approved or disapproved in writing by NBAP
within ten (10) days of its receipt by NBAP shall be deemed approved
by NBAP. In the event of a disapproval, NBAP shall set forth in
writing the reasons therefor with reasonable specificity.
11. DISTRIBUTION; COMPLIANCE
(a) LICENSEE shall use commercially reasonable efforts to distribute and
sell, within and throughout the Territory, the Licensed Products in
such manner as may be required to meet competition by reputable
manufacturers of similar articles. LICENSEE shall make and maintain
adequate arrangements for the distribution and timely delivery of
Licensed Products to retailers within and throughout the Territory.
In the event NBAP advises a particular LICENSEE that a special
promotional effort is to take place in an individual store or chain
in a region in which it has distribution rights, such LICENSEE shall
use commercially reasonable efforts to sell its Licensed Products to
said store or chain. In addition, each LICENSEE shall give the
Licensed Products wide distribution and shall not, in accordance with
the selling practices set forth in this Agreement, refrain for any
reason from selling Licensed Products to any retail outlet within its
Territory that may desire to purchase Licensed Products and whose
credit rating, marketing image and past experience with LICENSEE, if
any, warrants such sale.
(b) If a LICENSEE desires to have a third party manufacture any Licensed
Product, such LICENSEE must first notify NBAP of the name and address
of such third party and of the Licensed Product LICENSEE desires such
third party to manufacture. Attached as Schedule B is a true and
complete list of all third party manufacturers currently authorized
by NBAP. NBAP shall have the right, in its sole discretion, to
withhold approval for such third party manufacture. If NBAP grants
approval for such third party manufacture, it may grant such approval
pursuant to an agreement (on a form supplied by NBAP) to be entered
into prior to such manufacture among NBAP, such LICENSEE and such
manufacturer which will, among other things, require that the third
party manufacturer be subject to all of the terms and conditions of
this Agreement. If NBAP does not require the third party to enter
into a separate agreement, the LICENSEE must provide NBAP with a copy
of its agreement with the third party, which agreement must provide
that it is subject to this Agreement. If any of LICENSEE's authorized
manufacturers uses the Licensed Marks for any unauthorized purpose,
LICENSEE shall cooperate fully with NBAP in stopping such
unauthorized use. Any change by a LICENSEE from a third party
manufacture previously approved by NBAP shall require approval in
accordance with this Paragraph.
(c) LICENSEE understands and acknowledges the meanings of "Counterfeit
Goods," "Diverted Goods" and "Parallel Goods" as set forth in
Paragraph 1 above and LICENSEE shall not authorize or knowingly
permit the creation of any such goods by its employees, agents,
representatives or any others operating under its direction,
supervision or control and involving the NBA Marks. LICENSEE shall
stamp on all invoices, and shall require its own affiliated
distributor to stamp on its invoices, a prominent legend that states
that the Licensed Products are allowed to be sold only within the
Territory. In the event NBAP has good cause to believe that any of
LICENSEE's authorized distributors, agents and customers are not
observing territorial limits, LICENSEE shall, at the request of NBAP,
inquire as to whether such party or parties are observing territorial
limits and shall report in writing to NBAP the results of such
inquiries. LICENSEE shall notify NBAP of all orders from, or on
behalf of, a customer who LICENSEE knows is located outside the
Territory or has good cause to believe intends to resell the Licensed
Products outside the Territory, If LICENSEE sells Licensed Product
outside the Territory, or to a customer that it knows to be reselling
the Licensed Product outside the Territory, LICENSEE shall pay all
NBAP's costs and expenses, including attorney's fees, required to
remove such goods from the marketplace. Such right of reimbursement
shall be in addition to, and not in lieu of, such other rights and
relief (including injunctive relief as may be available to NBAP.
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(d) In the event any LICENSEE sells or distributes other sports-related
licensed merchandise of a similar grade or quality as the Licensed
Products, but which do not bear any of the Licensed Marks, it will
not discriminate, in a manner which adversely impacts the Licensed
Products, in the granting of commissions and discounts to salesmen,
dealers and distributors between the Licensed Products and the
licensed products of any third party. A LICENSEE may not package its
Licensed Products in combination with other of its products, whether
similar or different, without the prior written approval of NBAP
which shall not be unreasonably withheld. In the event a LICENSEE has
employed selling or reporting methods which circumvent or reduce the
royalty or other payment or reporting obligations contained in this
Agreement, NBAP may, in addition to any other rights and remedies it
may have, at its option and upon fifteen (15) days' prior written
notice, adjust the minimum royalty per unit so that LICENSEE's
payment or reporting obligations are the same as if such practice had
not been employed.
(e) Each LICENSEE shall at all times conduct all aspects of its business
in a fair and reasonable manner and in compliance with all shipment
tracking, identification and anti-counterfeiting systems and labels
that NBAP may establish from time-to-time and all applicable laws,
government rules and regulations, court and administrative decrees
and the highest standard of business ethics then prevailing in the
industry.
(f) It shall be the sole responsibility of each LICENSEE, at its sole
expense, to obtain all approvals (including, but not limited to,
approvals of advertising materials) of all governmental authorities
which may be necessary in connection with such LICENSEE's performance
under this Agreement.
12. RECORDS; AUDITS
LICENSEE shall keep accurate books of account and records covering all
transactions relating to the license granted in this Agreement (including,
but not limited to, sales of Licensed Products, purchases and uses of NBA
hologram stickers and compliance with shipment tracking, identification
and anti- counterfeiting systems and labels that NBAP may establish from
time to time). NBAP and its authorized representatives shall have the
right no more than once per year without good cause, at all reasonable
hours of the business day and upon ten (10) days' notice, to examine and
audit such books of account and records and all other documents and
materials in LICENSEE's possession or under its control (including records
of LICENSEE's parents, subsidiaries, affiliates and third parties, if they
are directly involved in activities which relate to this Agreement)
relating to this Agreement. NBAP shall have free and full access for such
purposes and for the purpose of making extracts and copies. All such
information shall be kept confidential in accordance with Paragraph 22(g)
hereof. Should an audit by NBAP establish a deficiency between the amount
found to be due NBAP and the amount LICENSEE actually paid or reported,
the LICENSEE shall pay the amount of such deficiency, plus interest at the
then current prime rate (as announced by Chemical Bank, New York branch)
from the date such amount should have been paid until the date of payment.
Should such audit establish a deficiency of more than five percent (5%)
and greater than five thousand dollars ($5,000) LICENSEE shall also pay
for the reasonable cost of the audit. LICENSEE shall pay such amount
within thirty (30) days. All such books of account and records shall be
kept available for at least two (2) years after the expiration or
termination of this Agreement, or three (3) years after the end of the
Contract Year to which they relate, whichever is earlier. In order to
facilitate inspection of its books and records, LICENSEE shall designate a
symbol or number which will be used exclusively in connection with the
Licensed Products on which royalty payments are payable and shall maintain
for inspection as provided in this Agreement duplicates of all billings to
customers with respect to Licensed Products. LICENSEE shall, within ten
(10) business days of NBAP's request (which shall not be made more than
four (4) times per Contract Year), furnish NBAP with a list of LICENSEE's
top twenty-five (25) retail accounts for Licensed Products (on a country
by country basis) and their monthly purchases of Licensed Products (broken
down by unit sales and in dollar volume by retailer). LICENSEE shall,
promptly upon execution thereof, supply NBAP with true and complete copies
of any agreement it enters into with any Member Team or any NBA player. In
addition, LICENSEE shall, on a quarterly basis during the Term, provide
NBAP with copies of either (i) financial information furnish to the United
States Securities and Exchange Commission or (ii) with all financial
statements and other financial information prepared by LICENSE E
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for distribution to its banks or other financial lending institutions to
whom it reports regularly. Such information, to the extent not publicly
available, shall be kept confidential in accordance with Paragraph 22(g)
hereof. At NBAP's request, LICENSEE shall reasonably cooperate with NBAP
in developing an electronic data interchange or developing such other
system, that will facilitate NBAP's review of LICENSEE's graphic designs
for Licensed Products.
13. EARLY TERMINATION
Without prejudice to any other rights NBAP may have pursuant to this
Agreement or otherwise, NBAP shall have the right to terminate this
Agreement, or rights with respect to a particular LICENSEE where
appropriate, at any time if:
(a) LICENSEE shall fail to timely remit a royalty report and payment when
due and shall fail to cure such delinquency and non-payment within
thirty (30) days (ten (10) days for other non-payment defaults) of
its receipt of written notice from NBAP; provided, however, that the
LICENSEE shall not have the right to cure more than three (3)
delinquent submissions or payment defaults.
(b) LICENSEE or any guarantor under this Agreement shall be unable to pay
its liabilities when due, or shall make any assignment for the
benefit of creditors, or under any applicable law admits in writing
its inability to meet its obligations when due or commit any other
act of bankruptcy, institute voluntary proceedings in bankruptcy or
insolvency or permit institution of such proceedings against it.
(c) LICENSEE shall exhibit a pattern of failure to timely return original
NBA Photos to NBAE in accordance with the terms of its Photo Use Form
Agreement.
(d) LICENSEE shall fail to perform or shall be in breach of any other
term or condition of this Agreement; provided, however, that if such
breach can be cured, termination shall take effect thirty (30) days
after written notice of such breach is sent by NBAP if such breach
has not been cured during such thirty (30) day period.
(e) LICENSEE now or in the future holds a license from NBAP covering any
other products or geographic area other than the Territory and such
license is terminated by NBAP.
(f) LICENSEE (i) delivers Licensed Products outside the territory covered
by any retail product license agreement in effect during the Term
between NBAP and LICENSEE.
(g) LICENSEE sells to any third party that LICENSEE knows is altering or
modifying the Licensed Products prior to sale to the ultimate
consumer.
In addition to NBAP's other rights and remedies, upon termination of this
Agreement under this Paragraph LICENSEE shall pay NBAP (within thirty (30)
days of such termination) the Minimum Guarantees for each Licensed Product
and the A&P contribution through the end of the Agreement, less the
royalties and portion of the A&P contribution paid to NBAP through the
date of termination.
14. DISPOSAL OF STOCK
(a) With respect to trading card product, within seven (7) months
following the initial release of each series of Licensed Product,
except as otherwise approved by NBAP in writing, LICENSEE shall
destroy printing plates and any such Licensed Product on hand. In the
alternative, LICENSEE may sell or resell such Licensed Product with
NBAP's permission, not to be unreasonably withheld. LICENSEE shall be
entitled to retain for its purposes up to one hundred (100) cases of
each Licensed Product each Contract Year. Any Licensed Product
returned after seven (7) months of its initial ship date shall be
destroyed within ninety (90) days of receipt by LICENSEE. In the
alternative, LICENSEE may sell or resell such Licensed Product with
NBAP's permission, not to be unreasonably withheld. Upon request,
LICENSEE shall provide NBAP with evidence of the destruction of such
product or components. Upon expiration (but not termination except
with the prior approval of NBAP which shall not be unreasonably
withheld if such termination is unrelated to LICENSEE's breach of
Paragraphs 3,7,9 or 11 (c) above), any Licensed Product on hand at
the end of the sell-off period or subsequently returned to LICENSEE
(or unfinished components of Licensed Products) shall be destroyed by
LICENSEE at its cost, no later than thirty (30) days thereafter.
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(b) With respect to stickers, sixty (60) days before the expiration of
this Agreement and ten (10) days after any termination under
Paragraphs 9 or 13, Panini will furnish to NBAP a certificate showing
the number and description of Licensed Products on hand or in process
of manufacture. After expiration or termination of this Agreement,
Panini shall have no further right to manufacture, authorize any
third party to manufacture, advertise, distribute, sell, promote or
otherwise deal in any Licensed Products or use the Licensed Marks or
Licensed Attributes except as provided below. For a period of ninety
(90) days following the expiration (but not after termination except
with the prior approval of NBAP which shall not be unreasonably
withheld if such termination is unrelated to LICENSEE's breach of
Paragraphs 3,7,9 or 11(c) above) of this Agreement, Panini may
sell-off and deliver completed Licensed Products which are on hand at
the time of such expiration (the "Sell-Off Period"); provided,
however that (i) the total number of units of each Licensed Product
sold during the Sell-Off Period may not be greater than one hundred
ten percent (110%) of the total number of units of such Licensed
Product on hand on the same date the preceding Contract Year, (ii)
such Licensed Products may only be sold in accordance with this
Agreement and in the normal course of business and at regular selling
prices, (iii) all payments then due are first made to NBAP and (iv)
statements and payments with respect to the Sell-Off Period are made
in accordance with this Agreement NBAP shall have the option to
conduct physical inventories before the expiration of this Agreement
until the end of the Sell-Off Period in order to verify such
inventory and/or statements. If Panini refuses to permit such
physical inventory, Panini shall forfeit its right to dispose of its
inventory. After such Sell-Off Period, all inventory on hand or in
process (including all promotional and packaging materials) will be
destroyed.
15. EQUITABLE RELIEF
LICENSEE acknowledges that NBAP is entering into this Agreement not only
in consideration of the royalties to be paid, but also for the promotional
value and intrinsic benefit resulting from the manufacture, advertisement
distribution, sale and promotion of the Licensed Products by LICENSEE in
the Territory. LICENSEE acknowledges that the Licensed Marks and Player
Attributes possess a special, unique and extraordinary character which
makes difficult the assessment of the monetary damage which NBAP would
sustain as a result of the unauthorized use thereof. LICENSEE further
acknowledges that the unauthorized use of the Licensed Marks or Licensed
Attributes having a material adverse effect on the NBA Marks or Player
Attributes, will, in either case, cause immediate and irreparable damage
to NBAP for which NBAP would not have an adequate remedy at law.
Therefore, LICENSEE agrees that, in the event of a breach of this
Agreement by LICENSEE, in addition to such other legal and equitable
rights and remedies as shall be available to NBAP, NBAP shall be entitled
to seek injunctive and other equitable relief, without the necessity of
proving special damages or furnishing a bond or other security unless so
ordered by the Court.
16. NOTICES
All notices and statements to be given and all payments to be made under
this Agreement shall be given or made at the respective address of the
parties as set forth above, unless notification of a change of address is
given in writing. Any notice of breach or default must be in writing and
sent by facsimile or express delivery properly addressed. Any written
notice shall be deemed to have been given at the time it is confirmed
received, if sent by facsimile, or next business day if sent by express
delivery.
17. NO JOINT VENTURE
Nothing in this Agreement shall be construed to place the parties in the
relationship of partners or joint venturers. Neither party shall have the
power to obligate or bind the other to a third party in any manner
whatsoever.
18. ARBITRATION OF CERTAIN MATTERS
Any dispute or disagreement between the parties relating solely to the
amount of royalty payments owing under this Agreement shall be settled by
arbitration in New York City under the rules then in effect of the
American Arbitration Association. Judgment upon the award may be entered
in any court having jurisdiction. No other dispute or disagreement between
the parties (including any claim by NBAP that LICENSEE is using the
Licensed Marks in a manner not authorized by this Agreement or is
otherwise in
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breach of this Agreement) shall be settled by arbitration. All
decisions by NBAP relating to disapproval of any Licensed Product or
advertising, promotion or display material shall be final and binding
on LICENSEE and shall not be subject to review in any proceeding
except in the event LICENSEE claims that NBAP has used the approval
process to frustrate the purpose of this Agreement.
19. USE OF PLAYERS
(a) LICENSEE acknowledges that this Agreement does not grant to LICENSEE
any licenses or rights with respect to the use of Player Attributes
except on Licensed Product as expressly provided herein and in
advertising and promotional materials specifically approved by NBAP.
The license granted under this Agreement does not include, and shall
not be used to imply, a testimonial or endorsement of any Licensed
Products by any NBA player. LICENSEE shall not use Player Attributes
in any manner that is a testimonial or endorsement without first
obtaining written authorization from the subject player(s)
("Endorsement Rights"). LICENSEE shall not enter into any agreement
with any NBA player which would require that player to wear any
LICENSEE- identified item in or at any NBA game, competition or event
(either courtside or in any locker room).
(b) LICENSEE may enter into an "exclusive" Endorsement Rights agreement
with a current NBA player but acknowledges that, notwithstanding any
such exclusivity, under the group license agreement between NBAP and
the National Basketball Players Association (the "Group License"),
such player has no right to "opt-out" with respect to the trading
card category. Accordingly, LICENSEE further acknowledges that NBAP
shall continue to license to other trading card manufacturers the
right to use the Licensed Attributes of such player. Notwithstanding
the foregoing, NBAP shall not permit any other trading card
manufacturer to use the Licensed Attributes of any player for whom
LICENSEE has secured Endorsement Rights in any manner that is a
testimonial or endorsement of such other manufacturers product (e.g.,
use with greater prominence than other players depicted in the
materials submitted to NBAP for approval). In the event a new Group
License is entered into during the Term and the non opt-out
categories therein are expanded to include additional products that
are licensed under this Agreement (i.e., stickers), such products
shall be treated under this Agreement consistent with the principles
of this Paragraph.
(c) In the event any current NBA player retires or becomes inactive, or
enters into an exclusive license agreement with respect to an
"opt-out" category of products (e.g., stickers) that conflicts with
the rights granted hereunder, upon receipt of written notice from
NBAP that such a player has become inactive, or entered into a
conflicting exclusive license agreement, LICENSEE shall cease and/or
cause to cease the use of such players Licensed Attributes in the
manufacture, distribution, advertisement, promotion and sale of any
applicable Licensed Product within seventy (70) days of receipt of
NBAP's notice, said seventy (70) day period being commensurate with
the sell-off period provided in the Group License. In the event that
a new Group License is entered into during the Term and the sell-off
period therein is extended beyond seventy (70) days with respect to
any product category covered by this Agreement, NBAP agrees that the
sell-off period in this Paragraph 19(c) shall be similarly extended.
20. WARRANTIES
Each party represents and warrants that it has the right and authority to
enter into and perform this Agreement and NBAP represents and warrants
that it has the right to grant the rights to use the Licensed Marks and
Licensed Attributes. LICENSEE represents and warrants that all advertising
and promotional materials shall comply with all applicable laws,
regulations and standards. NBAP's approval of such materials will not
imply a representation or belief that NBAP believes such materials are
sufficient to meet applicable laws, regulations and standards, nor shall
it imply that NBAP agrees with or supports any claims mace by LICENSEE in
any advertising materials relating to the Licensed Products. LICENSEE
further represents and warrants that all advertising and promotional
materials and all graphics used on Licensed Products (other than materials
or properties supplied by NBAP) will not violate the intellectual property
rights of any third party.
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<PAGE>
21. SEVERABILITY
In the event any provision of this Agreement is found to be void, invalid
or unenforceable as a result of any judicial or administrative proceeding
or decree, this Agreement shall be construed or enforced as if such
provision were not contained in this Agreement.
22. [CONFIDENTIAL TREATMENT REQUESTED]
(a) If (x) as a result of the [CONFIDENTIAL TREATMENT REQUESTED].
(i) LICENSEE's aggregate minimum royalties shall be [CONFIDENTIAL
TREATMENT REQUESTED] of the minimum royalty for such Contract
Year [CONFIDENTIAL TREATMENT REQUESTED] with respect to the 1st
Contract Year); and
(ii) LICENSEE shall be [CONFIDENTIAL TREATMENT REQUESTED] of the
minimum royalty for such Contract Year, whereupon LICENSEE shall
[CONFIDENTIAL TREATMENT REQUESTED] made thereafter in accordance
with this Agreement [CONFIDENTIAL TREATMENT REQUESTED].
(b) If (x) [CONFIDENTIAL TREATMENT REQUESTED].
(c) With respect to any Contract Year in which [CONFIDENTIAL TREATMENT
REQUESTED].
(d) If Paragraph 23(a) [CONFIDENTIAL TREATMENT REQUESTED].
23. MISCELLANEOUS
(a) [CONFIDENTIAL TREATMENT REQUESTED]: In the event of a [CONFIDENTIAL
TREATMENT REQUESTED].
(b) Force Majeure: If in any country or region outside of North America,
either LICENSEE or NBAP shall have been prevented in whole, or in
part from performing its obligations under this Agreement as a result
of war, insurrection, national emergency, restrictions imposed by
law, or "acts of God" (a "Force Majeure"), then the performance of
such party disabled by said Force Majeure shall be suspended for the
duration of the Force Majeure or resultant period of disability (the
"Disability Period"); and provided that the disabled party shall
resume its affected performance as soon as possible after the
disability has been removed. However, if such Force Majeure prevents
performance for a period in excess of ninety (90) days, either party
may terminate this Agreement with respect to the country or region
affected by the Force Majeure upon thirty (30) days' written notice
served upon the other party not later than ten (10) days after the
elapse of the 90-day Disability Period. In the event of a termination
pursuant to this Paragraph 23(b), NBAP and LICENSEE shall in good
faith confer with each other to negotiate with respect to an
equitable adjustment to LICENSEE's obligations hereunder, including
an appropriate adjustment in Minimum Guarantees and/or A&P Minimums
with respect to the affected country or region, or other appropriate
adjustments to the Agreement. If NBAP and LICENSEE are unable to
agree on the equitable adjustment, then the parties shall proceed in
accordance with the process set forth in sub-paragraph 23(a) above.
(c) Assignment: This Agreement and any rights granted under this
Agreement are personal to LICENSEE and shall not be assigned,
sublicensed, subcontracted or encumbered, directly or indirectly, by
law or by contract, without NBAP's prior written consent (which shall
not be unreasonably withheld with respect to an affiliate or related
company of LICENSEE which is in the youth entertainment business),
which consent may, in NBAP's sole discretion, (i) be contingent upon
a fee payable by LICENSEE or the transferee (except with respect to
an affiliated or related company of LICENSEE), the amount of which
shall be determined by NBAP in its sole discretion, and/or (ii)
impose other terms and conditions upon the assignment, sublicense or
transfer (except with respect to an affiliated or related company
directly or indirectly wholly- owned by LICENSEE). Any transfer of a
controlling interest in LICENSEE or in any party which currently
controls LICENSEE, directly or indirectly, shall be deemed an
assignment prohibited by the preceding sentence. Any nonconsensual
assignment, sublicense, subcontract or encumbrance of this Agreement
by LICENSEE shall be invalid and of no force or effect. Upon
20
<PAGE>
any such nonconsensual assignment, sublicense or encumbrance, this
Agreement shall terminate, all payment obligations of LICENSEE
hereunder shall be accelerated and immediately due and payable, and
all rights granted under this Agreement shall immediately revert to
NBAP. NBAP acknowledges that, as of the date hereof, it has received
consideration from Marvel for the right to assume SkyBox's rights
under its existing license agreement with NBAP, in connection with
Marvel's acquisition of SkyBox.
(d) Waiver. None of the provisions of this Agreement can be waived or
modified except expressly by a writing signed by both parties. There
are no representations, promises, agreements, warranties, covenants
or undertakings by either party other than those contained in this
Agreement. No failure on the part of NBAP to exercise any right under
this Agreement shall operate as a waiver of such right; nor shall any
single or partial exercise of any right preclude any other or further
exercise or the exercise of any other rights.
(e) Survival: No expiration or termination of this Agreement shall
relieve LICENSEE of its obligation to pay NBAP any amounts due to
NBAP at the time of termination, regardless of whether these amounts
are then or thereafter payable. The provisions of Paragraphs 12 and
23(g) shall survive the expiration or termination of this Agreement.
(f) Governing Law and Jurisdiction: This Agreement shall be construed in
accordance with the laws of the State of New York, USA, without
regard to its principles of conflicts of laws. Any claim arising
under this Agreement (except as provided under Paragraph 18) shall be
prosecuted in a federal or state court of competent jurisdiction
located within the City of New York, USA and LICENSEE consents to the
jurisdiction of such court and to the service of process by mail.
(g) Confidentiality: Neither party shall (nor shall they permit or cause
their employees or agents to) divulge, disseminate or publicize
information relating to this Agreement or the financial or other
terms of this Agreement (including any information on the
specifications or methods of reproduction of the Licensed Marks) or
information exchanged between the parties hereunder to any third
party (other than their respective attorneys or accountants or the
NBA Board of Governors), except as may be required by law or to
fulfill the terms of this Agreement
(h) Construction: This Agreement has been executed in a text using the
English language, which text shall be controlling. This Agreement,
together with any exhibits or attachments, constitutes the entire
agreement and understanding between the parties and cancels,
terminates and supersedes any prior agreement or understanding
relating to the subject matter of this Agreement between LICENSEE and
the NBA, any Member Team, NBAP or NBAE. The headings in this
Agreement are for reference purposes only and shall not affect the
interpretation of this Agreement. This Agreement shall not be binding
on NBAP until signed on its behalf by its President or Senior Vice
President, Business Affairs.
# # #
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SCHEDULE A
NORTH AMERICA NBA MEDIA & EVENTS
<TABLE>
<CAPTION>
SkyBox Brands 1995-96 1996-97 1997-98 1998-99
- ------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
NBA Media [CONFIDENTIAL TREATMENT REQUESTED]
Youth Educational
Programs
All-Star
Jam Session
Team Card
Sheet Prog.
Broadcast Dinner
Additional Programs*
"TBD"
Fleer Brands
- -------------
NBA Media
All-Star
Jam Session
Jam Session
US Tour
Additional Programs*
"TBD"
</TABLE>
* The money to be expended with respect to Additional Programs and dollars
in excess of LICENSEE's annual minimum expenditure may be
cross-collateralized between Fleer and SkyBox and spent on spokesmen fees
paid to current NBA players, collateral material or other advertising or
promotional activities directly related to LICENSEE's NBA card business.
NBA product may also be represented in a multi-league retail promotion
(i.e., MLB, NBA, NFL and/or NHL), subject to NBAP's prior approval in each
instance, and the NBA pro rata expenditure credited against LICENSEE's
Additional Program obligation. On a quarterly basis, LICENSEE shall
furnish NBAP with a written statement that sets forth the amount expended
(and describing the activity) on the foregoing activities for the
preceding quarter.
22
AGREEMENT
This Agreement is made and entered into this 30th day of June, 1995,
by and between SkyBox International Inc. with offices at 300 North Duke Street,
P.O. Box 30009, Durham, NC 27702-3009 (hereinafter "Licensee"), and NATIONAL
FOOTBALL LEAGUE PLAYERS INCORPORATED, a corporation with offices at 2021 L
Street, N.W., Washington, D.C. 20036 (hereinafter "Players Inc" or "Licensor").
This Agreement shall be effective as of March 1, 1995.
WITNESSETH:
1. REPRESENTATIONS.
(A) Players Inc represents that it has been duly appointed and is
acting on behalf of the football players of the National Football League who
have entered into a Group Licensing Authorization which has been assigned to
Players Inc, either in the form attached hereto as Attachment "A" or through
the assignment contained in Paragraph 4(b) of the NFL Player Contract, and that
in such capacity it has the right to negotiate this contract and the right to
grant rights and licenses described herein. Licensee acknowledges that Players
Inc also on occasion secures authorization for inclusion in Players Inc
licensing programs from players who have not entered into such Group Licensing
Authorization, but who, nevertheless, authorize Players Inc to represent such
players for designated Players Inc licensed programs.
(B) Players Inc makes no representation that it has the authority to
grant, nor does it grant herein, the right to utilize any symbols, insignias,
logos, or other identifying names or marks of the National Football League
(hereinafter "NFL") and/or any of its member clubs. Accordingly, it is
understood by the parties hereto that if likenesses of players are to be used
by Licensee in conjunction with any symbols, insignia, or logos of the NFL or
any of its member clubs, in the exercise of the License granted hereunder, it
will be the responsibility of Licensee to obtain such permission as may be
necessary for the use of such material from the NFL or the club(s) in question.
Licensor retains all rights not expressly and exclusively granted to Licensee
hereunder.
2. GRANT OF LICENSE.
(A) Upon the terms and conditions hereinafter set forth, Players Inc
hereby grants to Licensee and Licensee hereby accepts the non-exclusive right,
license and privilege of utilizing the logo(s), name(s), and symbol(s) of
Players Inc and the names, likenesses, pictures, photographs, voices, facsimile
signatures, descriptions, and/or biographical sketches of the NFL players
listed in Attachment "B", for product(s) in the form of football player trading
cards and collector's aids products (hereinafter referred to as "the licensed
product(s)"). Provided, however, that the specific manner in which the rights
licensed hereunder are to be used on the licensed product(s) in question shall
require the prior written consent of Players Inc.
(B) The rights, licenses and privileges granted by Players Inc
hereunder shall not constitute, or be used by Licensee as a testimonial or an
endorsement of any or product, service, or event by all or any of the players,
or by Players Inc. In the event Licensee is interested in securing an
individual player's personal endorsement, Licensee agrees and acknowledges that
such endorsement will require the personal approval of the individual player
and Players Inc and a separate payment made through Players Inc to such player.
Licensee agrees and acknowledges that any player who is committed individually
by contract for products or services competitive with those of Licensee may be
required to cease from further inclusion in this Agreement.
<PAGE>
3. RETAIL LICENSE ONLY. The above-referenced Grant of Rights applies only to
the manufacture and distribution of licensed product(s) for retail sale, and
shall not permit the use of licensed product(s) as "premium items" to be
included with non-licensed product(s), services or events to promote the sale
of such non-licensed product(s), services or events; provided, however, that
Licensee shall be permitted to promote the sale of licensed product(s), subject
to prior written approval by Players Inc and in a manner consistent with the
provisions of the Agreement. Any such premium promotion using the licensed
product(s) herein shall require a separate agreement between Players Inc and
any sponsor of the promotion, with separate terms and conditions, and nothing
contained herein shall obligate either Players Inc or Licensee to enter into
such an agreement.
4. TERRITORY. Licensee shall have the right to utilize the rights granted
hereunder for distribution of the licensed product(s) in the following
territory: United States, its territories and possessions, and Canada.
5. TERM.
(A) The term of this Agreement shall extend from March 1, 1995 to
February 28, 1997 (hereinafter referred to as Original License Period) unless
terminated in accordance with the provisions hereof. Licensee may renew this
Agreement for an Additional License Period from March 1, 1997 to February 28,
1998, provided Licensee has faithfully fulfilled its obligations hereunder in
the Original License Period. Notice of desire to renew shall be given by
Licensee no later than January 1, 1997 in the Original License Period.
(B) Licensee acknowledges and agrees that Licensee has and shall have
no right to extend or renew this Agreement beyond the term and renewal options,
if any, stated herein. No conduct by either Licensor or Licensee (including
without limitation, any approvals granted pursuant to Paragraph 12 hereof)
shall create, imply or infer a new license agreement or an extension of the
stated term and renewal options, if any, of this Agreement, unless same is
specifically set forth in a written agreement signed by both Licensor and
Licensee. Licensee's agreement that this Agreement is subject to the term and
renewal options, if any, stated herein, in all events whatsoever, is a material
inducement for Licensor to enter into this Agreement.
6. ROYALTY PAYMENT.
(A) Licensee agrees to pay Players Inc a guaranteed royalty of
[CONFIDENTIAL TREATMENT REQUESTED] for its use of the rights licensed hereunder
for the Original License Period and a guaranteed royalty of [CONFIDENTIAL
TREATMENT REQUESTED] the Additional License Period, if applicable. The
guaranteed royalty shall be paid as follows:
(i) For the Original License Period, [CONFIDENTIAL TREATMENT
REQUESTED] upon the execution of this Agreement,
[CONFIDENTIAL TREATMENT REQUESTED] on or before [CONFIDENTIAL
TREATMENT REQUESTED] on or before [CONFIDENTIAL TREATMENT
REQUESTED] on or before [CONFIDENTIAL TREATMENT REQUESTED] on
or before [CONFIDENTIAL TREATMENT REQUESTED].
(ii) For the Additional License Period, if applicable,
$650,000 on or before March 1, 1997, and $650,000 on or
before September 1, 1997.
(B) Such guaranteed royalty payments shall be made by Licensee as
specified hereinabove whether or not Licensee uses the rights licensed
hereunder, and no part of such guaranteed payments shall be repayable to
Licensee.
(C) Licensee shall also pay to Players Inc an amount equal to
[CONFIDENTIAL TREATMENT REQUESTED]. The guaranteed payments for the Original
License Period shall be calculated annually and
2
<PAGE>
separately [CONFIDENTIAL TREATMENT REQUESTED]. For example, the [CONFIDENTIAL
TREATMENT REQUESTED]. Royalties shall be calculated on a quarterly basis and
shall be due as of the last day of each May, August, November, and February of
this Agreement and must be paid no later than fifteen (15) days following such
due dates. Gross sales shall be calculated based on the standard price(s)
charged by Licensee to the retailer directly or to the wholesaler in an arms
length transaction. Licensee shall transact no sale, the effect of which is to
reduce the royalty paid by Licensee to Players; provided, however, that
Licensee shall be permitted to provide arms length discounts, allowances and
returns which are normal and customary. Gross sales shall exclude only such
normal and customary discounts, allowances and returns. In addition to all
other rights contained in this Agreement, Players Inc shall be entitled to
collect and Licensee shall [CONFIDENTIAL TREATMENT REQUESTED] on all guarantee
or royalty payments not timely made to Players Inc by Licensee.
7. PERIODIC STATEMENTS.
(A) Licensee shall furnish to Players Inc, no later than fifteen (15)
days following the last day of each May, August, November, and February of this
Agreement, a complete and accurate statement certified to be accurate by an
officer of Licensee, showing the number, description and gross purchase price,
of the licensed product(s) distributed by Licensee during the preceding
quarterly reporting period described in Paragraph 6(C) herein, together with
any returns made during such reporting period. Once in every twelve-month
period, Licensee shall furnish Players Inc with a detailed statement certified
by an officer of Licensee, showing the number of gross sales of the licensed
product(s) covered by this Agreement.
(B) Such statements shall be furnished to Players Inc whether or not
any of the licensed product(s) have been purchased during the reporting period
for which such statement is due. The receipt or acceptance by Players Inc of
any statement or of any royalty paid hereunder (or the cashing of any royalty
check paid hereunder) shall not preclude Players Inc from questioning the
correctness thereof at any time, and in the event any inconsistencies or
mistakes are discovered in connection therewith, they shall immediately be
rectified and the appropriate payment made by Licensee.
8. BOOKS AND RECORDS.
(A) For a period of two (2) years following the termination or
expiration of this Agreement, Licensee shall maintain accurate books and
records for itself and any subsidiary or affiliated entity with respect to its
sale of licensed product(s) under this Agreement. Said books and records shall
be subject to inspection and audit by Players Inc or its duly authorized
representative at reasonable times upon reasonable notice from Players Inc to
Licensee. In addition and similarly, Licensee shall cause any entity from which
it contracts for services or production of product to cause its books and
records to be available for audit and inspection by Players Inc to the extent
necessary to confirm the audit of Licensee. Licensee shall not interfere with
such inspections and audits in any way.
(B) The cost of such inspections and audits shall be paid by Licensee
if the result of such inspections and audits indicates a difference of 2% or
more, when compared to the statement certified to be accurate by an officer of
Licensee, as required by Paragraph 7(A) of this Agreement, for the twelve month
period covered by such statement, or shall be paid by Players Inc if such
difference is less than 2%.
(C) In the event any inconsistencies or mistakes are discovered as a
result of such inspections and audits, they shall immediately be rectified and
the appropriate payment made by Licensee.
9. PAYMENT AND NOTICES: All transactions under this Agreement, including
without limitation all payment of royalties and all notices, reports,
statements, approvals and other communications, shall be with or made payable
in the name of NATIONAL FOOTBALL LEAGUE PLAYERS INCORPORATED, 2021 L Street,
N.W.,
3
<PAGE>
Washington, D.C. 20036, or its assignee where applicable. All correspondence,
notices, approvals and other communications to Licensee shall be with SkyBox
International Inc., Executive Plaza, Suite 300, 1120 Route 73, Mt. Laurel, NJ
08054.
10. INDEMNIFICATION.
(A) Licensee agrees that it will not during the term of this
Agreement, or thereafter, attack the rights of Players Inc in and to the
logo(s), name(s) and symbol(s) of Players Inc or any of the rights licensed
hereunder, or attack the validity of this Agreement.
(B) Licensee further agrees to assist Players Inc to the extent
necessary in the procurement of any protection or to protect any of the rights
conveyed hereunder, and Players Inc, if it so desires, may commence or
prosecute at its own expense any claims or suits in its own name or in the name
of Licensee or join Licensee as a party thereto. Licensee shall notify Players
Inc in writing of any infringement by others of the rights covered by this
Agreement which may come to Licensee's attention, and Players Inc shall have
the sole right to determine whether or not any action shall be taken on account
of any such infringement. Licensee shall not institute any suit or take any
action on account of any such infringement without first obtaining the written
consent of Players Inc to do so and Players Inc shall reasonably consider any
such request.
(C) Licensee for its own acts hereby indemnities Players Inc and
undertakes to defend Players Inc from and against any claims, suits, losses,
damages, and expenses (including reasonable attorney's fees and expenses)
arising out of the manufacture, marketing, sale, distribution, or use of the
licensed product(s) which are the subject of this Agreement. Licensee agrees to
obtain, at its own expense, product liability insurance, providing adequate
protection for Licensee and Players Inc against any such claims or suits in
amounts not less than Three Million Dollars ($3,000,000.00). Within thirty (30)
days from the date hereof, Licensee shall submit to Players Inc a fully paid
policy or certificate of insurance naming Players Inc as an insured party,
requiring that insurer will not terminate or materially modify such without
written notice to Players Inc at least twenty (20) days in advance thereof.
(D) Players Inc hereby indemnities Licensee and undertakes to defend
Licensee against, and hold Licensee harmless from any liabilities, losses,
damages, and expenses (including reasonable attorney's fees and expenses)
resulting from claims made or suits brought against Licensee based upon the use
by Licensee of the logo or the rights strictly as authorized in this Agreement.
11. COPYRIGHT AND TRADEMARK NOTICES.
(A) Licensee shall prominently place or cause to be placed Licensor's
registered trademark on the licensed products and on packaging, wrapping,
advertising (both print and media), and any other material, including trade
show booths and exhibits in connection with such licensed product(s) publicly
distributed under this Agreement.
(B) Licensor's registered trademark appearing on the licensed
product(s) and on all materials in connection with the licensed product(s)
shall be the mark provided to Licensee by Licensor in precisely the form
supplied, without variation, with the letter R enclosed within a circle.
Further, Licensee shall provide to Licensor the date of the first use of such
licensed product(s) in intrastate and interstate commerce.
(C) Additionally, Licensee shall imprint or cause to be imprinted the
following text on any such licensed product(s) and/or materials therefor:
"Officially Licensed Product of the
4
<PAGE>
National Football League Players",
or
"Officially Licensed Product of
Players Inc"
The specific text imprinted shall be subject to Licensor's sole
discretion.
12. APPROVALS.
(A) Attachment "B" hereto shall be established and may be modified in
the following manner:
(i) Upon execution of this Agreement, and thereafter annually
by December 15 of each calendar year covered by this
Agreement, Licensee shall submit to Players Inc a proposed
list of players' names for inclusion in Attachment "B" for
the upcoming football season.
(ii) Players Inc shall respond to such submissions in writing
to Licensee, signifying approval or disapproval in the case
of each player's name so requested.
(iii) Licensee may submit requests in writing to Players Inc
for additions, deletions, or substitutions of players' names
contained in Attachment "B" and Players Inc shall respond to
such requests within a reasonable period of time.
(B) The Licensee agrees to furnish Players Inc free of cost for its
written approval as to quality and style, samples of each of the licensed
product(s), together with their packaging, hangtags, and wrapping material,
before their manufacture, sale or distribution, whichever occurs first, and no
licensed product(s) shall be manufactured, sold or distributed by the Licensee
without such written approval. Players Inc shall respond in writing to requests
for such approval from Licensee within 15 business days. Any request by
Licensee for such approval which is received by Players Inc and is not
responded to within 15 business days shall be deemed approved by Players Inc.
Subsequent to final approval, a reasonable number of production samples of
licensed product(s) will periodically be sent to Players Inc to insure quality
control, and should Players Inc require additional samples for any reason,
Players Inc may purchase such at Licensee's cost.
Licensee shall also provide to Players Inc free of charge the
following:
(i) Prior to December 1 of each License Period, for each
player included in Attachment "B", 100 copies of his
individual card and one complete set of all player cards
produced for that License Period;
(ii) Prior to December 1 of each License Period for Players
Inc, three (3) cases of count goods and two (2) dozen
complete sets of all player cards produced for that License
Period.
(C) Licensee may choose to use player names and/or likenesses on or in
any material pertaining to packaging, hangtags, wrapping material, print ads,
flyers, point-of-purchase displays, press releases, catalogues, trade show
booths and exhibits or any other written material which incorporates player
names and/or likenesses; provided, however, that such use shall require the
prior written approval of Players Inc. The number of players included in any
such use, if approved, shall be a minimum of six and a maximum of twenty, and
shall be selected from Attachment "B". Player names and/or likenesses so used
shall be written or displayed with equal prominence.
5
<PAGE>
(D) Licensee may choose to use player names and/or likenesses
(including, without limitation, action footage) in radio or television
commercials; provided, however, that such use shall require the prior written
approval of Players Inc. The number of players included in such commercials, if
approved, shall be a minimum of six and a maximum of twenty and shall be
selected from Attachment "B". The players used in such commercials shall be
shown with equal prominence. Licensee agrees to furnish Players Inc all scripts
and story boards for proposed radio and television commercials in connection
with the promotion of the licensed product(s), and the content of such scripts
and story boards shall require the prior written approval of Players Inc before
any commercials shall be made or shall be contracted for by Licensee.
(E) Players whose names and/or likenesses are used in accordance with
this Paragraph 12, in any radio or television commercials, print ads,
point-of-purchase displays, packaging, hangtags, wrapping material, press
releases, catalogues, flyers, trade show booths and exhibits or any other
written material or medium, to promote licensed product(s), shall be paid
individually, separate from and in addition to any guarantees or royalty
payments contained in this Agreement. The amount of such payment shall be
subject to mutual agreement by Players Inc and Licensee and payment shall be
sent to Players Inc. All contacts with such players or their agents shall be
made by Players Inc.
(F) Notwithstanding anything to the contrary hereinabove, Licensee
shall be permitted, without additional separate payment to Players Inc for
players, to show on counter card boxes: (1) six or more examples of the
football trading cards licensed herein, and/or (2) a list of six or more
players' names whose images or likenesses are used on the football trading
cards licensed herein; provided, however, that such cards are shown with equal
prominence, and provided further, however, that Players Inc shall retain all
rights to prior written approval contained hereinabove.
(G) In the event Licensee wishes to secure individual players to make
appearances to promote licensed product(s) or to autograph licensed product(s)
the selection of such player(s) and the separate fee to be paid to such
player(s) shall be subject to mutual agreement between Licensee and Players
Inc. Players Inc will attempt to secure the services of player(s) requested,
and all contact with requested player(s) or their agents shall be made by
Players Inc. Once the player(s) has made the appearance, payment shall be made
to Players Inc. Any such payments to player(s) shall be separate from and in
addition to any royalties paid by Licensee under this Agreement.
13. NON-INTERFERENCE. Licensee agrees and acknowledges that it shall not secure
or seek to secure, directly from any player who is under contract or seeking to
become under contract to an NFL club, or from such player's agent, permission
or authorization for the use of such player's name, facsimile signature, image,
likeness, photograph or biography in conjunction with the licensed product(s)
herein.
14. GOODWILL.
(A) Licensee recognizes the great value of the goodwill associated
with the logo(s), name(s), and symbol(s) of Player Inc, and acknowledges that
such goodwill belongs exclusively to Players Inc and that said logo(s),
name(s), and symbol(s) have a secondary meaning in the mind of the public.
(B) Licensee agrees that all elements (including all material of any
nature utilizing in any way the rights licensed hereunder, including but not by
way of limitation, all packages, cartons, point of sale material, newspaper and
magazine advertisements) of the licensed product(s) shall be of high standard
and of such style, appearance and quality as to be adequate and suited to the
best advantage and to the protection and enhancements of such rights; that the
marketing of the licensed product(s) will be conducted in accordance with all
applicable federal, state and local laws; and that the licensed product(s) and
their exploitation shall be of high standard and to the best advantage and that
the same in no manner reflect adversely upon the good name of Players Inc.
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<PAGE>
15. SPECIFIC UNDERTAKINGS OF LICENSEE.
(A) Licensee agrees that every use of the rights licensed hereunder by
Licensee shall inure to the benefit of Players Inc and that Licensee shall not
at any time acquire any title or interest in such rights by virtue of any use
Licensee may make of such rights hereunder.
(B) All rights relating to the rights licensed hereunder are
specifically reserved by Players Inc except for the License herein granted to
Licensee to use the rights as specifically and expressly provided in this
Agreement.
(C) Upon expiration or termination of this Agreement, all rights
granted hereunder shall immediately revert to Players Inc, and Licensee will
refrain from further use of such rights or any further reference thereto,
direct or indirect, except as provided in Paragraph 16(E) below. Licensee
acknowledges that its failure to cease the use of such rights at the
termination or expiration of this Agreement will result in immediate and
irreparable damage to Licensor, and/or individual National Football League
player(s), and to the rights of any subsequent licensee(s).
(D) Licensee agrees to spend the following total amounts on activities
which stimulate and promote the market for licensed product(s), subject to
prior written approval by Players Inc of such activities:
[CONFIDENTIAL TREATMENT REQUESTED].
Such activities shall include, but not be limited to, sponsorships,
promotions, player appearances, and special events. Licensee shall provide
documentation that such approved expenditures have been made. The expenditure
documentation shall be provided on a quarterly basis and shall be certified by
an officer of Licensee. Such documentation shall be subject to inspection and
audit by Players Inc on the same basis as Licensee's books and records.
16. TERMINATION BY PLAYERS INC
(A) In the event Licensee does not commence in good faith to cause the
manufacture, distribution, and sale of the licensed product(s), in substantial
quantities on or before August 1, 1995, Player Inc, in addition to all other
remedies available to it shall have the option to terminate the License granted
hereunder upon written notice of such termination to Licensee.
(B) In the event Licensee files a petition in bankruptcy or is
adjudicated as bankrupt, or if a petition in bankruptcy is filed against
Licensee or if Licensee becomes insolvent, or makes an assignment for the
benefit of its creditors or an arrangement pursuant to any bankruptcy laws, or
if Licensee discontinues its business, or if a receiver is appointed for it or
its business, all rights granted hereunder, without notice, shall terminate
automatically upon the occurrence of any such event. In the event of such
termination, neither Licensee nor its receivers, representatives, trustees,
agents, administrators, successors, and/or assigns shall have any right to
sell, exploit or in any way deal with the rights granted hereunder or with any
licensed product(s), or any carton, container, packaging or wrapping material,
advertising, promotional or display material pertaining to any licensed
product(s).
(C) If Licensee shall violate any of its other obligations under the
terms of this Agreement, Players Inc shall have the right to terminate this
Agreement upon fifteen (15) days' notice in writing, and such notice of
termination shall become effective unless Licensee shall completely remedy the
violation within the fifteen (15) day period and shall provide reasonable proof
to Players Inc that such violation has been remedied. If this Agreement is
terminated under this paragraph, all royalties theretofore accrued shall become
due and payable immediately to Players Inc, and Players Inc shall not be
obligated to reimburse Licensee for any royalties paid by Licensee to Players
Inc.
7
<PAGE>
(D) Failure to resort to any remedies referred to herein shall not be
construed as a waiver of any other rights and remedies to which Players Inc is
entitled under this Agreement or otherwise.
(E) Upon termination of this Agreement, Licensee shall have ninety
(90) days to dispose of and liquidate all inventory. This inventory shall not
be available for retail distribution to consumers after this ninety (90) day
period expires. Such disposition shall conform to this Agreement in all
respects. Players Inc shall have right to conduct a physical inventory at the
time of termination if it so elects.
17. PARTNERSHIP. Nothing herein contained shall be construed to place Players
Inc and Licensee in the rela- tionship of partners or joint venturers, and
Licensee shall have no power to obligate or bind Players Inc in any manner
whatsoever.
18. WAIVER AND/OR MODIFICATION. None of the terms of this Agreement shall be
waived or modified except by an express agreement in writing signed by both
parties. There are no representations, promises, warran- ties, covenants or
undertakings other than those contained in this Agreement, which represents the
entire understanding of the parties. No written waiver shall excuse the
performance of an act other than those specified therein. The failure of either
party hereto to enforce, or delay by either party in enforcing any of its
rights under this Agreement shall not be deemed a continuing waiver or
modification thereof and either party may, within the time provided by
applicable law, commence appropriate legal proceedings(s) to enforce any or all
of such rights.
19. NON-ASSIGNABILITY. This Agreement and all rights and duties hereunder are
personal to Licensee and shall not, without written consent of Players Inc, be
assigned, mortgaged, sublicensed or otherwise encumbered by Licensee or by
operation of law to any other person, or entity. Upon any such attempted
unapproved assignment, mortgage, license, sublicense or other encumbrance this
Agreement shall terminate and all rights granted to Licensee hereunder shall
immediately revert to Players Inc. In addition, Players Inc may terminate this
Agreement, at its sole discretion, in the event that Licensee is merged,
consolidated, transfers all or substantially all of its assets, or implements
or suffers any material change in executive management or control, or upon any
transfer of more than twenty-five percent (25%) of its voting control. If, in
its sole discretion, Players Inc shall exercise such termination, all rights
granted to Licensee hereunder shall immediately revert to Players Inc.
20. CONSTRUCTION. This Agreement is made within the District of Columbia and
shall be construed in accordance with the laws of the District of Columbia and
the United States of America.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as of the day
and date written first above.
The Foregoing is Acknowledged:
NATIONAL FOOTBALL LEAGUE SKYBOX INTERNATIONAL INC.
PLAYERS INCORPORATED
By: By:
---------------------------- --------------------------
Title: Title:
---------------------------- --------------------------
8
<PAGE>
ATTACHMENT "A"
TEAM:
----------------------------
NFL PLAYERS ASSOCIATION
GROUP LICENSING ASSIGNMENT
The undersigned player, a member of the National Football League
Players Association ("NFLPA"), hereby assigns to the NFLPA and its licensing
affiliates, if any, the exclusive right to use and to grant to persons, firms
or corporations (collectively "licensees") the right to use his name, signature
facsimile, voice, picture, photograph, likeness and/or biographical information
(collectively "image") in group licensing program. Group licensing programs are
defined as those licensing programs in which a licensee utilizes a total of six
(6) or more NFL player images in conjunction with or on products that are sold
at retail or used as promotional or premium items. The undersigned player
retains the right to grant permission to a licensee to utilize his image if
that licensee is not concurrently utilizing the images of five (5) or more
other NFL players in conjunction with or on products that are sold at retail or
are used as promotional or premium items. If the undersigned player's inclusion
in a particular NFLPA program is precluded by an individual exclusive
endorsement agreement, and the undersigned player provides the NFLPA with
timely notice of that preclusion, the NFLPA agrees to exclude the undersigned
player from that particular program.
In consideration for this assignment of right, the NFLPA agrees to use
the revenues it receives from group licensing programs to support the
objectives as set forth in the By-laws of the NFLPA. The NFLPA further agrees
to use its best efforts to promote the use of NFL player image in group
licensing programs, to provide group licensing opportunities to all NFL players
and to ensure that no entity engages in a group licensing program without first
obtaining a license from the NFLPA. The NFLPA makes no representations
regarding group licensing other than those expressed herein. This agreement
shall be construed under New York law.
<PAGE>
This assignment shall expire on December 31, 1998 and may not
be revoked or terminated by the undersigned player until such date.
Dated:
-------------------------------- --------------------------------
Player's Signature
Agreed to by the NFLPA: --------------------------------
Player's Name (PLEASE PRINT)
- --------------------------------
Name
- --------------------------------
Title
--------------------------------
--------------------------------
Player's Autograph
2
<PAGE>
AMENDMENT TO LICENSE AGREEMENT
This Amendment is made and entered into as of this 30th day of June, 1995
by and between SkyBox International Inc. ("Licensee") and National Football
League Players Incorporated. ("Players Inc").
1. This Amendment shall serve as an amendment,to the License
Agreement entered into by Licensee and Players Inc on June 30th, 1995 (the
"License Agreement"). This Amendment shall be effective as of March 1, 1995 and
shall expire on February 29, 1996.
2. Licensee hereby reaffirms that Paragraph 13 of the License
Agreement, titled Non-Interference, (hereinafter referenced as the
"Non-Interference Clause") has been, and continues to be, a valid and binding
provision of the License Agreement. Nothing set forth in this Amendment shall
be construed in any way as a waiver, repudiation, or nullification of the
Non-interference Clause by Players Inc or Licensee.
3. In accordance with the settlement of an action brought by
the NFLPA against NFL Properties in Federal Court in The Southern District of
New York, styled National Football League Players Association v. National
Football League Properties, et al., 90 Civ. 4244 (MJL), Players Inc agrees that
Licensee may, pursuant to and without thereby violating the License Agreement,
manufacture, market, distribute, and sell the licensed product(s) as defined in
the License Agreement, for the current license period utilizing the image,
likeness, photograph, facsimile signature and/or biographical information of
the members of the NFL Quarterback Club listed in Exhibit A hereto in
conjunction with the licensed products; provided, however, that any licensed
products produced by Licensee which contain players listed on Exhibit A hereto
are subject to the terms contained in the License Agreement, including, but not
limited to, Paragraph 12 -- APPROVALS. All such licensed products must relate
directly to the 1995 football season. NFL Properties has agreed, as part of the
settlement of the Properties action, to license the players listed on Exhibit A
hereto to Licensee on a royalty free basis.
4. Licensee shall pay the full royalties owed to Players Inc
in accordance with the License Agreement, including, without limitation,
royalties for any licensed products sold by Licensee that utilize the
identities of the players listed in Exhibit A hereto and, subject only to
Paragraph 6 of the License Agreement, shall make no deduction nor pro-ration,
of those royalties for any reason whatsoever.
5. Licensee expressly warrants and represents that prior to
inclusion in licensed products of the players listed on Exhibit A for the
current license period, it will obtain from NFL Properties, agent for the NFL
Quarterback Club, the non-exclusive right to utilize the image, likeness,
photograph, facsimile signature and/or biographical information of the players
listed in Exhibit A hereto. To obtain such right Licensee must: (i) deal
directly with NFL Properties, on behalf of the NFL Quarterback Club; and (ii)
accept NFL Properties standard form licensing agreement for NFL Quarterback
Club licenses; provided, however, that such form licensing agreement shall not
provide for or require Licensee to make any payment to any entity or person for
such right.
6. Licensee indemnifies Players Inc and undertakes to defend
Players Inc against, and hold Players Inc harmless from any liabilities,
losses, damages and expenses (including reasonable attorney's fees and cost of
suit) resulting from any and all claims, causes of action or suits brought
against Players Inc based upon the exercise by Licensee of the rights obtained
by it to manufacture, market and sell any licensed products utilizing the
players listed on Exhibit A hereto. Players Inc shall have the right to approve
of counsel selected pursuant to this Paragraph 6, which approval shall not
unreasonably be withheld.
7. Licensee agrees that it will continue to abide by all
terms of the License Agreement.
8. It is hereby agreed that to the extent that this Amendment
shall conflict with the License Agreement, the terms of this Amendment shall
govern. In all other respects, the parties hereto agree that the License
Agreement shall remain in full force and effect.
<PAGE>
9. Each party hereto acknowledges: (i) that it is voluntarily
entering into this Amendment; (ii) that it has had the benefit of counsel of
its choice in connection with the negotiation and execution of this Amendment;
and (iii) that it has neither sought nor obtained any inducements or other
consideration beyond that which is contained herein.
10. This Amendment may not be amended, modified or altered
except by a writing executed by duly-authorized officers of each party.
11. This Amendment shall be governed by, and construed in
accordance with, the law of the District of Columbia. Any dispute or litigation
arising out of relating to this Amendment may be brought in the Superior Court
of the District of Columbia, which the parties hereby agree shall have
jurisdiction and venue over any such claim.
12. If any portion of this Amendment is deemed void or
unenforceable for any reason whatsoever, the remaining terms and conditions of
this Amendment shall remain in full force and effect.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as
of the day and date written first above.
SKYBOX INTERNATIONAL INC.
By:
------------------------------
Title:
----------------------------
NATIONAL FOOTBALL LEAGUE
PLAYERS INC
By:
------------------------------
Title:
----------------------------
3
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<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.
<MULTIPLIER> 1,000,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<EXCHANGE-RATE> 1
<CASH> 36
<SECURITIES> 0
<RECEIVABLES> 292
<ALLOWANCES> 35
<INVENTORY> 99
<CURRENT-ASSETS> 501
<PP&E> 123
<DEPRECIATION> 35
<TOTAL-ASSETS> 1,260
<CURRENT-LIABILITIES> 920
<BONDS> 0
0
0
<COMMON> 1
<OTHER-SE> 180
<TOTAL-LIABILITY-AND-EQUITY> 1,260
<SALES> 581
<TOTAL-REVENUES> 581
<CGS> 372
<TOTAL-COSTS> 372
<OTHER-EXPENSES> 184
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 44
<INCOME-PRETAX> (15)
<INCOME-TAX> (1)
<INCOME-CONTINUING> (28)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (28)
<EPS-PRIMARY> $(0.27)
<EPS-DILUTED> 0
</TABLE>
